Have you ever considered investing in cannabis stock? How do you even begin to do that? On today’s podcast, Tony Frischknecht walks us through some great stock that’s been doing well for him since he purchased them. He also talks a little bit about an explosive cannabis stock which gained 696% since it went public. Do you want to know what it is? Stay tuned to this episode.
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What Explosive Cannabis Stock Gained 696% Since It Went Public?
I’ve got some cool information for you. It’s going to be a fun one. This is personal investing on some stuff that’s been working for me. It’s important to share some of this stuff. I know there are guys out there that are talking about this stock and that stock. I’m going to take and walk you through some great stock that’s been doing well for me since I purchased these. The start of it that turned me on to looking for companies that are doing things like this is my story, if you don’t know, I’ve been in the industry for a long-time. I started when you could barely find a property that would allow growing cannabis in it.
Some of you may not understand that, but a little backstory here. Very few people here in Colorado back in 2009 and 2010 were renting commercial space for growing. This is something that I know people are having challenges out there now, but there are also a lot of people that are involved in the industry so I never had a problem. There are plenty of people that rent for it. What I’ve noticed is that I was able to take some of the knowledge that I learned from renting a commercial property, and that’s how I found this stock. As our first grow, we were renting a space that was 7,500 square feet. It was much larger than the basement of even 1,000 or 2,000 square feet. It was quite a bit of a step up.
This is where I get to learn about triple net leases. If you’re not familiar with the triple net lease, it’s taxes. You as the lessee or the person that’s leasing the building has to pay taxes, insurance, maintenance, base rent plus the management of the property. What you would do is you’d pay a rent throughout the entire year. Every month you pay rent. When it came down to a certain time period, usually it was right before tax season, so you’re looking at March time, you would receive a bill from the leasing company. The leasing company would say, “You owe this amount,” and that’s the deal. That’s what you signed up for. All of a sudden, you’ve got to pay all these fees that normally in a residential home would be paid by the owner. You as the lessor had to pay all these additional costs. As a landlord this a good thing.
As somebody that is starting a company or a business, especially in cannabis, if you didn’t understand what you’re signing up for, you’re like, “What’s this $4,000 that I have to come up with?” I’m already trying to make it. I’m trying to pay all my bills still and now there’s this unexpected bill that you’re not aware of. Hopefully, that doesn’t stop you. You work through it and you learn that that’s a part of your overhead.
Going through this, we were able to lease a space at a decent rate. What would happen is the city would require us anytime we had a change in our operations of some sorts where we had to get landlord approval, we had to go back to the landlord. The landlord will say, “I’ll approve this, but we got to renegotiate this deal.” Each time that happened, the landlord would charge us more money on a new lease. At that time, it got you upset because you didn’t understand why this was happening.
In hindsight, I would have negotiated something in the clause that would reduce that or eliminate those hikes. You don’t know that until you go through it. That’s another story. I don’t want to go too far into that. All of a sudden, my lease was going up. My overhead kept going up anytime I had to get this special permission. The landlord did very well off of this. This taught me quite a bit, especially once I was able to step out of it, and I started looking at different investment ideas.Cannabis is going to be a $22-billion industry by 2022. Click To Tweet
This takes us to the company I’m going to share with you. This company purchase properties from business owners in the cannabis industry. They lease the property back at a much higher rate, but what gets included in your lease when you’re negotiating it is lease for tenant improvements. These guys will buy your property from you, market value plus plus. This depends on your situation, but they’ll lease it back to you and then they’ll give you tenant improvements. It could be several million dollars.
Why is this important for the business owner? Because cannabis has no traditional funding yet. Most of us know this. If you don’t, make sure you look into it. You can’t get any bank financing. Go back to more of my episodes and you’ll be able to tell that it’s not possible yet. This infrastructure to build out these grows are extremely expensive in the millions. One thing that’s an incentive for the owner is, “Do you mean I can build out my infrastructure? I don’t have to build as I can afford to, I can get this done now.” That promotes extremely fast growth compared to pay as you go, which most companies don’t have the ability to do. Some of you may argue, “That’s a better way to build your business.” Yes and it can be, but the more money that starts getting into this industry as it is daily, the harder it is to compete with those guys. You have to figure out this advantage of growing and being able to grow faster than the other guy, also grow smarter.
