What happened

Shares of Innovative Industrial Properties (NYSE:IIPR) soared 36.4% in January, according to data from S&P Global Market Intelligence. (The stock's return was also the same, since no dividends were paid during the month.)

The company is a real estate investment trust (REIT) focused on facilities used for growing and processing cannabis in U.S. states where marijuana is legal for medical use. 

For some context, the S&P 500 returned 8% last month, and the cannabis sector was super strong.

Interior view of a large cannabis greenhouse.

Image source: Innovative Industrial Properties.

So what

Innovative Industrial Properties announced in late December that it had added one more property to its portfolio, bringing its total to 11, all of which are fully leased. The property, in Barry, Illinois, has about 75,000 square feet of industrial space. The purchase price was $19 million, excluding transaction costs.

This was the only notable news Innovative Industrial Properties released in late December or January. Moreover, the company wasn't the specific subject of any material news during this period. So it seems safe to attribute the bulk of the stock's big rise last month to the bullish sentiment about the overall cannabis sector, which is likely due in part to the passage of the U.S. Farm Bill, which legalized marijuana's cannabis cousin, industrial hemp. As evidence of this enthusiasm, shares of the four largest Canadian growers skyrocketed in January, from 42.9% (Aurora Cannabis) to 89.4% (Cronos).

Innovative Industrial Properties' financial performance has been strong, which likely continues to be a tailwind for the stock. In the third quarter, revenue soared 152% year over year, while earnings per share surged 133%, and adjusted funds from operations (AFFO) per share -- akin to earnings for REITs -- jumped 81%.

Check out the latest Innovative Industrial Properties earnings call transcript.

Now what

Innovative Industrial Properties stock is worth putting on your watchlist if you're an investor who wants exposure to the cannabis sector, but with lower risk and volatility than most of the stocks in the group. 

The company hasn't yet announced a date for the release of it fourth-quarter and full-year 2018 results, but it should probably be in late March or very early April.