What’s “The Pot Stock of the Decade” pitched by The Wealth Advisory?

By Travis Johnson, Stock Gumshoe, August 22, 2018


Today I’m doing something a little different — this ad from The Wealth Advisory about “The Only Pot Stock I Will Ever Own” has been getting a lot of attention from readers and driven a lot of questions our way, so here I’m re-posting for all readers a Friday File piece that I wrote about this one when I first saw the ad a little over a month ago.

Those who aren’t Irregulars (that’s our paid membership, they receive additional commentary each week) will note that I toss more opinion into my coverage for our paid members, and talk more about my portfolio and how I manage it. If you like that kind of thing, I humbly suggest that you join the ranks of my favoritest readers and be part of making sure that we can keep doing our thing here at Stock Gumshoe, explaining teaser stocks and revealing “secret” strategies… and if not, well, we love our free readers, too — thanks for sticking around!

This stock has been in my portfolio since January, and I have not adjusted my position since the below was written…

–from the 7/20/18 Friday File–

The Wealth Advisory is pitching “The Only Pot Stock I Will Ever Own” … and since that newsletter has been touting various REITs for quite some time, including CoreSite (COR), a stock I’ve owned for years and wrote about a few times when they were pitching it as a way to profit from Netflix and other tech giants, it probably won’t surprise you to learn that they’re again pitching a REIT to play a growth sector… and it’s again a stock I’ve also been buying, Innovative Industrial Properties (IIPR).

So I’ve gone and let the cat out of the bag there, but here’s a bit of the ad to give you a taste:

“5 Reasons This is the Profit Opportunity of the Decade

  1. It’s the Fastest-Growing Industry on the Planet
  2. It’s the Biggest Untapped Market in the World
  3. It Has No Competition

    … there is not a single other stock exclusively dealing in cannabis real estate.

    This company already provides more than half a million square feet of real estate to cannabis companies around the country, and that is steadily growing.

  4. It Has First-Mover Advantage
  5. Real Estate ALWAYS Pays

    “At this point, we know pot companies will make us money.

    “But there are so many ways to play it, it’s hard to say which avenue will yield the greatest profits.

    “But if there is one thing I’ve learned from Briton in the last decade, it’s that real estate ALWAYS pays.”

So that’s their basic argument for this “only pot stock I will ever own” — and it’s similar to past newsletters who have touted this stock, calling it the “safest pot stock” and a way for the wimpy to play this scary sector.

Which I won’t argue too much about, though it’s still a small company, still could easily face lots of competition, and is reliant for its high-profit niche on a somewhat uneasy balance between marijuana being semi-legal and fast-growing.

If marijuana were a legal business at the federal level, marijuana growers would be able to borrow cheap from banks just like everyone else, and they wouldn’t have to make deals with folks like IIPR that include above-market rents and high returns… and if other folks come into this business because risk goes down, competition could absolutely eat into those returns as marijuana growers scale up.

I don’t know what value their “first mover” status will have in the future, but they are not doing anything unique or proprietary that other REITs couldn’t eventually mimic, and there are lots of competing companies pursuing similar “alternative financing” models for marijuana companies — including lots of unlisted privately-backed pools of capital — so we shouldn’t assume that IIPR gets to automatically “win” in the end… though they’re doing quite well so far.

Here’s some background on the company, and my current thinking on IIPR, for those who are curious…

Innovative Industrial Properties (IIPR) is a REIT that does financing deals and sale/leaseback transactions with medical marijuana growers in states where medical marijuana is legal.

They effectively pay above-market prices for the properties owned or being developed by these companies, building in enough cash in the deal to get those properties expanded or otherwise finance the operation, and in return they get a very high rent. The bargain is essentially based on the fact that marijuana companies have very little access to traditional bank or debt financing, so real estate-based financing is one of the more appealing ways to get expansion capital without issuing shares and diluting shareholders — and since it’s a risky business without a lot of capital suppliers, and with projections for appealing economics for early license-holders in medical marijuana, IIPR can demand a pretty strong return.

