You could call HEXO (NYSEMKT:HEXO) and Innovative Industrial Properties (NYSE:IIPR) up-and-comers in the marijuana industry. Both companies have market caps well below several major marijuana stocks. And both HEXO and Innovative Industrial Properties are growing rapidly.

One of these up-and-coming marijuana stocks has risen a lot more than the other over the past 12 months. Shares of Innovative Industrial Properties have soared over 150% -- twice as much as HEXO's gain during the period. But which marijuana stock is the better choice for investors now?

Shadow of a dollar sign on a pile of marijuana leaves

Image source: Getty Images.

The case for HEXO

It's often a smart business move to be a big fish in a small pond. HEXO sort of fits the bill -- except its pond isn't so small.

The company claims a dominant market share for the recreational marijuana market in Quebec thanks to a major supply agreement signed in 2018. Quebec ranks as Canada's No. 2 most-populated province. But HEXO isn't limited to selling its recreational marijuana products only in Quebec. The company has supply agreements in place with several other provinces, including Ontario, which has the largest population of all.

HEXO's sales are sure to skyrocket throughout 2019 as the Canadian recreational marijuana market matures. The company should see an even bigger boost later this year with the anticipated launch of the market for cannabis edibles, beverages, and concentrates. Last summer, Molson Coors Brewing picked HEXO as its cannabis partner in Canada. The two companies formed a joint venture to develop cannabis-infused beverages. 

International markets could present an even greater opportunity for HEXO over the long run. The company announced a partnership in September 2018 with Greek medical cannabis producer Qannabos. HEXO plans to use its Greek operations as a launching pad to distribute its products throughout Europe. 

HEXO's market cap of around $1.1 billion might seem steep based on its historical sales. However, its tremendous growth prospects, particularly with the company's Molson Coors partnership, make the stock's valuation seem attractive compared with many of its peers.

The case for Innovative Industrial Properties

Innovative Industrial Properties might be seen as a small fish in a huge pond. The company operates in the U.S., which boasts the biggest marijuana market in the world by far. In another way, though, Innovative Industrial Properties is kind of a big fish. It's the leading cannabis-focused real estate investment trust (REIT).

The company currently owns 12 properties in 10 states that it leases to medical cannabis businesses. These states include five that should have marijuana markets of at least $1 billion by 2022 -- Arizona, California, Colorado, Massachusetts, and Michigan.

Of course, Innovative Industrial Properties has lots of opportunities to expand. Thirty-three states have legalized medical marijuana, with potentially more on the way over the next few years.

Innovative Industrial Properties' financial position looks great. The company is profitable. It has no debt. Its revenue and earnings continue to soar. All of its properties are leased with a weighted average lease length of 14.8 years.

As a REIT, Innovative Industrial Properties must distribute at least 90% of its taxable income to shareholders in the form of dividends. The company's dividend yield currently stands at just under 2%, a level that's lower than it would otherwise be because its stock has jumped so much.

Better marijuana stock

HEXO has plenty of things going for it, but I think it's hard to argue that Innovative Industrial Properties isn't the better marijuana stock. The cannabis-focused REIT is in better financial shape than HEXO. Its growth prospects are at least as good as HEXO's if not better.

One knock against Innovative Industrial Properties is that it conducts business in the U.S., where marijuana remains illegal at the federal level. There is a risk that the company could be hurt if the U.S. government attempted to enforce federal laws in states that have legalized marijuana.

However, that risk seems very low, in my opinion. I suspect that it's more likely that federal laws will change than it is for there to be a crackdown on marijuana businesses. I think that  Innovative Industrial Properties looks like a pretty good pick for investors looking for a relatively safe way to profit from the marijuana boom