Medical marijuana, now legal in 28 states and the District of Columbia,
officially entered the New York Stock Exchange in Dec, 2016. Innovative
Industrial Properties (IIP), a San Diego-based real estate investment
trust (REIT) is leading the cannabis charge with the purchase of a 37-acre
production property in Orange, New York from PharmaCann.
PharmaCann, one of only five companies granted a N.Y. medical marijuana
grower license, will remain on the property as lessee under a triple net
leaseback agreement. Given the state’s blessing on this arrangement,
IIP plans to continue this trajectory, pledging to work exclusively with
state licensed medical growers with an emphasis on leaseback agreements.
However, others are reluctant to take on the non-traditional risk associated
with legal cannabis, primarily because marijuana is still listed as an
illegal Schedule I drug under federal law, alongside ecstasy and heroin.
Vivien Azer, a cannabis analyst at the New York-based market research
firm Cowen Group, suspects that large investors such as Goldman Sachs
and Phillip Morris will only enter the cannabis market after full federal
It is still unknown how the incoming Trump administration will approach
the marijuana conundrum. Since much of the Trump campaign rhetoric focused
on upholding state’s rights, many cannabis proponents hope that
Congress will introduce legislation to remove marijuana from its Schedule
I classification and place it on a regulatory path similar to that of
alcohol and tobacco.
Despite the reluctance of Wall Street to participate in the current market,
the march towards national legalization is only growing stronger. Pew
Research reports that 57% of U.S. adults favor legalization and 37% disapprove,
a stark contrast to a decade ago when just 32% approved and 60% were opposed.
Accordingly, seven of the eight marijuana ballot initiatives proposed
in 2016 passed. Legal marijuana sales are expected to grow from $7.1 billion
in 2016 to a staggering $22.8 billion in 2020, per the analysts at ArcView
The hesitancy of institutional investment firms to participate may present
a rare opportunity for smaller investors who are ready to jump on the
“Green Rush” to land a windfall of profits. Some states that
recently decriminalized the recreational use of marijuana, wrote stipulations
into their law that prevents the big banks and corporations from participating
in the market for a period of five years. This opens the door for entrepreneurs
and private investors to capture a percentage of market share for the
first several years.
Innovative’s principals, who have previously raised more than a combined
$30 billion for traditional REITs, are following the trend and betting
that medical marijuana-focused REITs will also succeed. Innovative’s
stock (IIPR) opened at $19 a share on Jan 26, 2017, with an IPO of 3.35
million shares. Whether IIP’s leadership in the medicinal marijuana
market will yield substantial results remains to be seen, but surely the
company is counting on the old axiom: fortune favors the bold.
Dennis Baranowski for more information.