Real estate companies use the term “cap rate” to describe the cash return on properties — it’s basically a simplified annual cash flow return, and an industrial property might earn a “cap rate” of 6-7% or so, while a prime office building that people are bidding up to crazy prices might have a cap rate of only 4% or less during hot times, the numbers vary widely. IIPR is making deals with marijuana growers that have 15% cap rates, in addition to other fees, and that’s extraordinary.

These are also triple-net leases, which means the tenants are responsible for taxes, insurance and maintenance, so if IIPR buys a grow facility for $10 million, they get $1.5 million back in rent per year (keeping in mind that if it weren’t a marijuana grow facility, that property might only be worth $5 million… which is just a wild estimate on my part , one I use to keep some perspective).

That means after six or seven years, IIPR has had all of its capital returned and still owns the building, without a mortgage or any other carrying costs to speak of beyond normal depreciation, and these leases tend to go for 15-20 years, with annual rent increases. Most REITs load up with debt to make their returns better, either mortgages or unsecured debt, but IIPR hasn’t had access to the debt markets at good prices yet so these are also almost entirely unlevered returns — if they are able to access the debt markets in a few years as laws or regulations adjust, the returns could look even better for shareholders.

So that’s why I own the stock — lots of potential upside as they have the ability, within a couple years, to pretty dramatically increase the size of the dividend (it’s $1 a year right now, so almost exactly a 3% yield), in what I’m hoping could be a repeat of the success that CoreSite had in the very different data center business (CoreSite also started out with very low leverage, and had high and rising returns as their centers were built out, which enabled massive dividend increases that were partly fueled, particularly in recent years, by adding debt to the balance sheet). Small growth REITs in niche sectors can really explode if they catch a wave.

It’s also why I bought the preferred shares a while back, since those are effectively the senior debt (there is no other borrowing), which means they get first call on the assets — and since IIPR has a lot of cash and properties, arguably worth more than 5-10X the value of the preferred shares even if things turn ugly, they are pretty much as guaranteed as you can get outside of the debt markets.

There is a real calculus to deciding how much the preferreds should be worth, though, because the company can call those preferreds back in October, 2022 for $25 per share. So at $28.75, the preferreds actually have an annual yield of less than 5% to the call date. That’s perhaps not terrible for a really secure preferred yield, but it’s also not good enough for me anymore now that I’ve gotten a couple of the preferred dividends and the preferred share price has bumped up to this level… so this week I sold my preferreds and bought a bit more of the common stock, which means that IIPR is growing to become a meaningful player in my portfolio, with about a 1.5% allocation now.

If you value safety over long-term gains, as is perfectly reasonable if your situation is different than mine, your calculus might well be different — the effective cash yield on those preferreds is 8% now, if you ignore the fact that they can get bought back at $25 in four years, and that’s not without its appeal… and a 5% “guaranteed” return is also nothing to sneeze at. Just don’t expect the preferreds to rise much above this level, there shouldn’t be any assumption that the total return from this point will be much more than $6 per preferred share between now and the call date (~$9 in dividends between now and then, then shares should be redeemed at $25 if the company has the capital to do that at the time, so you effectively give back $3-4).

If the preferreds drop in price, especially if they trade below $25 at some point because of some kind of panic, it would be worth taking a much closer look again — having preferred shares of a company that has real assets and no debt is generally very comforting. The upside is limited and impacted by interest rates, as with pretty much all preferreds, but the downside of the preferreds should be limited to 10% or so… while the downside on the common is more likely to be at least 50% in the worst case scenario (where marijuana is fully recriminalized, their tenants go bankrupt, and they have to find other tenants for their properties — those properties are not worth nearly as much as IIPR paid if they’re used for non-marijuana businesses).

