Why Innovative Industrial Properties Stock Plunged Today

Shares of Innovative Industrial Properties (NYSE: IIPR), the country's leading cannabis real estate investment trust (REIT), were taking a dive today after it announced that PharmaCann, one of its biggest tenants, was defaulting on all 11 of its leases.

As of 11:09 a.m. ET, the stock was down 20% on the news.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Image source: Getty Images.

Challenges continue in the cannabis industry

This morning, IIP said that PharmaCann, the nation's largest privately held and vertically integrated cannabis company, defaulted on its rent obligation in six of its 11 leases. Rent owed for those six properties, each in a different state, totaled $4.2 million for December.

PharmaCann did pay rent for its remaining five leases, which total $90,000 for December, but because of cross-default provisions in the leases, PharmaCann also defaulted on the leases whose rent it had paid.

The two companies are continuing to negotiate, though IIP expects to "enforce its rights under the leases aggressively," which could lead to eviction.

What it means for IIP

The default is significant for Innovative Industrial Properties as the PharmaCann properties represented 17% of the company's revenue in the third quarter and the first three quarters of 2024.

IIP has experienced defaults in the past, but this may be the biggest one on record. The cannabis sector has continued to struggle as progress at the federal level has been stymied, and a supply glut continues to weigh on prices.

As a REIT, IIP rises and falls with the broader industry, meaning it's likely to struggle until growers start delivering consistent and reliable growth.

With PharmaCann's default, the outlook for the sector and IIP only looks more uncertain.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $338,855!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $47,306!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $486,462!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 16, 2024

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.