It's no secret that the marijuana industry is blossoming before our eyes. On Oct. 17, Canada will officially wave the green flag on legalized recreational cannabis sales, opening the door to what could equate to $5 billion in added annual sales for the industry. This expected rush of demand and cash is what's helped push pot stock valuations into nosebleed territory in recent years.

But what most investors are probably overlooking is the likelihood that it'll take time -- be it a few quarters, or a few years -- for the legal weed industry to mature. Few, if any, industries have emerged from the shadows without operational hiccups, and legal marijuana is unlikely to be any different. This means there's a real potential for disappointing profits out of the gate, as well as supply and-demand imbalances that take time to sort out.

In short, investing in marijuana stocks may not be as much of a surefire bet as some pundits would have you believe.

A tipped over jar filled with trimmed cannabis buds lying atop a small pile of cash.

Image source: Getty Images.

Marijuana investments with a dividend do exist

There is a way to bide your time with marijuana investments and make money. Currently, there are three investments you can make in the cannabis arena that'll pay you while you wait for the industry to form its foundation.

Innovative Industrial Properties

One of the easiest ways to collect a dividend while investing in marijuana stocks is to target a real-estate investment trust (REIT) with a focus on medical marijuana grow-farm ownership, like Innovative Industrial Properties (NYSE:IIPR). As a REIT, the company avoids having to pay normal corporate income tax, but in turn is responsible for returning a majority of its profits to investors in the form of a dividend. Innovative Industrial Properties is currently dishing out a $0.25 dividend per quarter, which is good enough for about a 3% yield.

What makes this company so special is its predictability of cash flow. Having recently announced an acquisition in Michigan, the company now has nine retail assets in the U.S. in its portfolio. Every one of these assets is set up in such a way that the initial lease tallies 15 to 20 years, with options for multiple five-year extensions. Healthy annual rental increases and property management fees are also built into each contract, allowing Innovative Industrial Properties to easily stay ahead of the inflationary curve. With little in the way of expenditures outside of acquisitions, it's easy for Wall Street and investors to project the company's cash flow -- and Wall Street loves predictability. 

Even though we're talking about a company established in the U.S., a far less tolerant cannabis market than Canada, the federal government, sans Attorney General Jeff Sessions, appears willing to take a hands-off approach with weed. This removes nearly all concerns that Innovative Industrial Properties' long-term business is in jeopardy.

Essentially, as the company acquires additional cannabis grow farms, its per-share payout may actually grow.

An indoor commercial hydroponic cannabis grow farm.

Image source: Getty Images.

Scotts Miracle-Gro

The ancillary marijuana industry is one of the few areas where you can snag a marijuana-based dividend, and Scotts Miracle-Gro (NYSE:SMG) will certainly deliver with its 2.9% yield.

The thing investors have to understand about Scotts Miracle-Gro is that they're getting a company whose primary focus is still on traditional lawn and garden care. Even though the company's subsidiary, Hawthorne Gardening, is targeting medical marijuana companies throughout North America, it only accounted for 11% of total sales in 2017. Comparatively, the other 89% was derived from traditional lawn and garden care products. Thus, Scotts Miracle-Gro might be a great way to dip your toes into the cannabis pond without excessive risk.

Hawthorne's primary focus is to provide hydroponic solutions (growing cannabis plants in a nutrient-rich water solvent), as well as lighting, soil, and nutrient products, to help growers improve their crop yields and turnover. It's generated most of its growth through acquisitions, the latest of which is hydroponics supplier Sunlight Supply, which was acquired for $450 million in a cash-and-stock deal. 

Though Hawthorne's organic sales have been stymied by overproduction of marijuana in California, along with regulatory issues in the state, the expectation is that neither are long-term issues. Plus, the company's third-quarter operating results allude to an expected $35 million in cost-savings from its merger of Hawthorne with Sunlight Supply. I could certainly foresee a future where Hawthorne Gardening generates up to 25% of Scotts' annual sales.

While investors will have to be patient, they'll collect an above-average dividend in the meantime.

An indoor commercial cannabis grow facility.

Image source: Getty Images.

ETFMG Alternative Harvest ETF

Finally, marijuana investors could consider adding diversification to the mix by choosing an exchange-traded fund (ETF), such as the ETFMG Alternative Harvest ETF (NYSEMKT:MJ), which has roughly $345 million in net assets.

As of Aug. 10, the ETFMG Alternative Harvest ETF had 37 holdings, most of which were marijuana growers. However, it's worth pointing out that it also contains a modest helping of tobacco stock holdings. As a result of the healthy dividends payouts often associated with tobacco stocks, along with holdings in companies like Scotts Miracle-Gro, it paid out $0.07 per share in its latest quarter. On an extrapolated basis, this would work out to a yield of just over 1%, albeit its payout tends to be fluid from quarter to quarter.

The obvious advantage of considering the ETFMG Alternative Harvest ETF is that it provides plenty of diversification, and access to very profitable tobacco stocks, with just a single asset. This means if one or two cannabis growers struggle, it won't necessarily drag down the entire fund. That type of protection could prove worthwhile in the early going, with the supply and-demand outlook still yet to be determined.

However, there is one factor to keep in mind with ETFs like this: There's a 0.75% annual management fee. So, whereas you'll receive a yield of over 1%, most of that will likely go toward the fees to run the ETF. Over the long run, this isn't a huge cost, but it's still something investors should take into consideration. 

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.