Since the year began, few if any industries are blazing ahead more than the marijuana industry. The very first publicly traded cannabis exchange-traded fund, the Horizons Marijuana Life Sciences ETF, which holds about four dozen pot stocks of various weightings, is up 60% year to date, through Wednesday, March 13.

If you're looking for a single reason why marijuana stocks are so hot, don't. It's actually a confluence of factors and milestones that have built up over time and validated the weed industry as a legitimate business model. Here are just some of the reasons future sales expectations for the cannabis industry are, aptly, growing like a weed:

  • Canada's legalization of recreational marijuana
  • 33 U.S. states approving cannabis in some capacity
  • An all-time record number of survey-takers favoring legalization in the U.S. 

But among the dozens upon dozens of publicly traded pot stocks, one company stands out because it's not like any other: Innovative Industrial Properties (IIPR -2.10%).

A clear jar packed with cannabis buds that's lying atop a fanned pile of twenty dollar bills.

Image source: Getty Images.

This pure-play pot stock is unlike anything you've seen before

Innovative Industrial Properties actually became the first cannabis-related stock to go the initial public offering route on the New York Stock Exchange (NYSE) in December 2016. While we often think of Cronos Group as leading the way in uplisting to a major U.S. exchange from the over-the-counter (OTC) exchange, or Canopy Growth as being the first marijuana stock to uplist from the OTC exchange to the NYSE in May 2018, we have to remember that Innovative Industrial Properties was there for much longer.

IIP, as the company is also known, is a real estate investment trust (REIT) within the cannabis space. As with any REIT, this means it purchases land and facilities -- in this case, cultivation space and processing facilities -- with the expectation that it'll then lease these properties out for an extended period of time for a profit. Much further down the road, REITs can choose to sell some of their assets for a profit, then reinvest this capital into new properties, thereby beginning the cycle anew.

Currently, IIP has 12 properties in 10 states, the newest of which was a 43,000 square foot industrial-complex purchase in Sacramento, Calif., announced in February. This marked the company's first entrance into the Golden State, which is expected to be the most lucrative cannabis market in the U.S., with sales hitting as high as $11 billion by 2030. Through its announced California deal, Innovative Industrial Properties had invested $156.3 million in its one dozen properties, with an additional $22.6 million earmarked for improvement projects on these properties for its tenants. 

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

A businessmen with a dress shirt and tie counting a pile of cash in his hands.

Image source: Getty Images.

This may sound like a lot of money to shell out for rental properties, but I assure you it's well worth it. IIP's average yield on invested capital was 15.2% as of February, meaning it expects a complete return on capital invested in less than five years.

The ongoing acquisition of new properties (about five a year) continues to increase IIP's revenue base, while organic growth built into its lease contracts are doing their part. This "organic" growth includes a 3.25% annual rent increase, as well as a 1.5% management fee that's tied to base rent in a given year. And since the average lease agreement is between 15 and 20 years, IIP's adjusted funds from operations (AFFO) are highly predictable, which is something Wall Street likes.

Like dividends? Like marijuana stocks? IIP has you covered!

However, there's something else that's special about this marijuana stock -- namely, that it pays a dividend. Although there are other companies associated with the cannabis industry that pay a dividend -- e.g., Scotts Miracle-Gro and Molson Coors Brewing -- only a small or modest percentage of revenue for these ancillary companies is devoted to marijuana. With IIP, you have the only publicly traded marijuana pure-play stock that pays a dividend.

As a REIT, IIP receives preferential tax treatment, on one condition. In order to avoid corporate income tax rates, IIP is required to return a large portion of its earnings to investors in the form of a dividend. Thus, the more AFFO Innovative Industrial Properties brings in, the higher the payout should be over time to shareholders of its stock.

On Tuesday, IIP declared its first-quarter dividend, which will be payable to shareholders on April 15 who were on record as of March 29. The announced payout of $0.45 per share marks a 29% increase over the $0.35 paid during the sequential fourth quarter, an 80% increase from the $0.25 paid out in the year-ago first quarter, and a 200% jump from its very first dividend payout of $0.15 per share in June 2017. 

A person holding a magnifying glass over a corporate balance sheet.

Image source: Getty Images.

In theory, as IIP continues to add new properties to its portfolio, which seems to be its ongoing intent, its payout per share should rise. However, investors should also be aware that the most common means of raising capital to acquire new properties is common stock offerings.

Issuing new shares can weigh down the value of existing shareholders, and it has the potential to slow or stymie dividend growth, depending on how many new shares are issued. Every stock has risks, and the prospect for continued share-based dilution is arguably the biggest risk investors will need to accept with Innovative Industrial Properties.

The big question at this point, following IIP's monstrous 361% gain since debuting on the NYSE in December 2016, is whether there's any gas left in the tank. While I'm inclined to believe that marijuana stock investors will be drawn to the only pure-play pot stock with a dividend, I'm also not oblivious to the fact that IIP is valued at close to 40 times 2019's profit projections, which is very pricey for a REIT. In other words, even following more positive dividend news, a pause in the interim may be in order.