The marijuana industry was supposed to have investors seeing green in 2019, but it's red that's dominated the landscape. Following a blazing first quarter which saw more than a dozen pot stocks rise by at least 70%, cannabis stocks spent the remaining nine months of the year in a precipitous downtrend.

While the industry clearly has a lot of growing up to do, there's also a massive long-term opportunity for investors to take advantage of. After all, Wall Street still sees the marijuana industry growing from nearly $11 billion in worldwide sales in 2018 to at least $50 billion in annual sales by 2030.

The big question is: Which marijuana stock to buy to take advantage of this opportunity?

A person writing and circling the word buy underneath a dip in a stock chart.

Image source: Getty Images.

After perusing near five-dozen cannabis stocks, the best value for the month of February looks to be Innovation Industrial Properties (NYSE:IIPR).

But before digging into the multiple reasons I believe it'll continue to be an outperformer, let me first walk you through the risk associated with what's been one of the best-performing pot stocks over the past year.

Yes, there are risks involved with owning marijuana's only high-yield dividend stock

Even though cannabis real estate investment trust (REIT) Innovative Industrial Properties wound up more than doubling up the return of the benchmark S&P 500 in 2019, this is a company that does come with a couple of risks.

First of all, investors need to be aware that REITs rarely generate enough capital from their existing operations to fund the purchase of new assets. As a result, most REITs, including IIP, tend to sell their own stock from time to time to raise capital for acquisitions. Investors are probably well aware of the potentially dilutive ramifications of selling stock, especially in the cannabis space. Just over a week ago, IIP wound up pricing nearly 3 million shares for sale at a discount to the company's previous day closing price. Though expected to raise $217.4 million in gross proceeds, these share offerings are a common occurrence shareholders will deal with. 

It's also important to note that IIP has been able to grow its cultivation and processing site portfolio because access to traditional forms of financing have been virtually nonexistent for vertically integrated multistate operators in the United States. Since cannabis remains a Schedule I (i.e., illicit) substance, most banks don't want to risk being hit with criminal and/or financial penalties for violating federal law. This leaves Innovative Industrial Properties' sale-leaseback agreements as a popular option. But should lawmakers in Washington, D.C., make real progress on cannabis banking reform, a key advantage for IIP would disappear.

Lastly, there's the possibility of increased competition in the specialized cannabis REIT space. Though IIP has been the industry pioneer, other REITs have been able to raise capital for similar ventures.

An up-close view of a cannabis plant growing in a commercial indoor cultivation farm.

Image source: Getty Images.

Here's why Innovative Industrial Properties should be your top buy this month

While it's true that all stocks have risks, few offer anything close to the same reward potential as Innovative Industrial Properties.

One of the first things investors will enjoy by owning IIP stock is the predictability of the business model and cash flow, as well as the transparency. As a marijuana REIT, IIP has seen its portfolio grow from 11 properties to begin 2019 to 47 assets in 15 states by early 2020. More than quadrupling its holdings suggests that not only are there plenty of intriguing deals to be had in the cannabis real estate space, but demand for weed-based assets is strong.

In addition, the quality of these deals is something to take note of. The company's weighted-average remaining lease length is 15.5 years on these 47 properties, with a current yield on invested capital of 13.3%. In English, this means IIP should receive a complete payback on its $510 million in invested capital in less than 5.5 years, but it'll have a relatively steady stream of cash flow for nearly three times longer (15.5 years).

Innovative Industrial Properties also has a built-in, albeit modest, organic growth component that often flies under the radar. As a landlord, the company passes along rental increases each year that keep it ahead of the inflationary curve (these are typically around 3.25%). Furthermore, it charges tenants a 1.5% property management fee, with this fee being based on the annual rental rate. Combined, this helps to ensure modest organic growth atop the company's acquisition-based growth strategy.

A tipped over jar full of cannabis buds that's lying atop a small pile of cash.

Image source: Getty Images.

With regard to its bottom line, Innovative Industrial Properties is the most profitable pot stock on the planet, at least in terms of per-share earnings. Wall Street had been looking for over $4 per share in earnings per share in 2020, although that may need some adjustment after adding perhaps 3 million new shares via its cash raise. But given how quickly and effectively IIP has been able to put its capital to work, this $217.4 million in gross proceeds should wind up improving the company's 2020 full-year EPS, not hurting it.

It's also highly unlikely that lawmakers on Capitol Hill make any meaningful progress on cannabis banking reform in 2020. Even if the public favors the idea of legalization, Senate Majority Leader Mitch McConnell (R-Ky.) has made it clear that marijuana legislation won't reach the Senate floor for vote. This suggests that IIP's ability to provide cash to multistate operators via sale-leaseback agreements will remain a competitive advantage for the company for the foreseeable future.

Lastly, this is the only marijuana pure-play stock that pays a dividend -- and it just so happens to be a high-yield payout at almost 5%. As Innovative Industrial Properties puts its capital to work, it would not be surprising to see this payout grow by perhaps 10% (or more) annually.

It's for all these reasons that Innovative Industrial Properties deserves a spot in your portfolio this February.