Shares of Innovative Industrial Properties Inc (IIPR), a real estate investment trust focused on the regulated U.S. cannabis industry, plummeted 5.95% in pre-market trading on Thursday following the release of disappointing second-quarter earnings for fiscal 2025. The company's results, heavily impacted by tenant defaults, fell short of analyst expectations and highlighted ongoing challenges in the cannabis real estate sector.

IIPR reported a sharp decline in both revenue and earnings for Q2 2025. Revenue (GAAP) fell 21.2% year-over-year to $62.9 million, missing the consensus estimate of $64.41 million. Diluted earnings per share (EPS) dropped 40.3% to $0.86, also falling short of the expected $0.91. The significant underperformance was primarily attributed to tenant defaults, which resulted in $15.8 million in lost rent during the quarter.

Despite the earnings pressure, Innovative Industrial Properties maintained its quarterly dividend at $1.90 per share. However, investors appear concerned about the company's ability to sustain this payout in the face of declining adjusted funds from operations (AFFO). The company's management is focusing on re-tenanting efforts and portfolio stabilization, with full recovery expected to take 18 to 36 months. As the cannabis industry continues to face regulatory uncertainties and financial challenges, IIPR's performance in the coming quarters will be closely watched by investors seeking signs of stabilization in its real estate portfolio.