Innovative Industrial Properties (IIPR) has had an eventful year so far. After recently reporting strong earnings, the stock rocketed to an all-time high of $164.99 earlier this month.
This week the company announced that it extended its long-term real estate relationship with Kings Garden, one of California’s top cannabis producers. IIPR acquired a property for $25.4 million, in San Diego, CA, and entered into a long-term, triple-net lease at the property with Kings Garden. The cannabis producer intends to operate the property as a licensed cannabis cultivation and distribution facility upon completion of redevelopment.
The property comprises approximately 192,000 square feet of industrial space. In addition to the purchase, Kings Garden is expected to complete additional tenant improvements for the property, for which IIPR has agreed to provide reimbursement of up to $25.0 million. In addition to this new property, IIPR leases five other properties to Kings Garden, representing approximately 364,000 square feet of industrial space and a total commitment of approximately $95.0 million.
Paul Smithers, President and Chief Executive Officer of IIPR, said, “Kings Garden is one of the preeminent operators in California, and has pioneered industry best practices to develop the highest quality and consistency in its cannabis products. We are thrilled to expand our long-term real estate partnership and support Kings Garden in significantly enhancing their capacity through the redevelopment of this new facility to Kings Garden’s exacting environmental controls and specifications.”
IIPR does most of its business with medicinal cannabis companies, which tend to offer more stable revenue streams. The company partners with experienced medical-use cannabis operators and serves as a source of capital by acquiring and leasing back their real estate assets, as well as offering other creative real estate-based capital solutions.
Michael King, Chairman, and CEO of Kings Garden said, “IIP has been a powerful partner for us, enabling us to expand operations in the largest cannabis market in the world. Kings Garden prides itself on working with only the best and IIP is on a different level from all others, working collaboratively with us to facilitate a smooth transaction.”
He also stated, “Our partnership with IIP provides us with strategic, non-dilutive capital to continue to leverage our expertise as purveyors of world-class cannabis products, to further increase our reach to patients and customers throughout California. We expect this new facility to increase our production capacity by more than double, adding approximately 50,000 pounds of finished cannabis on an annual basis.”
California is one of the most lucrative cannabis markets in the United States and is expected to grow tremendously over the next few years. According to BDS Analytics, through September 30, 2020, California generated over $2.6 billion in regulated cannabis sales, which is expected to grow to nearly $7.4 billion by 2025.
And according to Marijuana Business Daily, while only 168 of California’s 540 cities and counties allow for regulated cannabis companies to operate within their borders as of June, dozens of city and county initiatives were approved by voters this month, which are expected to further increase demand for regulated cannabis products throughout the state.
The company has been on a tremendous acquisition spree that has fueled its success. As of November 16, 2020, IIPR owns 64 properties located through the U.S. With an acquisition fueled business model, I anticipate that IIPR will continue to announce more exciting acquisitions.
As we move into 2021, I see IIPR continuing to benefit from their already proven business model and more favorable environment for cannabis overall with a Democratic administration in the White House. With double-digit CAGR in the total cannabis sector, IIPR could be one of the better ways to capitalize on future growth.
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IIPR shares . Year-to-date, IIPR has gained 107.11%, versus a 11.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles.
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