Uncertainty Surrounds Innovative Industrial Properties’ Future
A recent default by PharmaCann on all leases has sent shockwaves through the investment community, leading Compass Point analyst Merrill Ross to reassess Innovative Industrial Properties’ (IIPR) prospects. On December 20, Ross downgraded IIPR to Neutral from Buy, citing concerns over the company’s ability to collect revenue.
The Cross-Default Conundrum
The magnitude of the cross-default triggered a rating downgrade and price target cut, as the firm initially struggled to determine whether PharmaCann’s default was an isolated event or a sign of deeper issues. However, Ross now believes the default was a negotiating tactic, with PharmaCann seeking to exit its lease in Warren.
A Delicate Balancing Act
Both companies are under pressure, with PharmaCann unable to afford eviction from its five other grow facilities and Innovative Industrial facing the risk of losing 17% of its revenue. The situation demands creative negotiation, as Innovative Industrial cannot afford to fail to collect revenue and maintain its dividend.
A Waiting Game
Compass Point is taking a cautious approach, waiting to see a clear path forward before considering IIPR a buying opportunity. With the clock ticking, the firm needs to see a resolution to the current impasse before revising its price target.
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