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Why Innovative Industrial Properties Stock Dropped 10% Today

What happened

Yesterday, Innovative Industrial Properties (NYSE: IIPR) -- a real estate investment trust specializing in investments in leasing industrial properties to medical marijuana producers -- announced it will be raising cash by floating an additional 1.25 million shares of common stock (plus a further 187,500 shares in an overallotment option if the issue proves especially popular with investors).

Today, Innovative Industrial Properties upped the size of its offering to 1.3 million shares (with a potential 195,000-share overallotment). More importantly, the company revealed its offering price: $126 a share.

Its stock promptly plunged, down 10.6% as of 10:30 a.m. EDT.

Image source: Getty Images.

So what

That's not a huge surprise. After all, Innovative Industrial Properties stock was selling for north of $137 before today's offer price was revealed. The fact that new investors will be able to buy a piece of the pie for better than $10 cheaper than old investors was never going to sit well with the latter -- especially seeing as the latter are going to see their ownership stake diluted by at least 12% with the influx of new shares.

Now what

But this negative reaction may not last long. While it's true existing shareholders are being diluted here, they're also getting access to a good $164 million in new cash, which Innovative Industrial Properties intends to deploy for the acquisition of new "specialized industrial real estate assets that support the regulated cannabis cultivation and processing industry."

Given the popularity of "marijuana stocks" among investors these days, and given Innovative Industrial Properties' growing role in this field (pun intended), I would expect its popularity to only get higher from here on out.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.


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