We recently compiled a list of the 8 Best Pot Stocks to Buy. In this article, we are going to take a look at where Innovative Industrial Properties, Inc. (NYSE:IIPR) stands against the other pot stocks.
The history of the cannabis industry is riddled with changes and conflicting legislation. The international media has played an important role in shifting perspectives about marijuana and drug use. Today, we are watching the slow and steady change of mainstream opinion to consider cannabis one of the more harmless – and probably even potentially beneficial – drugs still considered largely illegal. As perspectives change, we can expect the laws to eventually follow suit.
Global Cannabis Industry:
As we mentioned in our article – 20 Cities with the Most Expensive Weed in the World – the global cannabis market was valued at $47.32 billion in 2022, and is projected to grow from $57.18 billion in 2023 to $444.34 billion by 2030, growing at a CAGR of 34% during the forecast period.
Marijuana legalization is gaining momentum around the globe, driven primarily by the increasing recognition that the product may have a range of legitimate medicinal benefits and therapeutic applications. It is the most widely cultivated, trafficked, and consumed drug worldwide.
Easing Federal Restrictions:
It was announced on the 16th of May that the US Justice Department has officially proposed a new rule that would reclassify marijuana from a ‘Schedule I’ drug, which includes heroin and LSD, to a less tightly regulated ‘Schedule III’ drug, which includes ketamine and some anabolic steroids. The decision marks a major policy shift by the federal government and while it would neither make the substance legal nor decriminalize it on a federal level, it would recognize the medical uses of cannabis and acknowledge that it has less potential for abuse than the many more harmful drugs. The change would also open more doors to conduct research on marijuana.
Another significant benefit of the reclassification is that it could add fresh arguments for supporters of ballot measures seeking to legalize cannabis in states where it is still illegal. An example of this is Florida, where voters will decide on a constitutional amendment allowing recreational weed this November.
But perhaps the ones benefiting the most from this change are cannabis companies, which after the rescheduling would no longer have to follow tax provisions under a rule called 280E, which prevents them from taking standard business tax deductions.
Although the rescheduling is far from the federal legalization that the cannabis industry is so desperately waiting for, it is a step in the right direction. As a result, several marijuana stocks and pot ETFs posted solid gains following the announcement.
Methodology:
To collect data for this article, we scanned Insider Monkey’s database of 920 hedge funds and picked the top 8 companies operating in the cannabis industry with the highest number of hedge fund investors. When two companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a large REIT building complex, its facade reflecting the city skyline.
Innovative Industrial Properties, Inc. (NYSE:IIPR)
Number of Hedge Fund Holders: 12
Next up on our list of the Best Cannabis Stocks is Innovative Industrial Properties, Inc. (NYSE:IIPR), a key player in the real estate sector supporting the growth of the legal medical cannabis industry, offering investors exposure to the cannabis market through a real estate-focused investment vehicle. The San Diego-based company has consistently increased its revenue over the last four years, from $116.9 million in 2020 to $309.5 million in 2023. Net income has also more than doubled from $63.87 million to $162.75 million in the same period.
Alan Gold, the executive chairman of Innovative Industrial Properties, Inc. (NYSE:IIPR), stated in the company’s Q1 earnings call transcript:
“The company notched another solid quarter in Q1, generating $2.21 in AFFO per share and further enhancing the company's liquidity position in the first four months of the year, with the upsizing of the revolving credit facility from $30 million to $50 million. Our total available liquidity exceeded $200 million as of the quarter end and fully funds any remaining development commitments we have, along with providing ample dry powder for additional strategic investments. Additionally, we have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets, no variable-rate debt, no debt maturities until May 2026.”
On the 14th of June, Innovative Industrial Properties announced a Q2 2024 dividend of $1.90 per share of common stock, representing a 4.4% increase over its Q1 2024 dividend of $1.82 per share and building upon the highly impressive 5-year dividend growth CAGR of +38.9%. IIPR is a great dividend pot stock, as the company has been growing its dividends for the past seven years. The upcoming cannabis federal reclassification is also expected to significantly help IIPR, especially since the company has Trulieve, Curaleaf, and Green Thumb (the three largest US multi-state cannabis operators by market cap) as its core tenants.
The stock of IIPR was held by 12 hedge funds at the end of Q1 2024 in the IM database, with a collective stake value of $127.8 million.
Overall IIPR ranks 5th on our list of the best pot stocks to buy. You can visit 8 Best Pot Stocks to Buy to see the other pot stocks that are on hedge funds’ radar. While we acknowledge the potential of IIPR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IIPR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
