Marijuana stocks come in many shapes and sizes, including medical marijuana stocks. Today’s IBD 50 Stock To Watch, Innovative Industrial Properties (IIPR), is essentially a landlord for growers of medical marijuana, and one of the most targeted ways to play the space.
Innovative, a four and a half year-old stock, is forming its first valid base since the long, deep pattern shaped during the pandemic bear market in 2020. The stock took its licks amid the market’s heavy selling on Monday. But it remains about 10% below the next buy point at 222.18. It may be forming a handle that could potentially produce a lower entry point.
Innovative is a real estate investment trust. That is a type of business model frees a company from paying corporate income tax. In return, the company must distribute the bulk of its unused free-cash flow in the form of a dividend-like payout.
Dividend-Paying Medical Marijuana Stock
So, unlike most marijuana stocks, Innovative stock has an annualized dividend yield of 2.8%.
Innovative is incorporated in Maryland, with headquarters in Park City, Utah. It is a tight operation, reporting only 15 full-time employees as of Dec. 31.
IIPR keeps it focus tight, concentrating on buying properties used only to grow product for the regulated medical-use cannabis industry. Growers sell their properties to Innovative Industries, then lease back the property.
This allows them to move the assets off their books and redeploy capital elsewhere in the business.
California was the first state to legalize medical marijuana, in 1996. Since then, almost half of the U.S. state have followed suit. Those states are home to more than 200 million persons.
Company filings site ArcView Group projects sales of state-regulated cannabis in the U.S. will rise to nearly $34 billion by 2025, up from $12.4 billion in 2019.
Innovative acquired 20 properties in 2020, increasing its total to 66. It owned and managed about 5.4 million square feet in 17 states at the start of the year, 99.3% of which was leased.
Breakout Ready Ahead Of Earnings
The medical marijuana stock rallied 144% in 2020. It has climbed less than 10% this year, spending five of the past six months in a 28%-deep consolidation.
The pattern bottomed out with a test of the 200-day moving average in mid-May. It climbed 29% to a July 14 high, about 8% below the 222.18 buy point. Shares have since cooled, pulling back to test support at the stock’s 21-day exponential moving average. It is one day away from completing a valid handle.
If that occurs, it would lower the operable buy point to 210.67 — about 4% above where shares traded on Monday.
Innovative pared losses after an initial 4.8% drop on Monday. The bounce off the low showed support at the stock’s 21-day line. That’s a healthy sign for the budding handle.
Innovative bears a best-possible 99 Composite Rating from IBD. That places it as the top-ranked stock in the Finance-Property REIT industry group.
The medical marijuana stock’s Relative Strength Rating is a solid 89. And it’s relative strength line has swung back around to just below highs chalked up early this year. That is a good place to be as the company prepares to report its second-quarter earnings on Aug. 4.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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