Cannabis Markets

Cannabis Market Grows in Pennsylvania: Next Big Hit?

There’s one market that has dominated my conversations with cannabis insiders recently: Pennsylvania.

A lot of national attention is given to New York and New Jersey, and what the future might hold for those major East Coast population centers.

Illinois also earns a lot of fanfare as the Midwest stronghold.

And, of course, we have those densely packed, sunny bookends of the U.S. – California and Florida.

But the blue-collar state of Pennsylvania often gets lost in the discussion. And yet, this is an opportunity everyone I know in the industry is excited about.

If you’re paying attention, you’ve started to see the number of deals in this state quietly pick up.

The first medical cannabis sales in Pennsylvania began in 2018. And in 2019, sales skyrocketed 280% to $450 million – blowing past expectations.

Today, Pennsylvania has more than 300,000 patients enrolled in its medical cannabis program as it expands the list of eligible conditions. And expectations are for 2020 sales to come in between $675 million and $800 million.

That means medical cannabis sales will go from zero to nearly $1 billion in a little more than three years!

But all eyes are on the opportunity for adult-use in Pennsylvania. It’s the sixth most populous state, with more than 12.7 million Americans calling it home.

Currently, more than 60% of the state’s population is in favor of legalizing recreational use. And there are multiple pending bills about the matter in Pennsylvania’s legislature.

This is why we’ve started to see a number of pushes and expansion of operations into the state by cannabis companies, including Innovative Industrial Properties (NYSE: IIPR).

The real estate investment trust (REIT) owns 57 properties in 15 states, including seven properties in Pennsylvania. And of its total 4.3 million square feet of rentable space, 99.2% is leased with an average term of more than 16 years.

Last week, the cannabis REIT expanded its Pennsylvania property partnership with Green Leaf.

In May 2019, Innovative Industrial acquired two buildings, representing 266,000 square feet of space, from Green Leaf in a sale-leaseback transaction. Green Leaf has developed 103,000 square feet of this for growing and processing medical cannabis.

Originally, Innovative Industrial made $30 million in funding available to Green Leaf. That’s now been increased to $43 million to allow for the buildout of the remaining 163,000 square feet.

And with the extremely positive outlook for the Pennsylvania cannabis market, that seems warranted.

And that’s not the only good news from Innovative Industrial.

Two weeks ago, it raised its upcoming quarterly dividend 6% to $1.06.

What’s most impressive here for the cannabis REIT is that in less than four years as a publicly traded company, it’s grown its dividend more than 600%!
Innovative Industrial Quarterly DividendThis is why it’s been one of my favorite cannabis plays. The more the market expands in the U.S., the more the REIT’s footprint will grow and its payout to shareholders will increase.

With opportunities not just in Pennsylvania but across the entire U.S., Innovative Industrial is one of the safest ways to add cannabis exposure to your portfolio. And it’s the only dividend-paying pure cannabis play out there.

Here’s to high returns,

Matthew