The Canadian Investor - Canadian industrials & another profitable marijuana play

Episode Date: October 28, 2020

We are back without any audio issues! We start the episode by talking about some of the recent news & headlines. Braden breaks down four interesting Canadian Industrial companies and we finish the episode by talking about another profitable company cannabis/marijuana exposure. Tickers of stocks discussed: QSR.TO, SHOP.TO, TFII.TO, TIH.TO, WSP.TO, MG.TO, SAP, HSE.TO, CVE.TO, IIPR Twitter: @cdn_investing Getstockmarket.com --- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. Live from the great white north, this is the Canadian investor where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Hey, yo, the Canadian Investor Pod. What's up?

I'm Brayden Dennis, joined by Simon Belanger. And we're back with a little bit of a continuation of last episode. Because if you didn't know, Simon, last pretty sure that was episode 50 and i'm still not sure how to use recording equipment for a podcast so um that might be slightly problematic so thank you for editing that for four hours if you're at home right now golf clap for simon thank you man oh no problem i mean it was definitely a challenge, but I can't make audio reappear. So there were just some sections that completely did not record on your end. But maybe it's a sign you'll have to change your 2005 laptop, Braden.

It is a 2015 MacBook Pro, okay? These things are supposed to last 10 years, so they say. It overheats that you honestly can get a suntan just working on here. I mean, as an Apple shareholder, I strongly recommend that you dish out a few grand to get a new one. The new laptops are outrageously expensive, but you know what? That's the price you got to pay. All right, we're going to start with a little bit of a news roundup. Earnings season is in full swing ahead.

Reports coming out every single day. Big one yesterday, shares of SAP fell off a cliff. Their largest decline in a long time. Shares down over 20%. Management had poor guidance and people were wondering if it was a cloud problem or is it just an SAP thing? And Mark Benioff, the CEO of Salesforce said, this is not the cloud biz. This is an SAP thing. So interesting things coming out of sap this is this is an old old company but did you make anything of this i mean it wasn't that bad of a quarter but it's the first time this company is kind of you know putting on the brakes a little

bit uh yeah i think it's uh just managing expectation a lot of it comes from that. So SAP had been saying that they'd be transitioning from a kind of licensing model to a more SaaS model. They were planning to do that by 2023. Now they've said that that'll be 2025. They've also had some integration of businesses that they bought that are not going as smoothly. Their earnings and revenues are slower than expected in their guidance. And it makes you wonder if they shouldn't have just provided no guidance for this year and possibly next year due to the pandemic. It feels like a lot of companies had the blank slate when it came to that,

but they still wanted to provide guidance and they did not reach it. So the market reacted accordingly. It'll be interesting to see how their competitors do with the upcoming earnings season. So I'm thinking Salesforce here, ServiceNow, Oracle will be a very interesting one because they have a pretty strong legacy business as well so before you kind of put them all in the same bucket that's what i do is just look at some of their peers and see how they're doing have a feeling we don't have a lot of people that own their shares because they're traded in uh in europe i believe in frankfurt if i remember correctly yeah that's that's correct um they have a u.s listing though they must yeah they must yeah of course for sure um oh yeah they do sorry they do yeah yeah they are german founded business

though yeah yeah um so coming out today actually uh shopify and tiktok could be looking at a deal for a shoppable video ad that's what the news headline says whatever that may be so this is interesting because i think the walmart and shopify deal is kind of stalling out like i don't know where that's going. Walmart's going full steam ahead with e-commerce, but it's supposed to be a big deal with Shopify, and that seems to be losing some of the hype. But this deal with TikTok could be quite large. Additionally, Tim Hortons and QSR, Restaurant Brands International, which is ticker QSR, had a lackluster quarter.