So yes, I have trouble with the economics of most of the marijuana companies… but as long as IIPR can keep threading that needle between “illegal” and “mainstream” by doing sale-leaseback deals with the safer end of the business (medical marijuana growers), they could book a lot of profit. Hopefully the uncertainty about marijuana continues at the federal level for long enough to give IIPR the chance to build a much larger portfolio of high-profit properties, because absent that regulatory uncertainty their little niche will probably become a lot more competitive and cut into their returns… but I like what I see so far.

Back to late August here…

The stock has surged again recently, whether because of this resurgent push from The Wealth Advisory or other newsletters, or just because marijuana stocks have had a bit of a comeback in recent weeks, so it’s again above my “buy below” price of $35… don’t know if it will get back down to that level or not, but given the volatility in the markets it seems pretty likely.

Any other favorite marijuana or REIT stocks you’d prefer to discuss? Have an opinion about IIPR or its competitors, or about Briton Ryle and The Wealth Advisory? Let us know with a comment below… thanks for reading!


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54 Comments on "What’s “The Pot Stock of the Decade” pitched by The Wealth Advisory?"

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steveflick
Irregular
504
Save your money subscribing to The Wealth Advisory and instead take action on Travis’ “I humbly suggest that you join the ranks of my favoritest readers” . It is the best under $100 I have ever spent on investment newsletters. I am a small retail speculative investor. I own 12 marijuana/cannabis or related industry stocks, $2k each and added a bit more to 2 funds IIPR & CGC last month. I started in early April with IIPR upon reading one of Travis’ Gumshoe articles; it is now up 37.55% including dividends. My biggest gainer is Canopy Growth CGC.
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Charles Newell
Guest
0

How much does the Wealth Advisory cost? I’m new. Thanks

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steveflick
Irregular
504

Charles, I believe introductory is $79 ,but they add on additional services; as mentioned by Stock Gumshoe author Travis Johnson in today’s Friday File for members Irregulars “Friday File: Diving into another Marijuana teaser”. I suggest instead you spend that $79 on becoming a Stock Gumshoe Irregular; and don’t forget to log-in as a member/Irregular.

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mike
Guest
0

buy MTF

michelg
Guest
0

I’m with Steve concerning Canopy Growth, even though I unfortunately do not have any of that stock at present. Last week’s announcement gave the stock a major boost. But I DO own a few shares of a Canadian medical cannabis company called Hydropothecary (HEXO). Any opinion on the future of that company/stock?

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ladylothar
Irregular
44

I got in early on CGC before it attained status on NYSE, but Constellation Brands keeps buying more shares (Beer and Weed?) so i just bought more today

steveflick
Irregular
504
I also own some Hydropothecary OTC HYYDF , bought mid April and I am up 17.5%. For your due diligence on Cannabis stocks, copied from a Comment I posted on Gumshoe article July 23,2018 Ian Wyatts’ 420 club “As part of your due diligence, I suggest 3 weekly (free) enewsletters. 1. Let’s Toke Business Newsletter by Ted Ohashi. Send an email to Ted tedohashi@gmail.com and ask to be added to his newsletter and what country you are from. 2. http://www.newcannabisventures.com by Alan Brochstein. Alan also offers a subscription service, “420 reports”, for ?700 annually. 3. http://www.greenmarketreport.com I would not spend… Read more »
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yukonjack
Guest
0
Since there are probably over 200 pot related stocks and more coming into existence everyday, it seems highly unlikely that anyone will be able to pick the top dog. Your best bet is to spread your risk between 5-10 pot stocks and hope you get a few decent winners. Since this space is evolving into one of the hottest sectors, you know that all kinds of gurus are going to claim that they and only they know who will be the big winners. Remember, they make instant profits on selling subscriptions while their recos may take years to result in… Read more »
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steveflick
Irregular
504

Yukonjack, have enjoyed reading your Comments over the last year +. Thanks much!

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Carl Davis
Guest
0

Travis,
Thanks for your analysis of (IIPR).
Your explanation of this company’s prospects was superb! However, I am inclined to look
at Rapidly Growing Cannabis Companies.
Following several months of analysis myself,
I isolated a “Shining Star” within this industry. Cronos Group Inc. (CRON) appears
to fulfill that goal as that company! I would appreciate Your opinion on this company’s
prospects going forward. For full disclosure,
I currently hold a significant position in this stock.

