Could New Marijuana Finance Regulations Threaten Innovative Industrial Properties Stock?

Raising capital is a constant challenge for U.S. cannabis companies. Because marijuana remains illegal under federal law, financial institutions are loath to make loans to businesses in the industry, even where state laws permit cannabis use.

To get around this constraint, many cannabis businesses opt for creative solutions -- among them, entering into sale-leaseback deals with Innovative Industrial Properties (NYSE: IIPR), a real estate investment trust (REIT).

Innovative Industrial Properties' business model involves buying cannabis cultivation and processing properties, thereby providing the sellers with the capital they need to grown and operate their businesses. IIP then immediately leases back those new purchases to the prior owners, gaining a long-term income stream from their rent payments. That model works well in the current legal situation, where traditional financing is hard for cannabis companies to come by. But everything might be about to change, and that could be a problem for IIP.

Source Fool.com