Updated: Dec 17, 2019
The cannabis industry is expected to hit between $100 and $300 billion in legal cannabis sales by 2030 making the next decade to be incredible growth and opportunity. We have witnessed the slow rollout of retail stores in Canada which has diminished cannabis sales while in California and other states the black market and high tax rates on cannabis sales have pestered the new cannabis economy. These are all common growing pains occurring in the next-boom investments.
With a looming recession, it could spell trouble for the fledgling industry with the present period of the longest time of economic expansion since recordkeeping began 170 years ago. We know recessions and contractions are a natural part of the economic cycle making it so we are likely in the latter part of the expansion cycle.
Some of the clues we are nearing a recession are the 3-month contraction in U.S. manufacturing, rising delinquency rates on auto loans primarily in the subprime category and rising corporate debt. Even with these issues, the cannabis industry may have some recession-resistance abilities as we have never seen a legal cannabis industry during a recession in the modern age with no historical data to examine.
A Recession-Proof Cannabis Stock
After many stock trades and investing into a variety of stocks there is one that has not faltered and has the markings of being completely recession-proof: Innovative Industrial Properties (NYSE:IIPR).
What makes Innovative Industrial Properties such a strong contender for being recession-proof is it is a cannabis real estate investment trust (REIT). IIPR purchases properties, cultivation centers, processing facilities, and land, in turn, leasing it out to reap from rental income. This stock is a stock that pays a dividend.
As of this week, the company owns 38 properties leased in 13 states. Its growth is significant since it started the year with only 11 properties in its portfolio. What this creates is confidence with lease terms on all 38 contracts of 15.6 years and the current yield of 13.8% on $403.5 million. In other words, IIP will have a complete payback in just over five years.
In its lease contracts, tenants know there are a 3.25% rental increase and a 1.5% property management fee making IIP stay ahead of inflation. Investors will enjoy predictable sales and cash-flow due to its long-term contracts brushing off any concerns of not being able to handle the looming recession.
Keep this stock in your portfolio as an anchor investment for true returns.