A company that plans to buy industrial properties and lease them to medical marijuana cultivators in states that have legalized medical cannabis has gone public on the New York Stock Exchange after the Securities and Exchange Commission declared the company's filing effective on Wednesday.

The SEC gave the green light, making Innovative Industrial Properties the first marijuana-related company to list on the NYSE, says securities lawyer Marc Ross, a founding partner at Sichenzia Ross Friedman Ference, despite the fact that cannabis is still illegal under federal law.

According to filings with the SEC, Innovative Industrial Properties, which will conduct business as an umbrella partnership real estate investment trust (UPREIT) based in San Diego, was approved by NYSE to list on the exchange back in October. The company has decreased its deal size substantially since its first IPO filing. It's current offering is 3.4 million shares at $67 million.

The SEC affirmatively declared the company's filing effective, the first time the agency has done so for a cannabis-related IPO, says Ross. Previously, the SEC has allowed IPOs of cannabis companies to go effective after a waiting period without actively approving them.

"It's a big moment that the SEC has allowed the company to go public and the New York Stock Exchange allowed it to list," says Ross, who also teaches a class about marijuana business and law at Hofstra. "I think it reflects the evolved thinking of the regulators as it concerns an industry that is now legal and available to more than 50 percent of Americans."

The NYSE declined to comment, and Innovative Industrial Properties did not return multiple phone calls.

IIP is not the first marijuana company to go public. There are many public cannabis companies, but most of them are on over-the-counter markets. The NYSE requires all of the companies listed on the exchange to abide by the law, but Ross says that the NYSE is a self-regulating organization and it can set its own standards and follow or not follow them as it pleases. Still, Ross says the NYSE's allowing a marijuana-related company to list on its exchange marks a turning point for the country's institutional financial system, which has been apprehensive to accept the formerly black-market product.

IIP will not sell marijuana; its strategy is to be landlords to cultivators. IIP plans to buy industrial buildings and lease the properties to state-licensed medical marijuana cultivators across states like New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts, and Maryland. The target price of its investments will range from $5 million to $30 million, and they will range in size from 25,000 to 150,000 square feet of space, the company states in its S-11.

IIP does not currently own any properties. IIP says in its SEC filing that it will focus on sale-leaseback transactions, which the company believes will be attractive to medical marijuana license holders, because marijuana companies are generally blocked from traditional means to raise capital and finance large commercial purchases like warehouses through loans. Traditional banks and the mainstream public markets, for the most part, have not been open to marijuana companies.

One major difference between Innovative Industrial Properties and other companies that have applied to go public on major exchanges, like MassRoots, a marijuana social network that unsuccessfully tried to up-list its penny stock to Nasdaq this year, is that the executives of IIP have brought other companies public on the NYSE. Alan Gold, IIP's executive chairman, co-founded two other real estate investment trusts that listed on NYSE, BioMed Realty Trust and Alexandria Real Estate Equities.

Currently, three biomed stocks are listed on Nasdaq that make medicine with chemicals derived from cannabis: GW Pharmaceuticals, Insys Therapeutics, and Arena Pharmaceuticals.

Ross says IIP could be viewed as conspiring to violate federal law by aiding and abetting cultivators of a drug on the Controlled Substances Act. With Donald Trump's presidential victory and nomination of senator Jeff Sessions of Alabama as U.S. attorney general, a staunch opponent to legalization, policy experts like John Hudak of the Brookings Institution say the new administration could decimate the state-regulated industry. Most industry entrepreneurs believe the jobs and tax revenue created by the industry will prevent the new president from going after the industry.

Since the 1990s, states have reformed their own marijuana laws, but federal law still considers marijuana an illegal controlled substance. But after the November election, four states passed laws legalizing adult use, bringing the total count to eight states, and four states passed medical use, bringing the total to 24 states. More than half of all Americans have access to some form of legal pot. Nationwide, legal marijuana sales are estimated to be more than $6 billion by the end of 2016, according to cannabis research and investment network ArcView and data company New Frontier. The market is poised to grow to nearly $22 billion by 2020.

Stay with this story for updates about Innovation Industrial Properties' going public.

Published on: Dec 1, 2016