Innovative Industrial Properties: A Tumble in 2024

Innovative Industrial Properties (IIPR) stock tumbled by nearly 34% in 2024, a significant decline for a company that had previously been a consistent performer in the cannabis industry. This article explores the factors that contributed to this decline and provides insights into the company's current situation.

One of the primary factors contributing to IIPR's stock price decline was the default by one of its tenants, PharmaCann. In December 2024, PharmaCann failed to pay rent for six of its 11 leased properties, triggering cross-default provisions that resulted in the default on all 11 properties. This default was a significant blow to IIPR, as PharmaCann was its top tenant in terms of both total number of properties and percentage of overall lease revenue. The unpaid rent for the half-dozen facilities amounted to $4.2 million, which was quite a hit for the REIT.



The default by PharmaCann, coupled with the failure of recreational cannabis legalization measures in North and South Dakota and Florida, contributed to IIPR's stock price decline of nearly 11% on November 7, 2024, following the release of its third-quarter earnings. In the earnings report for the third quarter ended September 30, 2024, IIPR's revenue decreased by nearly 2% from the same quarter in 2023, and net income also slipped. The company attributed the revenue decline primarily to a $3 million drop in rent and property-management fees, which was partly due to PharmaCann's default.

Despite the challenges faced by IIPR in 2024, the company remains one of the very rare consistently profitable companies in the pot sector and the industry's top REIT. Tenant defaults are a fact of life in the real estate business, and management is expected to find a way to get past this one, although investors are right in wishing it would get a move on.

In conclusion, the decline in IIPR's stock price in 2024 was primarily driven by the default by PharmaCann and the failure of recreational cannabis legalization measures. Despite these challenges, IIPR remains a strong player in the cannabis industry, and investors should keep an eye on the company's progress as it works to resolve the PharmaCann situation and navigate the ever-evolving cannabis landscape.