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Tennessee, whose governor opposes legalizing marijuana, pulls out of Illinois’ weed business

Its treasurer has sold off that state’s stock in a company that owns and leases back a $25 million cultivation center in downstate Barry after learning from a Sun-Times reporter his agency had invested in the business.

Innovative Industrial Properties bought this 75,000-square-feet grow facility in downstate Barry and leases it to a Massachusetts-based marijuana grower.
Innovative Industrial Properties bought this 75,000-square-feet grow facility in downstate Barry in December and leases it to a marijuana cultivation company.
Revolution Enterprises

One of the state governments that had invested in Illinois’ soon-to-be-legal recreational marijuana industry has backed out.

Tennessee had put its taxpayers’ money into San Diego-based Innovative Industrial Properties, which owns and leases back a marijuana-growing facility in Barry, Illinois, though Republican Gov. Bill Lee opposed a move in that state to legalize even medical marijuana, an effort that failed.

Now, Tennessee’s state treasury department has sold its stock in Innovative, a publicly traded real estate company that owns and leases marijuana facilities — including the $25 million cultivation center in the downstate Illinois city, which is about 22 miles east of Hannibal, Missouri, and 80 miles west of Springfield.

The agency held 6,645 shares of the company’s stock as of June 30, records show. It unloaded after the Chicago Sun-Times reported in July that three state governments — Tennessee, Texas and Alaska — and more than a dozen public pension funds had put money into the real estate business that’s hoping to profit when Illinois’ new law allowing recreational marijuana goes into effect Jan. 1.

In an interview with a Tennessee newspaper, state Treasurer David Lillard Jr. said: “I didn’t know we had this investment until the Chicago Sun-Times called up, and we began digging around to find it. There are policy implications to this.”

Tennessee state Treasurer David Lillard Jr.
Tennessee state Treasurer David Lillard Jr.
Provided photo

He told the Sun-Times, “When I became aware of the risks associated with IIP’s business model in light of federal law, I requested the investments staff to sell the stock.”

Lillard, who like Lee is a Republican, said his state’s investment, made in February and liquidated July 31, came via its buy-in to a stock index fund that includes Innovative Industrial Properties — similar to how many of the government agencies and pension funds invested.

IIP stock trades on the New York Stock Exchange.

Lillard said his concern is about the Controlled Substances Act, which makes it illegal to “knowingly open, lease, rent, use or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing or using any controlled substance” — which marijuana remains under federal law despite Illinois’ and other states’ moves to legalize it.

Tennessee Gov. Bill Lee.
Tennessee Gov. Bill Lee, who opposed legalizing marijuana even for medical purposes. His state has sold its investment in a company profiting from a downstate Illinois marijuana-growing facility.
AP

The Ohio Public Employees Retirement System, which is among the largest pension plans of any kind in the United States, also has sold its holdings in the company —7,000 shares of stock.

Spokesman Mike Pramik says, “The termination was not related specifically to those shares.” He says it was the result of the retirement system firing an outside investment firm it used.

But another state pension fund — the Virginia Retirement System — has bought into the company. Spokeswoman Jeanne Chenault says it has 9,100 shares of the real estate company’s stock. Chenault says its investment decisions are made “solely in the interests of members, retirees and beneficiaries . . . as well as the requirement in the code of Virginia that VRS invest in a prudent manner and diversify its investments so as to minimize the risk of large losses.”

The value of the stock has faltered in the past month as President Donald Trump’s escalating trade war with China has sparked uncertainty among investors. After hitting an all-time high of $130.16 a share on July 5, IIP’s stock price has fallen by nearly $30. Its investors include BlackRock, which is among the world’s largest asset managers, Goldman Sachs, the investment banking giant, and billionaire Ken Griffin’s Citadel Advisors.

Paul Smithers, IIP’s president and CEO, is “bullish on the Illinois market.”
Paul Smithers, IIP’s president and CEO, is “bullish on the Illinois market.”
Innovative Industrial Properties

Paul Smithers, IIP’s president and chief executive officer, won’t say whether he’s concerned about the stock value or whether he fears more public entities will jump ship.

Innovative Industrial Properties’ financial interest in legal weed in Illinois dates to December. That’s when it paid $25 million to buy the cultivation center in Barry and cover renovation costs. It then leased the facility back to previous owner Ascend Wellness.

“We do think Illinois is a great market, with tremendous potential, and are actively considering adding to our presence there,” Smithers says.

No Illinois governmental agencies or public pension funds have invested in the company, records show.

The Chicago Sun-Times reported in July that three state governments — Tennessee, Texas and Alaska — and more than a dozen public pension funds had put money into the real estate business that’s hoping to profit when Illinois’ new law allowing recreational
The Chicago Sun-Times reported in July that three state governments — Tennessee, Texas and Alaska — and more than a dozen public pension funds had put money into the real estate business that’s hoping to profit when Illinois’ new law allowing recreational marijuana goes into effect Jan. 1.