There's good news if you want to invest in marijuana stocks based in the U.S. without buying shares of a company that's technically in violation of federal laws. Several companies that operate in the U.S. cannabis industry without dealing directly with cannabis are publicly traded. 

Innovative Industrial Properties (NYSE:IIPR) and KushCo Holdings (OTC:KSHB) stand out as two of the top cannabis stocks meeting these criteria. Which of these two cannabis stocks is the better pick for long-term investors? Here's how Innovative Industrial Properties and KushCo compare.

Two shopping carts with a cannabis plant in front of them

Image source: Getty Images.

The case for Innovative Industrial Properties

Probably the best argument for buying Innovative Industrial Properties (IIP) is that it has a repeatable model for delivering growth. IIP is a real estate investment trust (REIT) that focuses on medical cannabis properties. It buys properties then leases them to medical cannabis operators.

This business model has enabled IIP to generate turbocharged growth. The company reported a 155% year-over-year net rental revenue increase in the second quarter. IIP also is highly profitable, with its Q2 earnings jumping 155% as well.

As a REIT, Innovative Industrial Properties must distribute at least 90% of its taxable income to shareholders in the form of dividend payments. Its dividend currently yields 2.4%, a level that would be even higher were it not for IIP's share price nearly doubling year to date.

Even more importantly for long-term investors, though, IIP continues to invest in acquiring new properties. The company now owns 27 properties in 12 states thanks to its recent purchase of a new location in Pennsylvania. All of these properties are leased with a weighted-average remaining lease term of around 15.5 years.

IIP has a clear pathway for expansion. It can buy more properties in the states where it currently operates. The company could also move into any of the 21 other states that have legalized medical cannabis. 

The primary concern right now for investors interested in IIP is that the company could issue new shares to raise additional capital, diluting the value of existing shares in the process. IIP has taken steps to pave the way to sell up to $250 million in securities in the future. However, any cash raised would likely be used to invest in new properties to drive more growth, so any dilution would likely be short-term pain that would lead to long-term gains.  

The case for KushCo Holdings

KushCo Holdings has steadily built its business to become the leading supplier of packaging solutions to the cannabis industry. The company has also expanded well beyond that core focus.

Last year, KushCo acquired Summit Innovations, a leading distributor of hydrocarbons used in cannabis extraction processes. The company also bought California-based Zack Darling Creative Associates along with its subsidiary design agency, The Hybrid Creative. 

Acquisitions haven't been the only avenue for business development. KushCo teamed up in July with marketing agency C.A. Fortune to provide access to retail channels for U.S. CBD companies. The company subsequently launched a new retail services division to provide comprehensive retail solutions to CBD brands through strategic partnerships such as the one with C.A. Fortune.

KushCo's revenue continues to skyrocket. The company reported 221% year-over-year sales growth in the second quarter. While some of this growth was fueled by acquisitions, most of it stemmed from organic growth in key markets, especially California.

One key downside for KushCo, though, is that it remains unprofitable despite its strong revenue growth. In the past, the company has relied primarily on dilution-causing stock offerings to raise the capital needed to fund operations. Now, though, KushCo is trying to avoid dilution as much as possible by taking on additional debt for its capital needs.

KushCo's shares currently are available only on an over-the-counter exchange. However, the company announced in July that it had filed for approval to be listed on the Nasdaq stock exchange. If KushCo secures this approval, its stock could enjoy a nice boost with the increased visibility in the U.S. investor community.

Better cannabis stock

Although I think that KushCo has significant potential, my view is that Innovative Industrial Properties is the hands-down winner between these two cannabis stocks. IIP is already profitable, while KushCo isn't. It pays a dividend, whereas KushCo doesn't. I also think that IIP controls its ability to grow more than KushCo does. My take is that IIP presents one of the most attractive ways for investors to profit from the cannabis boom.