Cannabis-focused REIT Innovative Industrial Properties (NYSE:IIPR) has benefited handsomely from the booming cannabis market and investors’ optimism surrounding its decriminalization by an increasing number of states. However, the company still faces several headwinds. Federal legalization of cannabis is not yet a reality in the United States. We think that this, along with the company’s overvaluation amid heated competition in the cannabis space, could cause the stock to suffer a pull back soon. Let’s discuss.San Diego, Calif.-based Innovative Industrial Properties, Inc. (IIPR) owns and manages specialized properties leased to state-licensed operators for their regulated medical-use cannabis facilities. IIPR’s stock has gained 161.4% over the past year, driven by a surge of interest in cannabis stocks.
However, over the past three months, it has gained only 1.9%. The stock is currently trading at $190.64, 14.2% below its 52-week high of $222.08.
Since the anticipated repeal of a federal ban on marijuana is expected to be a time-consuming process, IIPR could face hurdles on its growth path. Also, the burgeoning cannabis industry has become crowded with new operators that are battling for market share. Amid this environment, IIPR is trading at a high valuation, which makes it vulnerable to a pullback in the near term.