What happened

Shares of Innovative Industrial Properties (NYSE:IIPR) declined 14.5% in July, according to data from S&P Global Market Intelligence. The stock's return was also negative 14.5%, since no dividends were paid during the month.

The San Diego-based company is a real estate investment trust (REIT) focused on facilities used for growing and processing cannabis in U.S. states where marijuana is legal for medical use. 

For context, the S&P 500 returned 1.4% last month.

Interior view of a large cannabis greenhouse.

Image source: Innovative Industrial Properties.

So what

We can attribute Innovative Industrial Properties stock's poor showing in July in part to weakness in the overall cannabis sector. Last month, for instance, shares of Canadian growers Canopy GrowthAurora Cannabis, and Cronos -- the three biggest cannabis grower stocks by market cap -- dropped 19%, 20%, and 13.6%, respectively.

Innovative Industrial stock is typically much less volatile than other cannabis stocks due to the nature of the company's business, including that it's profitable and pays a dividend. This wasn't true last month, though, as its stock dropped in the same general ballpark as those of many other cannabis players. So what else happened in July?

In four words: a secondary public offering. On July 11, the company announced that it planned to raise cash via a secondary, as my colleague Rich Smith detailed. The next day, it said that it was slightly upping the size of its offering to 1.3 million shares -- with a potential overallotment option of 195,000 shares -- and revealed that the offering price was $126 a share. 

Given shares were trading at over $137 before the secondary price reveal and that existing investors were also going to see their ownership stake diluted, it's no surprise the stock plunged 8.4% on July 12. 

Such a price drop is often the nature of secondaries, with the flip -- or shiny -- side of the coin being that Innovative Industrial raised nearly $164 million in cash to help fuel its expansion. And that's a great thing, given that the company's total addressable market is already very large and should continue to balloon as additional U.S. states legalize marijuana for medical and/or recreational use. 

Over the two-day period from July 22 to 23, shares dropped 16.5%, which we can probably largely attribute to a continuation of the downtrend from the secondary.

Innovative Industrial Properties' financial performance has been powerful. In the second quarter -- which it just reported on Wednesday, Aug. 7 -- the company's revenue soared 155% year over year to $8.28 million, earnings per share surged 76% to $0.30, and adjusted funds from operations (AFFO) per share -- akin to earnings for REITs -- jumped 90%, to $0.59.

Now what

Wall Street expects the company's torrid growth to continue, with analysts projecting 2019 and 2020 revenue growth of 164% and 80%, respectively, year over year. 

This is a stock worth putting on your watch list if you want exposure to the cannabis sector, but with lower risk and volatility relative to the overall group.