Innovative Industrial Properties in Three Words: Capital-Constrained Cannabis REIT

Breaking Update: On December 20, 2025, Innovative Industrial Properties announced that its largest customer PharmaCann has defaulted on all 11 of its active leases.

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Background

Innovative Industrial Properties is the world’s first and only publicly-traded REIT focused exclusively on the medical-grade cannabis industry.

Even though its name starts with “Innovative”, it’s really not. This is a pure play on finance.

IIP’s business is to borrow money at the most attractive rates it can find, then deploy it to build cannabis-growing facilities and lease those out to tenants. Through its triple-net lease contracts, its tenants pay not only for rent but also for all building taxes, insurance, and maintenance. You could think of them as a “pot apartment complex” if you’d like.

As a larger, public company who’s structured as a REIT, IIP can raise capital to build the facilities at much more attractive rates than its smaller customers could on their own. Then through the triple-net leases, it recoups its upfront capital investment back one month at a time.

Conviction Rating Changes:

Innovative Industrial Properties was reaffirmed as a ________ on March 4, 2025.

After reading through Innovative Industrial Properties' full-year results and the recent default of its largest customer, I'm maintaining my Buy conviction on the stock.

Here is first a bit of background...

• This is the first and only publicly-traded REIT in the cannabis industry. It provides facilities for heavily-regulated cannabis cultivation, and operates under a " triple net lease" structure where the tenants pay for the rent, utilities, and all property expenses (taxes, maintenance, insurance, etc).
• As a REIT, Innovative must distribute 90% of its pre-tax income as a dividend. IIPR raised its quarterly dividend 4% last year (from $1.82 to $1.90) and the stock now yields 10.8%.
• Wall Street is unsure what to do with the stock. 6 of 7 analysts covering the stock have it as a Hold (with only 1 saying Buy) and the consensus price target is $85. That would imply 22% upside from today's price of $71.
• There is very little short interest in the stock, now only 4.7%. Its short interest peaked at 11% in January 2024 and somewhat-curiously has declined alongside the stock price decline (normally they go in opposite directions).

On to the full 2024 results:

Revenues

• 0% growth in revenue, remaining at $307 million
• 0% growth in funds from operations, remaining at $230 million
• 1% growth in outstanding share count, to 28.2 million

Properties & Financing

• Added one property during 2024, bringing the total to 109 properties in 19 states
• Total available liquidity of $238 million after increasing its revolving credit facility. Up from $177 million last year
• 11% debt to gross assets and a debt service coverage ratio of 16.8x. Those both improved, from 12% and 16.4x at EOY 2023.

Occupancy

• 98.3% lease occupancy, a weighted-average remaining lease term of 13.7 years, and $281 per square foot in total invested/committed capital.
• These numbers compare to 95.8% occupancy, 14.6 years, and $275 at the end-of-year in 2023.

Here's a link to the full year 2024 results.

As reported on January 30, 2025, it's largest customer PharmaCann has defaulted on the eleven properties it was leasing from Innovative.

While the specifics of the default are in the lawyer's hands for resolution, it looks like the Cliff's Notes are... Join 7investing to get access to this section

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