The Small-Cap Backend Cannabis Play Set to Disrupt a $1.2 Trillion Global Industry

0 | By Michael A. Robinson

I’m having a great day – nothing hurts.

Trust me, that’s no minor thing in my life. See, I’ve suffered from chronic lower back pain since I was 15 and my neck has hurt since my early 20s.

For years, I have relied on Advil Liqui-Gels and Biofreeze menthol rub for daytime relief. I also took muscle relaxants to combat night spasms that would keep me awake.

However, those pains are quickly becoming just memories because I have found what is, so far, giving me amazing results.

It’s a substance the human race has used for centuries. It’s all natural and very effective. It’s also a compound that is sweeping 33 states and the District of Columbia.

Of course, I’m talking about cannabis.

Make no mistake, the substance that used to be demonized in the U.S has great medicinal properties.

In fact, I’ll be talking about how to profit from medical aspects of marijuana at the National Institute for Cannabis Investors (NICI) in Las Vegas on Thursday.

With that in mind, I’d like to offer you a preview of my talk and reveal a unique, high-yield cannabis investment…

Now then, I’ve been following the medical aspects of marijuana formally since California became the first state to legalize it back in 1996.

But, as a longtime biotech investor and analyst, I already knew this could be a big breakthrough.

Yes, it took nearly 20 years to reach critical mass, but this is now an unstoppable force with lots of profits at hand for savvy life sciences investors – like you.

And the good news is that cannabis is set to be a huge disruptor of the global drug industry that is worth more than $1.2 trillion a year.

Why the Medical Cannabis Angle Is So Lucrative

For my money, the long haul is very bright indeed. That’s why the title of my NICI talk is “Cash in on the World’s Only Universal Drug.”

Consider that the list of conditions for which cannabis may prove highly effective now totals 172. We’re talking everything from nausea to pain management to anxiety to blindness to epilepsy to multiple sclerosis.

Let me be clear. No other drug can make this claim.

Cannabis is so powerful as a medical agent because our bodies are literally wired to receive it. See, humans have an endocannabinoid system. It reaches into every major section of the body and allows our cells to communicate with cannabis directly.

I use a non-psychoactive balm on my neck and back three or so times a day. I used to take Advil three times a day, but that is now down to roughly twice a week. I try to avoid the muscle relaxants, except for when I’m on a long flight.

Don’t scoff at the medical angle. While the nation moves toward full legalization, it’s the biotech aspect that are the big driver here.

It’s why more than twice as many states have made medical marijuana legal as those that have allowed recreational use.

As savvy tech investors, what we are looking for is a broad backend play. We want to avoid the risk inherent in investing in a single new drug while capturing the broad upside that medical marijuana holds.

That’s where Innovative Industrial Properties Inc. (IIPR) comes in.

I believe its work is vitally important because the firm helps cannabis companies overcome a huge obstacle – access to capital needed to fund growth.

Many cannabis operators buy their own real estate and foot the entire bill up front. But, after that, they have limited options to finance their expansions.

That’s because banking options are almost always out of the question since cannabis is still illegal on the federal level. Most banks are federally regulated, making cannabis a non-starter for them.

IIPR has just the right remedy. It buys land and grow operations from cannabis firms and leases the space back to clients on a long-term basis.

In particular, it invests in farmland that is best-suited for the production of medical-grade, high-end cannabis. Those leases typically extend beyond 15 years, and IIPR builds in yearly rent hikes exceeding 3%.

What Makes IIPR a “Bona Fide Growth Machine”

IIPR’s strategic advantage is that its strong balance sheet helps it move quickly to strike deals, making it a bona fide growth machine.

When the firm went public back in December 2016, it had just one property under contract to acquire – PharmaCann’s 127,000 square-foot facility in New York.

The firm bought another four properties in 2017 and six in 2018. By the end of last year, it had deployed some $167 million in new real estate deals.

Through the end of its fiscal second quarter on Aug. 27, the firm had spent another $87 million. On Sept. 12 IIPR said it had closed on the final parcel of a four-property portfolio in southern California at a cost of $17.3 million.

That brought its portfolio to 30 properties located in 13 states. In all, we’re talking roughly 2.2 million rentable square feet.

And these are high margin deals. Investors can typically expect a 5% to 7% annual cash-flow yield on their investment when buying industrial warehouses or other commercial properties.

Yet, for IIPR, that figure is a whopping 14.7%, as the firm has very favorable terms in what it pays for land and then what it can secure in leases.

For investors, there’s even better news. IIPR is structured as a real estate investment trust (REIT), which means that at least 90% of its earnings must be returned to investors each year in the form of a dividend.

And payouts are now rising at a rapid rate. IIPR’s dividend should rise around 75% this year and keep growing at a 30% clip in 2020 and again in 2021.

On Sept. 13, it declared another quarterly dividend. This one was up 30% from the prior quarter but represented an astounding growth of 123% since this time last year.

I believe this combination of growth and income in a brand-new industry is amazing in itself. Right now, IIPR offers a roughly 3.2% yield.

That’s partly because the stock sold off last month after a classic Wall Street overreaction. Just a couple of weeks before that, IIPR filed a shelf registration to sell $250 million in stock.

So, before hearing about the firm’s merger plans, Wall Street just assumed the move will dilute existing shareholders.

But, as I have shown you, this is a growth firm that also is very shareholder-focused.

And that means you can get in now at a discount before Wall Street wakes up to the huge mistake it made regarding this long-term winner.

Cheers and good investing,

Michael A. Robinson

Leave a Reply

Your email address will not be published. Required fields are marked *