Tim Hortons' Burger King sales were not great. Popeyes was kind of carrying the business with their sales up. Revenue totaled $1.34 billion, down from $1.46 billion in the same period a year ago. I mean, this is not surprising to me at all. I'm not in the office as much anymore, and do I buy less coffees? Yes, of course. I'm buying less coffee and making more coffee at home. So I don't see this as a cause for concern,

although I don't like what they've done within Tim Horton's brand. But that's just me. I actually had a Tim Horton's coffee today because I had to go to the physiotherapist and I got my shoulder popped in. That's a story for another time. The coffee I had tasted like soapy bath water so i don't know your stance on tim hortons coffee simon but uh it was completely undrinkable like i don't know how they made such a bad coffee

yeah i mean it's never like i've used to drink Tim Hortons all the time, especially when I started university, when I had like 8 a.m. classes. And I just remember the first time I tried it, a small coffee. I'm like, oh, my God, this like is this is awesome. I feel so awake. It's great. And now, obviously, I need multiple coffees a day. But specific to them, I mean, I drink my coffee black, so it's never been the best taste in terms of coffee. For me, it always had a bit of a soothing taste because it's kind of what I started drinking. But yeah, in terms of quality, I've kind of stayed away from in the past few years. I used to have maybe once a week.

But yeah, they've I don't know, they haven't really improved much of what I like from them. Usually their coffee and some of the, you know, the breakfast sandwich and stuff like that. So I can definitely understand where you're coming from there. Because of that, I mean, I'm not sure what direction they're going, to be honest. So it's not a company I'm particularly interested in. Plus, there's been a lot of tensions with their um their franchisees which is not always great to see so that's kind of my take on them yeah no totally um well i i've had lots of their coffees but this one today was just like i i can't even look at Tim Hortons right now. I'm actually, oh God, it was horrible.

Moving on, Synovus Energy, they're going to be acquiring Husky Energy. These are two oil and gas companies here in Canada. Synovus announced today that they are going to be slashing 20 to 25% of the workforce after the acquisition is complete. This probably makes a lot of sense. This is a lot more to come. I think this is a look into what's in store ahead for the future with this industry. Don't want to make light of people losing their jobs. This is bad, but probably smart from management. And we're going to see more of this if I had to put my money on a bet

one way or the other. Yeah, I mean, I totally agree. We've talked about oil and gas a little bit in the past month or so. And it goes down to the same thing, right? It's a really hard business when it comes to the commodity prices really going down really quickly like it's happened this year. Who knows where it's going to be in the next few years. So you'll probably see a lot of consolidation like this, a lot of cost savings, people losing their jobs. And of course, obviously, we don't want to make light of the situation. And my, you know, my heart goes to those that have been affected by this, or if none of our listeners have if they know people. But it's a good reminder

in terms of investment, especially in commodities. It's really you can't control the uh the cause that you'll get per uh per barrel so it's a it's a tricky sector to invest just to say the least and we'll probably be see a lot of consolidation in the sector because um yeah you'll have stronger players that'll try to buy on the cheap players that could be going bankrupt that have good assets and they'll capitalize on that and you know it probably makes a lot of sense for the the bigger players in that industry to do so yeah totally and this goes back to why i harp on my stock investing checklist so much of does this business have pricing power if no i just move on i don't care how cheap it is. I don't care how big of a discount to book value I can buy these oil and gas co's. When they don't have

pricing power and there's businesses out there that have ludicrous margins on pricing power, I'm going to move my capital into the latter. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's

customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world,

while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information.

So today's segment that was supposed to be on last week's segment, but again, I'm a boomer and don't know how to use technology. Is Canadian Industrials listed on the TSX? I like all four of these companies I'm talking about, some more than others. And then I'm going to put Simon on the spot and tell me which one, we'll give you or two, but which one, based on my pitches here, which one you would pick Simon. Okay. So starting off numero uno is Toramont Industries, ticker T-I-H. Toramon operates two segments of the business. The much larger segment of the business that I'll be talking about is the equipment group, which is a Caterpillar. So like large machinery Caterpillar, their dealership and rental operation of Caterpillar equipment for the construction business. of Caterpillar equipment for the construction business.

And this has been a very, very interesting business, and they're reaching all-time highs right now as the construction industry picks up, the appetite for assets. And by the way, the rental business with Caterpillar equipment is a surprising win-win for everyone involved. It's good for the constructor. Economically, it's good for the constructor to rent some of this equipment sometimes. And Torremont gets the benefit from that. So it's an interesting model and provides value for everyone in the value chain, which I like to see. Revenue has

been growing at almost 15% a year over the last five years. Trades at around 2.7 times sales and over 25 times earnings. So it's not by any stretch of the matter a cheap company in this sector, but it is the leader here in canada they do some small business as well in the u.s and their biggest competitor is finning international and on a market cap basis they're just a little over double the size so finning has the western side of Canada and Torremont has pretty much you know Manitoba eastwards and with mining in full swing right now and with construction picking back up a lot they reported some pretty strong quarters the dividend grows like a weed uh at over 10 percent a year 11.47 percent on average over the last five years to be exact.