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sambapati
Guest
0

Cronos is a solid pick, I don’t own it but wish I did I think they will do well

steveflick
Irregular
504

CRON Cronos did well today +16.39%. I own a little bit, since mid April +73.52%

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frankw17
Member
1224

Good article Travis. I’m glad I followed you into IIPR 6 months ago. Also, I’d like to echo the comment from above. My investment in SG as an Irregular was the best financial decision I’ve made in 50 years!
Regards,
Frank

jdiefenbach
Irregular
0

What is the S 50 Triger pot stocks by Energy& Capital November 6th Michigan midterm.

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michelg
Guest
0

MY bad. Constellation’s announcement concerning Canopy was made last Monday, not last week.

ANANDA
Irregular
28

Joining Irregulars is the best financial decision I ever made.

Martin
Irregular
112

Joining the Irregulars was the second best decision I have made, The first was buying $CVSI under a dollar LOL

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StockMidas
Irregular
246
The Pot is certainly Cooking – it is without a doubt the hottest and most talked about sector. Motley Fool recently published the Five Marijuana Stocks With the Highest Expected Sales Next Year: 1. Canopy Growth Corp. (CGC) : $687.8 million 2. Aphria (APHQF) : $356.6 million 3. Aurora Cannabis (ACBFF) : $343.5 million 4. GW Pharmaceuticals (GWPH) : $152.2 million 5. CannTrust Holdings (CNTTF) : $124.4 million Despite the recent surge in price of Canopy Growth Corp. (CGC) following an announcement by Constellation Brands (STZ) of a $4 Billion investment CGC still remains very attractive from both a fundamental… Read more »
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steveflick
Irregular
504

Liked “……CGC still remains very attractive from both a fundamental and technical perspective.”

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sawgrass 1
Irregular
1

Anyone know the four pot stocks Ray Blanco is promoting

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john2handy
Member
36

One of them is a “pick and shovel” KSHB trading now at 4.65 It has been up to 8.40 back in January.
From MarketWatch:
Kush Bottles, Inc. engages in the marketing and sale of packaging products and solutions to customers operating in the regulated medical and recreational cannabis industries. packaging business consists of bottles, bags, tubes, and containers. The company was founded by Dallas Imbimbo, John Kovacevich, Nicholas Kovacevich, and Jeffrey Meng in December 2010 and is headquartered in Santa Ana, CA.

James
Guest
0
CGC was a great pick a while back, and made me over 300% profit. I sold out, and re bought a couple of weeks ago – after the investment news came out and the stock had jumped ~ 40%. However, it’s still hit or exceeded the price targets set by the major investment banks (like Jefferies). I’m also very hopeful on CBWTF, which is currently sitting very low, and recently hit a historical low (great time to buy). They have a lot of potential and imho are worth the risk for big potential gains – check them out, do your… Read more »
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john2handy
Member
36

I got 100 shares of TLRY at the IPO for 21.34. It closed today at 43.86 up 112% Unfortunately, I was only trading in Simulated.
My best gainers; CGC TLRY GWPH CRON APHQF FFRMF

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judy
Guest
0

Where can I buy aphqf?

steveflick
Irregular
504

APHQF – at most standard brokers. I did at Fidelity.

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steveflick
Irregular
504
Follow up to my Comments at the top of this thread of Comments on this article. Today and this week has been a good week for this volatile/risky sector. My holdings purchased between mid April and June 1, with a bit more in both IIPR & CGC in late July. + / – for me, 1st % is today Aug 24, 2nd % is to date: CGC Canopy Growth + 8.38% +73.95% CRON Cronos Group +16.39% +73.32% GTBIF Green Thumb Industries + 5.89% -22.68% GWPH GW Pharmaceuticals +0.12% +16.91% HYDDF Hydropothecary + 6.63% +27.06% IIPR Innovative Industrial Prop + 6.12%… Read more »
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cka1946
Irregular
6

I have only been investing for about a year now, Loving doing the research etc. One company I don’t see listed anywhere is Namaste NXTTF, liked their story when it was only pennies…. it is still cheap. They do video updates on what they
are doing…..a bunch of good guys.

steveflick
Irregular
504

I recall reading something about Namaste NXTTF in one of the 3 free weekly cannabis newsletters (see my Comment posted August 22 4:40pm above in this article); perhaps do a Search on back-issues.

