I
nvestors seeking high-yielding stocks may be drawn to real estate investment trust (REIT) Innovative Industrial Properties, which boasts a yield of over 11%. However, this enticing return comes with significant risk, as the REIT's business is heavily reliant on the cannabis industry, which has struggled with profitability. A recent default by major tenant PharmaCann, accounting for 17% of IIP's rental revenue, has added to the uncertainty.

    PharmaCann failed to pay full rent in December on six of its 11 leases, prompting concerns about the REIT's dividend safety. Shares plummeted 23% following the news, and investors are now wondering if a cut to the payout is imminent. IIP declared a quarterly dividend of $1.90 per share just a week prior, but with normalized funds from operations (FFO) totaling only $2.02 per share, there's limited buffer for the REIT.

    While it's too early to predict whether IIP will cut its dividend, the recent developments have raised concerns about the sustainability of the payout. If PharmaCann's default proves to be a temporary issue or IIP finds new tenants, the situation may stabilize. However, given the cannabis industry's volatility and the risk of finding strong and safe tenants, investors should approach IIP with caution.

    Considering the risks involved, investors may want to reassess their interest in IIP and explore lower-yielding stocks in more stable industries. If the dividend is cut, it could send the stock into a tailspin, removing the main reason investors invest in IIP. A wait-and-see approach may be wise as the situation unfolds, with many variables still uncertain.