And it's a really, really interesting business. It's very leveraged to this brand power of Caterpillar. So they are very, very tied, these two businesses, of course. So something to consider there is when you look at this business is what do you think Caterpillar's market share will be and continue to be because Torremont's business relies on Caterpillar. All right, moving on. WSP Global, my favorite engineering firm to own on the stock market.

They're mostly a grow by acquisition co and they buy engineering firms all over the world. Their main segments are transportation and infrastructure, which is about half of sales, property and buildings, environmental and industrial and energy. So they manage rail, aviation, roads, ports, environmental, consulting, all kinds of stuff. And in construction and infrastructure, a very capital heavy business, WSP just provides services. So it's very capital light. And in return, what you see is extraordinary free cash flow compounding, because they're just providing consulting services, it's capital light, and they acquire firms all over the world.

This is a pretty big business, well over 10 billion in market cap. And there was rumors of them merging with a Ecom, is a very very big consulting firm based out of california and they're very like for like in size this would be become the biggest engineering firm and yeah so 31.5 free cash flow compounded annual growth rate over the last 10 years. 34% on revenue. Wow, pretty impressive. It trades at a pretty penny on earnings, but not on enterprise value to free cash flow. So this is a very free cash flow pumping business. Don't look at the earnings, it's not useful. It's only 15 and a half enterprise value to free cash flow and only 1.1 times sales. So I can give you an idea of how really it's not

expensive at all for this growth. It's actually quite cheap. They pay a dividend, but it's at a complete standstill. They've been moving capital. Their capital allocation has been all through acquisitions and not growing the dividend all right moving on my darling of a boring business tfi international they're a canadian business that operates in north america as well ticker tfii which by the way earlier this year they did a new york stock exchange listing as well which has debuted excellently by the way earlier this year they did a new york stock exchange listing as well which has debuted excellently by the way this stock is up over 160 percent since its march lows um i was recommending it in the stratosphere premium and what now is stratosphere 2 membership which by the way you can go check out completely for free see See all my topics. TFI, I was recommending in April, uh, stock was way too cheap. It's up over 150% since, since those recommendations

and what an incredible capital allocation. Elaine Bedard's an incredible job with this business. Uh, there are some really solid capital allocators coming out of Quebec. So good job for these Quebecers. 8.4% compound annual growth rate on revenue, which is nothing to write home about, but it's been so cheap. And now you're seeing the multiple expand. It trades at 1.6 times sales roughly now, but it used to be a lot cheaper. So what you're seeing now is there was this really, really underpriced growth in transportation and logistics and last mile delivery. I was telling you guys a story before about how I was biking home from work and there was a guy with a tfi international safety vest on and he had

like a like a zillion amazon packages in his car i don't even know how they he put them all in there like this guy could be a jenga specialist the amount of packages he had in this in his truck or van, whatever it was, was incredible. And this last mile delivery is obviously direct to consumer, has so many tailwinds. And here's this unsexy business who has the secret sauce when it comes to acquisitions, buying distressed assets and swooping in at the right time, integrating them into the system and benefiting from that. So I love finding these underpriced growth opportunities. TFI has been an absolute monster. And it's a great business here. I like it here.

I'd buy more here. Hi, Braden. Yeah, I was going to mention, I think I have an idea of why it was a bit underpriced in terms of the multiples. So TFI, but also a lot of trucking companies in general, they had a lot of pressure getting workforce was one of the big challenges is people didn't want to be driving those trucks so they were having to overpay for truck drivers and I'm assuming that now given the the situation with the economy and the pandemic in general and all the tailwinds but also people looking for employment I feel like that's probably helped resolve to some extent that issue without counting, of course, in the future, they may not even need those drivers. But for the time being, I think that might have put pressure on the value of the business. You know what? You're probably spot on. And the demand for

truck drivers is incredibly high. I remember seeing a stat that it was the number one most in-demand job in America, like even two years ago, because there's a lot of trucks that need to be driven and not enough people who want to do it. So that's a good point. It probably was causing a lot of stress for the business. That's a good point.

