US gets relaxed on pot – can investors join the party?

Growing Cannabis © Getty images
Cannabis: an attractive opportunity for investors?

A small San Diego-based real estate firm that plans to invest in medical-marijuana growth facilities has filed to list on the New York Stock Exchange (NYSE). Innovative Industrial Properties (IIP) aims to raise $175m by offering 8.8 million shares at $20 per share. IIP says that “a convergence” of changing public attitudes, the growing likelihood of legalisation in various US states and a “more relaxed” federal enforcement posture towards regulated medical-use cannabis creates an “attractive opportunity” to invest in this niche sector.

Despite IIP’s positive outlook, it is difficult to predict how this market will develop over the next few years. The potential for growth will vary from state to state, depending on the number of licences available to growers and dispensaries. At the moment, 25 states and the District of Columbia have passed laws allowing medical use of marijuana “to some degree”.

But in August this year, the US Drug Enforcement Administration refused once again to declassify marijuana, claiming it is a drug with “no currently accepted medical use”, meaning federal law remains at odds with state law. Furthermore, the Department of Justice reserves the right to challenge the states “at any time they feel it’s necessary”, according to the National Conference of State Legislatures.

If IIP gets permission from the NYSE to list, it would be the first publicly traded cannabis-related Reit, as well as the first marijuana company to be traded on the NYSE. But given that the exchange may deny listings if it feels a listing is “inadvisable or unwarranted”, there’s no guarantee the Reit will get the go-ahead to float.