What A Federal Crackdown Could Mean For The First Public Marijuana REIT

In November of 2016, Innovative Industrial Properties Inc IIPR became the first medical marijuana properties-focused REIT to be accepted in the New York Stock Exchange.

At the time, Troy Dayton, CEO of the ArcView Group, told Benzinga that it was “a huge milestone for the industry to have a company that is so close to the plant and so explicitly about cannabis being traded in the New York Stock Exchange.”

“It certainly adds a certain level of credibility that I think is super important for our industry,” he supplemented.

But nobody said that Innovative Industrial Properties would have it easy. Since last Friday, its stock lost almost 8 percent of its value, after White House Press Secretary Sean Spicer suggested the federal government would enforce federal law in states where recreational weed has been legalized. Since the statement, Spicer, and U.S. Attorney General Jeff Sessions, have been all over the news, as speculation mounts around the future of recreational cannabis in the United States.

While it is very hard to decipher what’s going on or predict what will happen, we wanted to know what a federal crackdown would mean for the country’s first publicly traded marijuana REIT. Consequently, we reached out to Alan Brochstein, founding partner at New Cannabis Ventures and founder at 420 Investor, and asked him to share his view of the issue.

Related Link: Marijuana Stocks Are Having A Great 2017, Despite Sean Spicer's Comments

Medical And Recreational

“I have noticed the weakness in IIPR since Sean Spicer's comments, but I believe the decline isn't necessarily related to fears of U.S. policy changes,” he voiced. “President Trump has historically expressed support for medical cannabis, and the concerns at present are about ‘recreational’ cannabis. In fact, taken at face value, Spicer's statement was very positive for the safety of the medical cannabis industry from any sort of federal intervention.”

“The weakness [in IIPR’s stock], in my view, is tied to the announcement last week by New York that it will be doubling the number of organizations licensed to provide medical cannabis in the state,” Brochstein continued. “While New York is also taking steps to expand patient access by adding chronic pain and increasing the types of healthcare providers who can certify patients, the market is likely too weak to take on more producers. So, IIPR's tenant, PharmaCann, may ultimately struggle to repay its debt if the market doesn't improve.”

“Further, IIPR, at the time of the IPO, mentioned several potential deals in the works, but it hasn't announced any being finalized,” the expert moved on to expound. “At present, about half of the funds it raised went to fund a single deal, so investors are likely waiting for signs that the company can further execute on its business model.”

“I expect over time that IIPR could perform fundamentally, but I have cautioned my subscribers at 420 Investor to wait until the company is raising more capital to consider investing in IIPR,” he concluded, suggesting concerns around the company’s future were not especially related to the risk (and effects) of a federal crackdown on recreational cannabis.