It probably was causing a lot of stress for the business. Going super long term, this business is going to continue to chug along and the high single-digit revenue probably, but their margins are going to expand on very long term. This is my thesis why for owning this business really, really long-term, like 10 plus years, is their two biggest costs are people, as you just mentioned, and fuel. Now, moving forward, there's two things that are going to happen in trucking and logistics, is driverless cars is coming. So that's one of them.

That's one of those costs. And electric trucks are coming. And they're much cheaper to operate than traditional combustion engines. So if you think about those two large input costs and how they will dramatically change in what I think is not so distant of a future, it's interesting to look at trucking and, and think this is a currently unsexy business that when margins dramatically improve,

the multiple is going to dramatically improve and margins are going to go through the roof. Again, this is not going to happen next week. This is going to take a lot of time, but it's something to consider for a company that is still cheap relatively and the management just gets it. Like, I put them... I don't think Olambedar and his team get enough credit still cheap relatively. And the management just gets it. Like there,

I put them, I don't think a Lambert Darden, his team get enough credit because like Bruce flat gets so much credit for buying distress assets for Brookfield asset management. And these two guys are like, they must've went to the same school of buying cheap distress assets because TFI has the secret sauce. And it's been very, very impressive. So another one that's similar in the fact that it's automotive in

nature is Magna International. And I used to own this stock. And it's very cyclical in nature. They make auto parts for all over the world. They have about 50 plants in Canada, 80 in the US. These are rough numbers, by the way. Close to 100 in Europe, another 50 in China, a bunch in South America as well. And what I think is very underpriced about yes, is a cyclical business in nature is the technology that the car, the massive computer that the car has become. And Magna is very instrumental in allowing these OEMs to advance the car into this massive

supercomputer that it's become and what it is going to become. Like we just talked about driverless cars. And Don Walker, the CEO of Magner National, under his long tenure as the CEO and an executive prior, stock tripled under his CEO tenure. They just announced that he will be replaced by the chief technology officer swami khodadjiri in starting jan 1 so into 2021 and he has been instrumental in truly being a technology play in in in auto because the car is so complicated and the supply chain is, I think the most complicated supply chain on the entire planet is the auto parts and auto manufacturing business. And you could see some interesting underpriced growth in that sector. Now it's very cyclical. And Simon and I were talking about this offline before,

is that cyclical businesses like auto parts, you might actually want to buy them when they have the high PE. And you might be thinking, why would I buy a stock when it has a high PE, not a low PE? And the reason for that is because it's cyclical, and when earnings drop, that's actually probably when it's cheapest because price over earnings. So typically you'll see the best value on some of these businesses is when the PE is actually at five-year highs, not lows. So something to consider,

the stock has grown revenue at 11% compound annual growth over the last 10 years, trades at 0.5 times sales, has a 14% gross margin. Of course, it's auto parts. You're not going to see that, something like 80% in software. And management's been really good capital allocators, 18.3% return on equity. They've grown the dividend at over 15% a year,

which is quite remarkable. Something I didn't mention on TFI, by the way, last week, they had an awesome quarter last week and grew the dividend 12% last week on their quarter. So something to consider there as well. So three out of these four businesses are incredible dividend growers, typically boring businesses, but get the job done. Smart management team, trade on the TSX. I own some of them.

Simon, which one are you looking at and think is interesting? Well, I do not have any interest in rental equipment and large rental equipment and the cyclicality of Magna is kind of not really interesting for me. I'm not saying it won't be a good investment for people, just those two companies just don't really excite me. So the two by default then would be WSP and TFI would probably be the ones I'd be most interested in. So especially TFI with the logistics and the boost from e-commerce, I think that's a really interesting Canadian play from that perspective.

That's probably still a bit under the radar for a lot of people. So probably TFI and then WSP. And the other two I don't think would be on my radar at all. Totally fair. I am the most bullish on the ones you mentioned as well. TFI being probably the most. But, oh my God, it's incredible how much free cash flow WSP spins off. I own WSP.

