Pictured: Marijuana plants in a warehouse in east Denver. (John Leyba, Denver Post file)

Cannabis real estate company gets NYSE approval, but Wall Street debut delayed

Updated Nov. 29, 2016, at 2:05 p.m.: For the second time in three business days, Innovative Industrial Properties downsized its planned offering. On Tuesday afternoon, just before 2 p.m. MST, the company notified the U.S. Securities and Exchange Commission that it planned to offer 4 million shares at $20 per share.

On Friday, the company lowered its deal size to 5 million shares for $20 per share — down from the original 8.75 million shares offered at $20 per share.

The first cannabis company to land a listing on the New York Stock Exchange could go public early next week; however, a culmination of factors — including marijuana’s uncertain future on the federal level — appear to be giving investors some pause, an analyst says.

Innovative Industrial Properties, a San Diego-based real estate investment trust (REIT) for medical cannabis facilities, filed documents in October to raise $175 million by offering 8.75 million shares at $20 per share. At that price, the company would have a $201.7 million market value and would use part of its proceeds for a $30 million sale-leaseback transaction with PharmaCann, a New York-based medical cultivator and dispensary operator.

The company received approval from the NYSE to list its ticker “IIPR” and was initially expected to have its shares price and go public this week.

“Getting NYSE clearance means there’s at least one less hurdle for cannabis IPOs (initial public offerings) in the future,” said Matthew Kennedy, an analyst with Renaissance Capital, a Greenwich, Conn.-based manager of IPO-focused exchange-traded funds (ETFs).

IIP’s IPO could open doors for others to participate in the cannabis industry, PharmaCann’s general counsel told Forbes:

“IIP’s publicly-traded REIT will be the very first opportunity for institutional investors to comfortably generate exposure to an industry that currently lacks the sort of transparency that SEC oversight provides.”

However, Innovative Industrial Properties’ trip to Wall Street was delayed.

On Monday, IIP officials disclosed in a filing with the U.S. Securities and Exchange Commission that the company’s founders may forego receiving some stock as part of the IPO — a sign that there is some pushback from investors, Kennedy said.

“With a newly formed REIT, they can’t really lower the valuation,” Kennedy said, noting that the company’s chief executive “may decide to take less shares to effectively boost the value for IPO investors.”

IPO investors want a “clean story” with a company, and there are some unprecedented risks with this company, he said.

“I think the company definitely benefited from election results,” he said, noting the medical and recreational marijuana measures passing in eight states.

However, that was dampened by the ongoing federal illegality of marijuana coupled with President-elect Donald Trump nominating the anti-legalization Sen. Jeff Sessions, R-Ala., for the post of attorney general, Kennedy added.

“There is the possibility that the federal prosecutors would just seize the company’s assets,” Kennedy said.

Such a potential occurrence was noted in the company’s list of “risk factors.”

Following the Sessions’ news, Renaissance Capital officials noticed a sell-off occur in marijuana stocks that trade on the over-the-counter exchanges, he said.

Additionally, there’s risk in that the company is a REIT, he said, noting that interest in real estate investment trusts have trended down now that it looks like the Federal Reserve might raise interest rates.

As with other newly formed REITs, Innovative Industrial Properties’ IPO will fund its first asset; the quality and stability of the tenant are uncertain; and the REIT has no operating history nor a track record, although its chairman does, Kennedy said.

As has been previously reported, executive chairman Alan Gold took REITs BioMed Realty Trust and Alexandria Real Estate Equities Inc. public and sold BioMed to the Blackstone Group in an $8 billion deal that closed earlier this year.