Marijuana stocks took a sizable hit in 2018, but they've taken advantage of a fresh start to climb to new heights in the first couple of months of 2019. Many of the best-known cannabis cultivation companies have seen their stocks soar especially high, but one noteworthy player in the marijuana industry has seen similarly strong returns despite having no direct exposure to production or cultivation of cannabis. That company is Innovative Industrial Properties (NYSE:IIPR), and the cannabis-focused real estate investment trust has delivered amazing returns to its shareholders recently.

Innovative Industrial is set to release its fourth-quarter financial report on Thursday, March 14, and investors have high hopes that the REIT will be able to sustain its momentum from past quarters. The real estate specialist might not see the same revenue growth that marijuana growers have enjoyed, but it's also working hard to try to expand its scope with an eye toward getting a head start on the competition.

Check out the latest earnings call transcript for Innovative Industrial Properties.

Stats on Innovative Industrial Properties

Metric

Current Stat

Estimated funds from operations (FFO)

$0.33

Last quarter's FFO

$0.32

Revenue estimate

$4.6 million

Change from last quarter's revenue

17%

Source: S&P Global Market Intelligence. Last quarter refers to third quarter of 2018.

What's ahead for Innovative Industrial?

Given how well the stock has done lately, it's clear that investors in Innovative Industrial fully expect the cannabis REIT to keep doing well in its fourth-quarter financial result. Last November, Innovative Industrial reported its third-quarter results, and shareholders were generally pleased with the progress that the company made. Revenue jumped 150% from the year-ago quarter to $3.9 million, and adjusted funds from operations soared more than 250% over the same time period to $2.6 million. The number of shares outstanding rose dramatically, causing some dilution of those results, but even on a per-share basis, adjusted FFO climbed more than 80% year over year. That gave Innovative Industrial the latitude to give its shareholders a 40% boost in the dividends they receive, with the REIT paying $0.35 per share in quarterly dividends for the period.

Cannabis cultivation greenhouse with lights and rows of plants.

Image source: Getty Images.

Since then, the REIT has worked to expand its portfolio of properties further. In December, the company entered into a long-term lease with cannabis producer Ascend Wellness and acquired a property in western Illinois, spending $19 million on a 10-acre parcel with 75,000 square feet of industrial space. Then in January, Innovative Industrial entered the California market with a $6.7 million purchase of a 43,000 square foot facility in Sacramento. A long-term lease with what the REIT called "an experienced operator" that's operated for seven years at the property should ensure a stream of income from the facility, and it expanded Innovative Industrial's geographical reach to 10 states.

2 signs of sustained growth

Innovative Industrial also marked two important milestones during the quarter. First, the company raised $125 million in funding through an offering of five-year senior convertible notes, paying 3.75% in interest and allowing investors to convert their notes to stock at a price of $69.575 per share. With the stock having traded in the low $60s at the time of the offering, the move gave the REIT access to capital without the direct dilution that an outright sale of stock would've entailed.

In addition, Innovative Industrial joined the S&P SmallCap 600 index last month, becoming the first marijuana-related stock to gain membership. Even though the REIT's market capitalization is far less than some high-profile cannabis cultivators, Innovative Industrial benefits from the fact that its headquarters are in the U.S. and that there are many other REITs in the benchmarks that S&P Dow Jones Indices manages. Nevertheless, the announcement was rite of passage for Innovative Industrial and for the cannabis industry more broadly.

Watch for these 2 things

Innovative Industrial's fourth-quarter report will give investors a chance to see whether growth in funds from operations is able to keep pace with the expansion of the company's real estate portfolio. At the same time, it'll be interesting to see if the REIT boosts its dividend payout still further for the quarter. Either move could produce further gains for the stock.

More broadly, Innovative Industrial will want to reveal a strategy that aims to take advantage of the recent legalization of hemp in the U.S. market as well as continued state-level moves to legalize recreational or medical marijuana. As long as the market keeps growing, Innovative Industrial needs to keep pace to remain the go-to real estate mogul for the cannabis industry.