It was a Stratosphere pick well over a year ago. It's done amazingly well over a hundred percent since then TFI as well. So, um, pat myself on the back here, but these are under the radar growth opportunities in potentially boring businesses, but smart management teams and make good acquisitions, which is not always easy to do. And in this day and age, you're probably going to see that accelerate. You see TFI pretty much makes an acquisition what seems like every week, but it's probably more like every quarter. And yeah, so very interesting businesses to put on your radar. Again, that's Toromont, the first one, TIH, WSP, ticker WSP, TFI International, ticker TFII, and Magna International, ticker MG. Both Magna and TFI trade on the New York Stock Exchange as well.

As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com

for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world. Well, folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get

globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Yeah. and for those of you, I'm sure a lot of you already know, but I do put the tickers in the show notes. If ever you miss it, don't worry, it'll be in the show notes. And now speaking of acquisition, we'll actually transition to marijuana or cannabis profitable company partner. So the one that I teased last week, I'll talk about this week. The name is

Industrial Innovative Properties. The ticker is IIPR. So Brayden, have you ever heard of them or this is brand new information for you? I have heard of it, but what's more important to me is I want to hear you say innovative one more time with that cute little french accent yeah innovative uh there you go oh there you go you nailed it industrial innovative properties but i think i'll stop here before i mess it up again so it's a really interesting play if you ask me so it is a it's listed in the u.s um it is a obviously it's a re, so it's not a direct marijuana play. But as a whole, what they do is they have a leaseback program, which they buy properties from cannabis companies where it's legal in the U.S., some states where it's legal both recreationally but medically,

and some states only medically. And so they buy those property bags, they renovate them, and then they lease it to the company they bought it from. And what's really interesting is they actually do absolute net leases, which is essentially a lease where the tenant pays everything, including some of the maintenance and roof repairs or building repairs. So it's really good because, you know, it really, it makes sure that they don't have a lot of unforeseen costs. So that's kind of their business model. One thing to understand, so if people kind of start digging, you'll see that the dilution is quite high, which is quite normal for REITs in the US

because REITs have to pay 90% of their profits in order to not pay taxes on it. So what tends to happen with REITs in general is they actually, if they want to grow, they do it one of two ways. They either get debt or they issue more shares. So IIPR has been issuing shares, which makes your balance sheet actually looks pretty good. They don't have that much debt on the balance sheet itself. And to give you guys an idea of how fast they are growing. So in terms of funds from operation in for the first six months of 2020, they had 36 million versus 9 million in 2019

so that's a forex increase they paid out 29 million in dividends for the first six months versus 7.8 million last year again there's been an increase in shares so you have to take that into account but their payout ratio is about 80% for 2020, 85% that was last year. Like I said, they have a leaseback program that's really interesting. And they have properties in quite a few states that it is legal in the US. So just to give you guys an idea. So they have a presence in Illinois, Pennsylvania, and I'm going by importance level. So Illinois, Pennsylvania, Massachusetts, Michigan, California, Florida, New Jersey, Ohio, New York, and then smaller states as well. And you can really see their presence increasing as more and more states legalize it

in the U.S. Of course, I've talked about it last week. It's still not legal on the federal level. But again, for them, they don't really have any liability there. They are just leasing the property to cannabis producers. So it's a kind of safe play from that perspective. To my knowledge, they don't have that many competitors or any major competitor in that space. And it is still relatively small in terms of market cap. It's only 2.6 billion in terms of market cap. So still fairly unknown and fairly small. And because there's still that legal legality aspect to it in the States, I think a

lot of a lot of analysts are not really following that REIT. So I think it gives people, retail investors like us, a good opportunity if they want to start a position in that company. And again, I've mentioned it, it's profitable. So it's a big difference from the traditional marijuana space. The last thing I wanted to mention about them is their dividend has been increasing like crazy per share. So in 2017, it was 15 cents per share per quarter. And now it's a dollar and six per share. So that's that's quite the increase in a matter of three years.

Don't know if I said 2015. I meant 2017. So it's really I mean, it's a really interesting play all in all. They seem to have a really solid strategy. It does require a bit more investigation on my part, but it is something I'm considering adding to my portfolio as a more dividend play, of course. I would put that in my RRSP. Any questions on my take for IPR?

