Over the past couple of years, we have witnessed marijuana milestones that at one time never seemed possible.

To our north, Canada has become the first industrialized country in the world, and the second overall behind Uruguay, to legalize recreational pot. Meanwhile, in the U.S., two-thirds of all states have given the green light to medical marijuana, in some capacity. This support comes from a record percentage of Americans favoring broad-based legalization (66%), and an overwhelming number approving of medical marijuana prescriptions by a physician (93%).

Last year, we also witnessed the Food and Drug Administration approve its very first cannabis-derived drug, and President Trump signed the Farm Bill into law, thereby separating hemp plants from cannabis plants, by definition, and allowing the commercial production and processing of hemp nationwide.

But perhaps one of the craziest things to emerge over the past couple of years is Innovative Industrial Properties (NYSE:IIPR).

A hybrid cannabis greenhouse in the desert.

Image source: Getty Images.

This marijuana stock is unlike anything we've seen before

Innovative Industrial is a marijuana-based real estate investment trust (REIT). What this means is that it acquires cannabis-related properties (mostly cultivation and processing facilities), then leases these facilities back to the proprietor for an extended period of time. As with any REIT, it's trying to profit off the rental income it generates, then eventually sell the property for a gain -- and potentially begin the cycle anew many years down the road.

Innovative Industrial first made history on Dec. 1, 2016, by debuting on the New York Stock Exchange (NYSE). While all the hoopla has gone to Canadian pot stocks uplisting from the over-the-counter exchange to the NYSE or Nasdaq, it's actually IIP, as the company is also known, that beat every pure-play marijuana stock to a major U.S. exchange. Since REITs are considered financial companies, and IIP doesn't come into direct contact with marijuana plants, it isn't subject to the rules that have kept most marijuana stocks from listing on these reputable exchanges.

But not only did Innovative Industrial Properties beat other pure-play pot stocks to the listing punch, it's also the only pure-play marijuana stock to pay out a regular quarterly dividend. The company has made eight quarterly dividend payments since July 2017, with three separate $0.10/quarter increases over that span, from an initial payout of $0.15 per share to $0.45 per share in April 2019. 

Why pay a dividend? The simple answer is that it has to, based on its corporate structure. As a REIT, IIP avoids normal corporate income-tax rates. But in return, it must give back a majority of its earnings to investors in the form of a dividend. That's why REITs often have such robust dividend yields.

A handful of dried cannabis buds lying atop a messy pile of cash bills.

Image source: Getty Images.

Innovative Industrial Properties' dividend should soar in 2020

Here's the best part: IIP's dividend looks like it could grow by approximately 67% in 2020, if Wall Street's lone earnings estimate is correct.

According to analyst estimates, IIP is slated to generate as much as $36.3 million in revenue this year and potentially up to $63 million in 2020. This will boost is consensus earnings per share (a metric that isn't as useful for REITs as "funds from operations," which often determines dividend payouts) from $1.92 this year to $3.21 in 2020. Assuming it maintains its $0.45/quarter payout in 2019, it wouldn't be out of the question for its payout ratio to remain consistent and grow to $0.75 in 2020 (again, assuming Wall Street's only consensus earnings per share estimate is accurate). This would represent 67% year-over-year growth, putting more money into income investors' pockets.

Such dividend growth isn't out of the question following IIP's aggressive push into the California market recently. Of the seven properties the company has acquired -- it has 18 in total, across 11 states -- since Feb. 8, 2019, six of them have been in California. When fully operational and over its early supply-chain hiccups, the Golden State's pot market could be the largest in the world.

In February, Innovative Industrial Properties got its foot in the door by acquiring 43,000 square feet of industrial space in Sacramento that'll be used for growing. It paid $6.7 million -- or $11.5 million, including $4.8 million in reimbursements for its tenant for the complete redevelopment of the building. 

A green highway sign that reads, Welcome to California, with a white cannabis leaf in the upper-right corner.

Image source: Getty Images.

Then, just this past week, IIP paid $27.1 million for a five-property portfolio in California that it leased back to the operator. This portfolio covers roughly 102,000 square feet of industrial space. 

All told, IIP now has 1.23 million square feet of owned (but fully leased) space with an average lease length of 14.9 years, where it's earning an average yield on invested capital of 14.9%. Put in another context, it should have a complete payback on the $191.3 million in aggregate invested capital to date (not including another $34.7 million for reimbursements) within five years.

What a lot of folks may not realize about IIP is that it has built-in fail-safes to grow organically, too. Besides broadening its portfolio with acquisitions, it passes along a 3.25% annual rent increase, as well as a 1.5% management fee, which is based on the rental rate. Combined, this can equal a modest organic growth rate in the low to mid single digits. This, along with Innovative Industrial's ongoing acquisition binge, should propel its payout considerably higher in 2020.

There is one thing to be wary of: share-based dilution. With very minimal expenditures, IIP doesn't need to generate much revenue to make a lot of money. But it certainly doesn't have hundreds of millions of dollars in its coffers to make acquisitions. Instead, IIP will turn to the secondary market by selling shares of its common stock to raise cash for corporate purposes. This is pretty normal for any REIT. But keep in mind that share issuances can potentially hurt existing shareholders, as well as the dividend per share being paid.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.