This takes us to the name of the stock. The name of this company is Innovation Industrial Properties Inc. This is run by some Wall Street guys. They started this at the end of 2016. At the end of quarter two in 2020, they had nearly twenty hedge funds that were investing into this company. I purchased this company when they opened. They opened at $20. It was bouncing around between $15 and $20 for a few months. I picked it up at $19.66. I’m not telling you this story to brag. What I’m saying is I saw this opportunity out there in front of me because I had learned what was happening here prior to purchasing the stock. I saw what these guys were doing. I didn’t have the time to research it, but I knew it was going to be the next big thing.
I still don’t think there’s a lot of you out there that are talking about this and catching on to this wave of lease backs. I purchased this stock month after it opened. In the middle of October 2020, they’re sitting at one of their all-time highs of $131.25. You can break this up in several different ways. What I like to say is it’s gained seven times what its value was when I purchased it. There are not too many stocks out there that most investors can point at and say, “I was very early on this. I understood it and I took care of it.” Back to my advantage as I went through this, I understood the need for it and how valuable the service that these guys provide.
Another big thing that’s come around that I haven’t seen it hardly next to zero was a non-cannabis company that was involved in cannabis. It was paying out dividends. They paid out dividends of $17 per share. That’s not very much, however, it depends on how many stocks you own. Dividends are very new to the cannabis industry because cannabis stocks have not made profit. Most companies have not, so they’re not producing. The big thing on this is these guys are investing hundreds of millions of dollars into these facilities. Right away, they’re seeing profit back on their money because of their high lease rates. They’ve got all this money invested, but they’re showing profit because it’s almost instantaneous, which again, they don’t have to wait. These leases are coming back in and they’re making money off their money right away.
They’ve also done some deep dives on a lot of these companies. Last time I looked, they own 63 to 67 properties throughout the US. This is a multistate operation. They’re on the New York Stock Exchange, but there’s not too many multistate operations that are flourishing through the US. There are a couple of them. Most of them are multi-operators that have stores here, stores there and grows everywhere, which is extremely expensive too. I also think this is a very new trend because we’re early in the industry. We’re in a transitional time here where the new guy is selling out to the corporate guy, and now the corporate guy is taking it. According to Arcview, which is one of the very earliest investment groups that has come out, their estimate would be that cannabis is going to be a $22 billion industry by 2022.
That’s not that far away at all when you start looking at the tax revenue that all these states are starting to collect. You got all those points why it’s a good stock. We can now talk about the sell time and stuff like that. It’s all going to change. It’s all going to vary with what happens with the industry. As an intelligent investor, you need to be watching stuff like this. When is the time to sell? I easily see this doubling if not quadrupling over the next 4 to 5 years. I don’t think that’s too much to say. Even though we’re looking at $130, if you could double your money in the next 3 to 5 years, that’s still a damn good investment. Also, for you guys out there that are very tax conscientious, it’s the long-term investment. Your tax rate is going to be 20%, which isn’t bad.
Real estate is nothing new to investors, but looking at these ideas on how cannabis has had to be creative with coming up with funds, that’s where these guys fall into that niche. They have solved a problem that many owners out there are struggling with around the country. If you go to places like Canada, you don’t have those issues. They can get lending. I don’t know if they’re getting it right now because a lot of those guys are hurting up there. They’re dealing with national issues. As they grow, some of them are going to survive. We’re starting to see in 2020 that growth in the cannabis industry that’s able to handle these higher lease rates because they’re making profit. I’ve got a question for you. Do you see this opportunity? I know there are other companies out here doing this, but this is the only one that I personally can recommend to you because I’ve seen it firsthand. Next question, are you going to let this one pass you by too? All of us as investors out there, we spend a lot of time going back and forth on whether this is the right investment for me or not.
I want to thank you for reading. I hope you take some of this information and go do your own search. I always recommend that people don’t take it from word of mouth, but go research these. There’s a ton of information out there. If you aren’t familiar with a Form 4 is, if you want to go look and see what kind of investing is happening, go look up the FCC Form 4. For the new investors, you may not know this, but this is what they require insider guys like executives and stuff to do their trading. They have to file this form when they have any big investments that they do in their own company. This is something that prevents insider trading because they spell it out for the FCC.
If you go look into that, you’ll see what I’m talking about, some of the executives, and what they’re spending on their stocks when they’re buying and selling. This is a big tell on what’s happening inside the company that you don’t see published on the quarterlies and stuff like that. Check that out. That’s my last little tip. It’s been a pleasure being with you. This should bring you some value because it’s been blowing my mind watching the growth that’s happening with these guys and what they’re doing. I look forward to seeing more growth from them. I hope you are able to take advantage of that too. Thanks for reading. You have a great day out there.