Will Cannabis Real Estate Be Smoking Hot in 2022?

Innovative industrial properties (NYSE:IIPR) is one of the hottest cannabis stocks on the market today. The real estate investment trust (REIT), which leases industrial space to veteran medical marijuana operators, has returned a staggering 68% annually over the past five years. 2021 was a strong year for the company, adding 43 properties to its portfolio, giving the company a healthy boost to its already strong revenue growth. But will cannabis real estate be just as hot in 2022? Here’s what the data tells us.

2021 saw record cannabis sales

Cannabis demand has not faltered during the pandemic; it has actually increased – a lot. Marijuana sales soared to a record $30 billion in 2021, up $11 billion from 2020. That could be due to the increase in states offering marijuana for recreational or medical use, but another likely cause is the pandemic. Historically, alcohol and drug use increases under difficult economic or social circumstances. With new strains of the coronavirus continuing to emerge, it’s likely that this use will continue, if not increase significantly, in 2022. Some estimates put sales to around $37 billion in 2022, with the potential to hit over $100 billion by 2026, a staggering number in such a short amount of time.

Cannabis on money with an up arrow.

Image source: Getty Images.

Opportunities and challenges of legalization

IIPR currently operates in 19 states, but with the 2022 primary, Mississippi, Kansas, South Carolina and North Carolina could be next in line to legalize medical marijuana, meaning there are new states to do so company can branch out. New York, one of the states where IIPR recently expanded, is forecast to be one of the top markets for adult marijuana use, with sales up 37% year over year in 2021.

There’s now another REIT that specializes in medical marijuana, NewLake Capital Partners Inc, which has a market cap of $583 million and 28 properties under management, meaning it’s still a small company. For comparison, IIPR’s market cap is $5.1 billion, with 103 properties under management.

But even if new states don’t jump on the medical marijuana bandwagon, cannabis real estate has plenty of room to grow. Because marijuana isn’t licensed at the federal level, banks can’t participate in home purchase or home improvement loans or other types of business loans. That means the current cannabis market relies on REITs like IIPR and NLCP and the private market.

The cannabis real estate market looks set to be another hot year in 2022 for a number of reasons. With the primary elections ongoing and the ongoing turmoil surrounding the coronavirus pandemic, there’s plenty of room for growth for these two REITs.

This article represents the opinion of the author, who may disagree with the “official” endorsement position of a Motley Fool premium advisory service. We are colourful! Challenging an investing thesis — including one of our own — helps us all think critically about investing and make decisions that help us be smarter, happier, and wealthier.