Innovative Industrial Properties, Curaleaf Strengthen Partnership in the Northeast

The real estate investment trust acquired a grow facility in Massachusetts for $21.5 million to lease to Curaleaf.

Cannabis REIT Innovative Industrial Properties (NYSE: IIPR) acquired a grow facility for $21.5 million to lease to Curaleaf (OTCQX: CURLF) in a bid to fortify their partnership toward the Northeast.

The Webster, Massachusetts, property contains 104,000 square feet of industrial space and is fully built out and operational as a regulated cannabis cultivation and processing facility. IIPR paid $207 per square foot and said that the property is estimated to have capacity for around 32,000 pounds of cannabis flower annually.

Curaleaf, which is headquartered in Wakefield, already has a vertical presence in Massachusetts consisting of four dispensaries and two cultivation and processing facilities, including the new Webster purchase.

The two companies have a string of properties together across the Midwest up to Pennsylvania, but this would mark the first in the Northeast region. Curaleaf is IIPR’s fifth-largest tenant partner in terms of capital investment.

The real estate investment trust owns 111 properties in 19 states as of Sept. 1, representing a total of about 8.7 million rentable square feet.

IIPR said that it has committed approximately $2.4 billion across its portfolio, including capital investments and additional capital commitments to fund future construction and improvements at its properties.

Rental Risks

Questions remain over whether IIPR’s renters can keep paying rising rent as prices for cannabis keep falling. This deal comes off the back of news that one of its California-based leaseholders, Kings Garden, failed to pay $2.2 million in July rent and management fees for six of its properties. IIPR said the default represents 8% of its portfolio, and it is taking them to court over the nonpayment of rent.

In a short-seller report on IIPR earlier this year, Blue Orca Capital suggested that falling cannabis stock valuations are a looming risk for the REIT. The firm said that the current climate creates a cycle of equity raises and falling stock prices, raising the cost of capital.

Most cannabis companies report negative net income and negative free cash flows, the report said.

“This matters because IIPR’s stock price is contingent on the financial health of its tenant portfolio and the ability of its cannabis companies to continue to pay high lease rates over the next 15-20 years,” Blue Orca wrote.

IIPR responded, saying that Blue Orca simply does not comprehend the challenges of converting standard industrial properties into fully operational, advanced grow sites.

Blue Orca wrote that it believes IIPR’s loan book has “degraded significantly” as the sector has become more competitive, adding that IIPR stretched for lower quality tenants in search of continuing growth.

“IIPR’s largest tenant is a failed SPAC that appears in severe financial distress and was recently sued by investors accusing it of securities fraud and being in effect a Ponzi scheme,” the report said, referring to Parallel Cannabis. Green Market Report wrote about this exposure when it uncovered the extent to which IIP depends on rent from Parallel Cannabis, which has been paying its rent despite defaulting on some of its debt.

“We think of Parallel as the canary in the coal mine – demonstrative of broader risk that we believe exists across much of IIPR’s portfolio; long-term leases made to low credit quality tenants with significant downside in the event of default,” Blue Orca wrote.

Adam Jackson

Adam Jackson covers the cannabis industry for The Green Market Report. He previously covered the Missouri statehouse for The Columbia Missourian and freelanced for The Missouri Independent. He most recently covered retail, restaurants, and other consumer companies for Bloomberg Business News. You can find him on Twitter @adam_sjackson and email him at adam.jackson@crain.com.


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