The marijuana industry is going through an explosive growth phase, and companies across the globe are looking for ways to try to cash in. In order to help companies looking to grow cannabis, an extensive network of businesses providing various types of support has sprouted up. When it comes to finding customized facilities for pot production, Innovative Industrial Properties (IIPR -1.05%) has demonstrated its ability to stay a step ahead of the competition.

Coming into its first-quarter financial report, Innovative Industrial investors were counting on the marijuana REIT to generate enough growth to stay on its current trajectory. Innovative Industrial has done a good job of finding new properties to keep its expansion moving forward, and at this stage, the company seems to be getting into the groove in terms of building an impressive pipeline of future development to keep itself headed in the right direction.

Covered greenhouse with rows of cannabis plants under piping and with aisles for access.

Image source: Innovative Industrial Properties.

A real estate boom at Innovative Industrial

Innovative Industrial's first-quarter results revealed how much larger the REIT has become in a short time. Rental revenue of $6.6 million might seem relatively small, but it was almost two and a half times as much as the $2.7 million it brought in during year-ago period. Earnings per share tripled over the same time frame, and adjusted funds from operations soared 275% to $5.29 million, working out to $0.54 per share.

Yet the most important part of Innovative Industrial's success has been its ability to purchase marijuana production properties to expand its portfolio. The good news began in February, when the REIT bought its first California pot property for a total of $11.5 million in both the purchase price and subsequent redevelopment expenses. The 43,000-square-foot facility was immediately leased to an experienced cannabis cultivator under a long-term contract.

The past couple of months have been busy for Innovative Industrial. In March, the REIT agreed to spend $20 million to acquire and lease out an Ohio-based property to well-known cannabis player PharmaCann. April brought even more activity, with the company entering into a landmark deal to purchase five industrial properties in southern California for $27.1 million. With more than 100,000 square feet in all, the facilities will have a licensed operator renting each of those spaces. Add to that the most recent $16.3 million purchase of a 51,000-square-foot facility in Pennsylvania for lease to Maitri Genetics for medical marijuana cultivation and processing, and you can see just how much progress Innovative Industrial has made during 2019.

Can Innovative Industrial keep up the pace?

Given Innovative Industrial's success in raising capital thus far, even these big investments haven't yet put any real pressure on its financial resources. The company has spent almost $200 million and is committed to spending another $44 million for construction completion and tenant improvement reimbursement. Average current yield on its invested capital fell only slightly to 14.8% during the period, offering the REIT a big premium over many other real estate investments.

With the REIT's healthy levels of funds from operations, its newly raised dividend of $0.45 per share on a quarterly basis looks sustainable. At current prices, that works out to a yield of just over 2%, but the payout has tripled in just two years, and many see further growth opportunities as long as Innovative Industrial can keep finding ways to expand its property base.

After having paused from their strong ascent to start the year, Innovative Industrial shares have climbed back toward their record levels since the release of the earnings report. With so many players in the cannabis space fighting to find ways to expand their production capacity, the services that Innovative Industrial offers should be in high demand for the foreseeable future -- and that's good news for investors looking for additional growth from the REIT.