What happened

Shares of Innovative Industrial Properties (NYSE:IIPR) declined 15.6% in August, according to data from S&P Global Market Intelligence. The stock's return was also negative 15.6%, since no dividends were paid during the month.

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

For context, the S&P 500, including dividends, fell 1.6% last month.

Interior view of a large cannabis greenhouse.

Image source: Innovative Industrial Properties.

So what

We can attribute Innovative Industrial stock's poor performance in August to weakness in the overall cannabis sector rather than to any company-specific news. Last month, for instance, shares of Canadian growers Canopy GrowthAurora Cannabis, and Cronos -- the three biggest cannabis grower stocks by market cap -- dropped 27.8%, 12%, and 20.2%, respectively. (Canopy had a particularly bad month because it released very disappointing fiscal first-quarter 2020 results, with revenue declining nearly 4% from the previous quarter and its loss per share ballooning 825% year over year.) 

Innovative Industrial did release material news last month: its second-quarter results. However, this event didn't move the stock to any notable degree. Shares fell less than 2% on Aug.  8 following the earnings release the previous afternoon.

The company's financial performance remains robust. In Q2, revenue rocketed 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 -- soared 90% to $0.59. Wall Street was looking for EPS of $0.29 on revenue of $8.34 million. So, the company slightly beat the profit expectation but fell a little short on the top line.

Despite pulling back over the last two months, Innovative Industrial Properties stock is having a great 2019. It's returned 96.4% through Sept. 5, crushing both the broader market's 20.4% return and the performances of the three large Canadian grower stocks previously mentioned.

IIPR Total Return Price Chart

Data by YCharts.

Now what

Wall Street expects the company's rapid growth to continue, with analysts projecting 2019 and 2020 revenue growth of 162% and 83%, respectively, year over year. 

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.