By now you've probably noticed that most cannabis-related businesses are a lot better at raising money than they are at making it. Cannabis companies have started holding conference calls to discuss the three-month period ended June, and so far only a handful have reported a profit.

How did these three report an operating profit while most of their peers lost money? Let's take a closer look at the way they're making money now to see if they can keep it up.

Company (Symbol) Adjusted Operating Profit Q2 2019 Industry Niche
MariMed (MRMD -3.33%) $5.3 million Management and retail
Innovative Industrial Properties (IIPR 0.91%) $4.1 million Real estate
CV Sciences (CVSI -4.52%) $1.3 million CBD oil

Data source: company filings.

1. MariMed: This isn't going to work much longer 

This cannabis producer squeezed out the largest adjusted operating profit in the second quarter, but the means by which it accomplished this feat isn't going to work forever. MariMed's still transitioning from its former role as an advisory firm for smaller canna-businesses to a seed-to-sale operator and hemp seed wholesaler. 

In the first half of the year, MariMed spent $20 million to acquire hemp seeds from an unrelated party that GenCanna agreed to buy for $25.2 million. 

While it looks as if MariMed found a way to make money as a hemp seed dealer, it's important to realize that MariMed basically sold the seeds back to itself. Through a convoluted process, MariMed purchased a 33.5% ownership interest in GenCanna for $30 million this February.

Instead of a $5.2 million profit, MariMed's still at least $24.8 million in the hole on this deal, and probably a whole lot more. That's because MariMed borrowed $17 million at double-digit interest rates to buy the seeds it sold to GenCanna. 

U.S. hundred dollar bills spread out among cannabis flower.

Image source: Getty Images.

2. Innovative Industrial Properties: Real estate boom

This real estate investment trust (REIT) leases cannabis facilities across the country, and business is booming. In the second quarter, rental revenue soared 155% from the previous-year period, and the bottom line climbed even faster. Adjusted funds from operations (FFO) jumped 176% to $0.59 per share.

As a REIT, IIP is required to distribute nearly all its profits to shareholders, and the company's not shy about it. IIP has bumped its payout 140% higher over the past year, and a slate of new tenants locked into 15-year leases that include annual rent increases is pushing profits higher.

At recent prices, IIP stock offers a 2.3% dividend yield, which is even with the Dow Jones Industrial Average. Unless tenants suddenly stop paying rent, IIP will have to bump its payout a lot higher before 2019 is finished. So far this year, IIP has spent a combined $167.3 million to raise the number of properties in its portfolio to 26, from just 11 properties at the beginning of 2019.

All of IIP's properties are leased with an average remaining term that works out to 15.5 years with scheduled rent increases. Altogether, IIP expects an annual return on invested capital of around 14.6% from the 26 buildings in its portfolio, and there doesn't seem to be any lack of demand for the type of financing that only IIP provides.

A doctor cradles his hands around an image of a marijuana leaf.

Image source: Getty Images.

3. CV Sciences: Significant results all around

This was one of the 2018's best-performing marijuana stocks, thanks to earnings results with steadily growing profits. This year, the company reported positive clinical trial results for its hemp-derived CBD oil.

Researchers split 65 overweight patients into groups that received 60mg of PureCBD Oil Gold Formula or a placebo each day. After six weeks, people in the study reported significant improvements to their sleep quality and overall pleasure from life. 

There's nothing wrong with discussing these results, but investors need to realize the FDA will swiftly bring the hammer down on CV Sciences if it uses those results to market CBD oil. For example, any language in advertising or on its packaging that suggests you can use it to help you sleep better is against the rules. 

It looks as if CV Sciences managed to spread the good news anyway. During the three months ended June, CV Sciences reported revenue growth for the 14th consecutive quarter, and more could be on the way. The company also raised the number of retail outlets where its products are sold to 4,591 at the end of June, from 3,308 at the end of March. 

An expanded agreement with Kroger (KR 0.04%) added another 400 locations across five new states at the end of July, which makes reaching 15 consecutive quarters of revenue growth seems like a foregone conclusion.

Growing marijuana flower

Image source: Getty Images.

To be continued?

MariMed's strategy of spending lavishly to buy hemp seeds that it sells to a single related party is clearly unsustainable. The odds that MariMed will report consistently positive cash flows in the quarters ahead are very slim.

Fierce competition from a parade of CBD oil manufacturers has forced CV Sciences to work with thinner profit margins. Since CV Sciences doesn't have the means to earn an FDA approval that would allow it to market its products as medicine, there's a solid chance that margins could get even thinner.

A growing roster of tenants locked into long-term leases gives Innovative Industrial Properties the most predictable cash flows in the cannabis industry. As long as cannabis producers can keep up with ever-increasing rent payments, this company's profits and its dividend will rise as well.