IIPR Looks Promising amid Struggling Cannabis Sector

As of March 11, Innovative Industrial Properties (NYSE:IIPR) was trading at $76.96—a rise of 1.4% since the beginning of this year. IIPR is one of a few companies that has delivered positive returns this year in the cannabis sector. Pricing pressure, thriving black market sales, and the coronavirus outbreak have put pressure on the cannabis sector. The ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have fallen by 33.8% and 32.3% year-to-date, respectively. IIPR’s impressive third and fourth-quarter earnings helped the company withstand the downturn. Meanwhile, Charlotte’s Web Holdings (OTCMKTS:CWBHF), Cresco Labs (OTCMKTS:CRLBF), and Curaleaf Holdings have fallen by 39.4%, 53.9%, and 28.5%, respectively. Let’s look at analysts’ recommendations for IIPR in March.

IIPR Looks Promising amid Struggling Cannabis Sector

Analysts’ target price for IIPR

After IIPR reported its fourth-quarter earnings, Compass Point raised its target price from $130 to $150. However, analysts’ consensus target price fell from $140.5 on February 11 to $132 as of March 11. On Tuesday, Craig-Hallum initiated coverage on the stock with a target price of $95, which brought analysts’ consensus down. The new consensus target price represents a return potential of 71.5%.

From the above graph, you can see that analysts’ consensus target price has declined since October 2019. Weakness in the cannabis sector might have compelled analysts to cut their target prices. As of Wednesday, Charlotte’s Web, Cresco Labs, and Curaleaf were trading at a discount of 144.9%, 265.3%, and 173% from their respective target prices.

Analysts’ ratings

On Tuesday, Craig-Hallum started its coverage on IIPR with a “hold” rating. As reported by The Fly, Eric Des Lauriers of Craig-Hallum stated that IIPR’s aggressive acquisitions and high dividend yield balance its risk and rewards prospects. So, he recommended a “hold” rating for the stock. As of Wednesday, four analysts cover the stock. Among the analysts, two recommend a “buy,” while two recommend a “hold.” None of the analysts recommend a “sell.” Let’s look at analysts’ recommendations for the company’s peers:

  • Analysts favor a “buy” rating for Charlotte’s Web. Among the nine analysts, seven recommend a “buy” rating. Recently, the company announced the completion of its 2019 hemp harvest audit. To learn more, read Charlotte’s Web Reports Improved Yield and CBD Potency.
  • Among the nine analysts that follow Curaleaf, eight recommend a “buy” rating. Earlier this month, Curaleaf acquired BlueKudu.
  • For Cresco Labs, all 13 of the analysts that follow the company recommend a “buy.”

My take on IIPR

As of Wednesday, IIPR owns 53 properties spread across 15 states. Together, the company owns 3.8 million square feet of rentable space with 99.1% of it leased already. IIPR has invested approximately $611.0 million in these properties. The company has committed an additional $168.6 million to develop certain properties. IIPR’s average yield on its invested capital is approximately 13.2%. The strong numbers make the company an attractive “buy.” However, the weakness surrounding the cannabis market might put pressure on the company’s stock price in the near term.