I'm seeing this explosive growth recently, you know, 36 million in FFO, that's funds from operation by the way, versus 9 million. So this, this growth, is it, is it the construction of new facilities or have they pivoted to cannabis? What is the backstory on that? Because that is really explosive growth for a REIT. Yeah, so my understanding is they have not been building that many properties.

It's really what the leaseback program that I was talking about. So they're taking a cannabis company that own their buildings, they're buying it back from them, they're improving them and then releasing it to them. So it provides them with those stable cash flows. Again, there's they're called absolute net lease agreements. So once they're leased, they're very few costs for iipr so most of the cost is assumed by the tenant so it's really it's a really nice play from that perspective and one of the things that i did forget to mention is for um pretty much all the states that they have a presence in for all their tenants uh basically cannabis was considered an essential business.

So that's really good. Oh, it's essential. Oh, for sure. Well, with the exception of one state. So they did mention that on their conference call. Massachusetts did keep it essential for medical purposes, but not recreational. But all the other states, they kept it as an essential business. They only had three companies that they deal with that had they had rent deferral in in place and it was only for a few months and now they're paying rent again

and there's actually they're they've come to the agreement where the deferral will be amortized over like an 18 month period with those companies but basically i think they're upwards of 90%, if not 95% in terms of rent collection during the pandemic. So that's been their business model. From what I understand, they've always been in that space. So that's why they were really small when they listed about four years ago. And they have that business model seems to be working quite well. It's kind of a bit of an acquisition strategy in a weird kind of way. But I really, I mean, I do like it. I don't mind that they're issuing more shares to do that strategy because it seems to be paying off, literally paying off dividend for shareholders. Interesting.

So what is the yield right now? You mentioned it's definitely growing like a weed. No pun intended on by that. it's growing like a weed. 3.8% right now, so it's quite interesting yields, especially for those who want some exposure to the cannabis sector. Yeah, a bit more indirect exposure, but still some exposure. That's really interesting. Maybe some people that are you know retirees

that want some exposure that but i would like a dividend payment at the time uh 3.84 percent is nothing to sneeze at and it's uh for a read 80 percent of ffo for payout ratio to me is uh is perfectly reasonable so uh definitely something to consider for those who want something, again, like I mentioned, that's profitable. So is this a former – like I'm trying to understand the background here because this is new to my radar. Is it a former cannabis code that spun off the real estate? I don't know. That's a good question. i didn't i didn't go into that far out now it almost sounds because of those things you mentioned it almost sounds

exactly like the company which talked about magna international they used to own all of the real estate that they operate in all those industrial properties their plants were in, here in Canada anyways. And they actually spun off the plants and they would start paying a newly created REIT called Granite Real Estate Investment Trust, which has been a very good performer in the industrial REIT space in Canada. But that was actually Magna's business that they spun off and publicly listed as a REIT and then paid the lease to. So it almost sounds like that's what this is. But again, I'd have to check.

Yeah, it could be. And I mean, what's really allowing them to make a lot of these acquisitions and legalization might actually be a detriment to this business. The reason for that is right now, when you have these cannabis producers in all these legal states, they have to be well-funded on a private basis because they're not allowed to list on any of the stock exchanges in the US because it's not legal on the federal level.

And it's also very difficult for them to get loans from banks. So that's why a lot of them are resulting into this approach because it's a way for them to get that cash flow. So IIPR gives them the money for the building. They have that infusion of cash and then they basically rent it out back to them so i'm not sure maybe the legalization could actually be a detriment to this company as weird as it may sound yeah a very very counterintuitive but uh yeah so this is this is an interesting play one one uh one to dig into more i think given that guys it's good for this week. We'll see you next week. If you have not been to stratosphereinvesting.com or getstockmarket.com, that's the exact same

URL, redirect stratosphereinvesting.com by the way. You can try Stratosphere 2 entirely for free. You don't need a credit card. You can make an account. It takes one minute and you can get all of the data that I'm talking about. When I'm talking about growth rates, when I'm talking about dividend yields, when I'm talking about different companies that meet certain screens, that's all on that platform. All those stats are directly on there for any company you want to search up. You can search by ticker. You can search by name. You can use the stock screener. There's a community forum.

You can go introduce yourself. Getstockmarket.com. You can go on there, make an account, try it out. No commitment. If you like it, you can join the membership. And that will do it for this week, guys. We will see you guys next week. Bye-bye.

The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.