Compass Point analyst Merrill Ross, who previously downgraded Innovative Industrial Properties (IIPR) to Purchase Neutral with a target price of $78 on Dec. 20 after the company reported a default by PharmaCann on all leases, says the order of magnitude of the cross default led to the downgrade of the company and target price cut as the company did not know at the time whether PharmaCann was “at the edge, or if it was an isolated event”. The company now believes that this defect was a negotiating tactic by both parties and that PharmaCann just wants out of its lease in Warren, arguing that Innovative Industrial is “wielding a big stick in the default provision cross”. However, the firm also believes “the clock is ticking for both companies” because PharmaCann cannot afford to be displaced from the other five cultivation facilities and Innovative’s critical negotiation “calls for creativity” , as it cannot afford not to collect 17% of its income for any period of time and still maintain the dividend. The firm adds that it needs to see “a light at the end of the tunnel before we can find a price where IIPR stock represents a buying opportunity.”

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