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daytrader2018
Member
0

I agree namaste will do well it’s got great potential and good management.

steveflick
Irregular
504

today bought an additional $2.5k CGC Canopy Growth and initial $2k TLRY Tilray. IIPR continuing to gain!

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Michael
Guest
0

Thanks Travis, that’s a nice concise review. Would you consider having another look at Terratech TRTC after the stock split?
Kind regards Luckyjack

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Ted Butler
Guest
0
There are very many investment scams nowadays I advise all people to deal with tall cautiousness and those who deal with them to ask to withdraw large amounts and see the reaction. Conditions of dealing with them are all bad and against the customer. My sister lost a lot of money to these brokers and they made a flimsy excuse about it, we were able to recover some of the money with the help of a professional before it was too late. Be sure it isn’t a scam. Are you sure other ones are real? do not lose your money… Read more »
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steveflick
Irregular
504

Ted Ohashi’s early today released (for week ending Aug 24, 2018) Let’s Toke Business free weekly enewsletter is a very good read. Send an email to Ted tedohashi@gmail.com and ask to be added to his newsletter and what country you are from. See my Comment above of Aug. 22 4:40pm for another 2 free weekly enewsletters talking about Cannabis/Marijuana markets and investing.

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Sue
Guest
0

What about IMLFF ? Inmed?
Ted O. Suggested buying it under .80. I bought it several months ago at .78 and it is now .65.
Should I just dump it and take my losses or hold on?

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Little Pearl
Guest
0

I buy small biopharmas. It’s my thing. IMLFF’s cannabinoid-based topical glaucoma drug is the bomb. I own a lot and will be buying more of the company’s stock. There’s always risk but I believe in this company’s mission & science.

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Sue
Guest
0

What about IMLFF Inmed. Ted O. Suggested buying it under .80. I bought it early in the year at .78. It has been hanging around .65 for a while.
Wondering if I should dump it and move on or hang on.
Anybody have any insight?

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Trooper
Irregular
5

I pay for a membership just to read Travis’ jokes! It is WORTH every penny!!!!!

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bitoshi
Guest
0

I too made an initial purchase of 2K worth of CGC. and I must report no ill affects ! LOL. also looking into IIRP. thanks for all of you who have true insight into some stock I do not know , but through your comments , I am “updated” on the better companies to follow and look into.

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Van Robrys
Guest
0
After a little back and forth debate on the ethics of owning market share in the production of a substance illegal under federal law and my desire for money I came to a decision. I was ready to do the “good” and purchased a few thousand shares between .02 cents and a dime on the pot stock going by symbol MCIG. It too is branching out to the property/REIT arena as well as payment systems, a sticky point for this sector. Do you have any knowledge or thoughts on MCIG besides the fact it also sells Marijuana vape pipes?
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pomgroup
Irregular
4

New to investing. Bought Tilray @$26 and last was $119.
40 shares for $1000. Up about $3500.
Bigs gains daily at this time. Appreciate thoughts on smart way to proceed. Hold all, sale some?

petercanam
Irregular
7

Favorite MJ stocks to date: Aphria, Namaste and Auxly. Are MJ stocks going away? Doubt it. Great for short term and long term investing. Good luck to all!

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rickla57
Member
2

I wonder if any REIT company involved in the cannabis sector can maintain performance if and when after cannabis becomes legal in Canada and in the USA. I would think that banks could start handing out low interest loans for cannabis companies.

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