Is Investing in Cannabis Real Estate Better Than Investing in Cannabis Growing Operations?

Savvy investors are now questioning whether it is more prudent to invest in businesses that provide the land and buildings necessary to grow cannabis or the uber-popular cannabis growing operations.  Those who abide by conventional investing logic typically argue it makes more sense to invest in the businesses growing cannabis simply because consumers are willing to pay a premium for high-quality cannabis.  However, there is plenty of money to be made by owning cannabis real estate and renting it out to growers. In fact, businesses on the real estate side of the cannabis industry have the potential to outperform those who grow the sticky green.

Consider the Story of Innovative Industrial Properties (IIPR)

Those in favor of investing in cannabis real estate rather than cannabis growers often point to Innovative Industrial Properties (IIPR) as proof of concept.  IIPR’s stock has skyrocketed since 2018 when it was priced at a mere $24.  Though IIPR dipped down to $59 during the coronavirus sell-off this spring, the stock now trades around $100.  It is clear that cannabis investors are beginning to understand there is considerable money to be made in cannabis real estate in addition to cannabis growing businesses. 

To be more specific, IIPR is a real estate investment trust (REIT) primarily focused on cannabis.  IIPR purchases facilities that grow/process cannabis.  The company then leases these buildings for a decade or two, rakes in the rental income and tacks on yearly rent hikes in the range of 3% to 5% per year.  This is quite the prudent business model and a sterling example of why it might be better to invest in cannabis real estate as opposed to cannabis growing operations.

Are There Other Cannabis Real Estate Opportunities?

At the moment, IIPR is the sole publicly traded real estate business exclusively focused on the United States cannabis industry.  However, there is a good chance additional cannabis real estate companies will soon be traded on the stock market.  As an example, GreenAcreage Real Estate Corporation recently finalized a private placement, generating $141 million of capital.  It is quite possible this REIT will be publicly traded on the stock market, starting out as an initial public offering designed to raise even more money that will be used to obtain subsequent build-to-suit transactions and  sale-leasebacks with cannabis grow operations.

Consider the Competition

Those who follow the cannabis sector are aware of the fact that there are seemingly countless grow operations.  However, there are comparably few businesses operating on the real estate side of the industry.  As more states move toward legalizing cannabis for both recreational and medicinal use, there will be an increasing need for cannabis processing and growing facilities.  Cannabis real estate companies will provide these companies with the capital necessary to expand operations.  This will be accomplished with build-to-suit and sale-leaseback transactions used by IIPR. 

In other words, there is a growing need for cannabis real estate providers to accommodate the considerable number of cannabis producers.  Stay tuned.  Keep your eye on cannabis-related IPOs and you are sure to find a cannabis real estate company worth investing in as time progresses.