Over the past year, several pot stocks have lost significant market value. Canadian marijuana giants such as Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC) have been grappling with structural issues, including lower-than-expected demand, health concerns about vaping, massive losses, and much more.

The recent outbreak of the COVID-19 coronavirus has driven shares lower across the board, and it has affected global markets severely. However, there is one player in the marijuana space that has managed to hold its own.

Innovative Industrial Properties (NYSE:IIPR) was one of three pot stocks that ended February 2020 in the green. The Dow Jones and S&P 500 posted close to double-digit losses last month, while Innovative Industrial Properties was up just shy of 3%. 

Now, the Dow Jones and S&P 500 are trading 28% and 27% lower than their record highs, respectively. Comparatively, Innovative Industrial Properties has lost close to 40% since Feb. 20, and is down 29.5% in the past five trading days. However, the current headwind remains a short-term one, which makes the decline attractive to contrarian investors. 

Let's look at what makes Innovative Industrial Properties an ideal long-term buy for cannabis investors.  

Stellar revenue growth

Innovative Industrial Properties is not a traditional cannabis play. It is a marijuana-focused real-estate investment trust (REIT), and it has managed to escape the industrywide weakness thanks to its stable cash flow and a somewhat predictable business model.

Most operators of cannabis businesses in the United States that do business in multiple states are struggling to gain access to traditional debt capital; as cannabis is still illegal at the federal level, most banks are unwilling to lend to licensed producers. Innovative Industrial Properties solves this problem by acquiring, owning, and managing specialized industrial properties and leasing them to licensed operators for regulated medical-use cannabis facilities.

Marijuana plant

Image source: Getty Images.

This business model has held the company in good stead. Innovative Industrial Properties has managed to increase sales from $6.42 million in 2017 to $44.7 million in 2019. Analysts have forecast company sales to increase to $132 million in 2020 and $181 million in 2021.

In the December quarter, sales rose by 269% to $17.7 million. This growth was primarily driven by the company's acquisition of properties. Between Oct. 1 and Feb. 26, Innovative Industrial Properties acquired 20 properties totaling 1 million rentable square feet.

It also executed five lease amendments to provide tenant improvements at properties in Arizona, California, Massachusetts, and Pennsylvania. As of Feb. 26, Innovative Industrial Properties owns 51 properties totaling 3.2 million square feet with a weighted average lease term of 15.6 years.

Expanding profit margins

Innovative Industrial Properties' stellar revenue growth has helped the company increase profit margins as well. Its EBITDA (earnings before interest, taxes, depreciation, and amortization) has risen from $0.81 million in 2017 to $33.5 million in 2019, a staggering growth of 543% annually. 

Analysts expect the company to increase EBITDA to $103 million in 2020 and $161 million in 2021. This means Innovative Industrial Properties's EBITDA margin is forecast to grow from 12.6% in 2017 to a mammoth 78% in 2020 and 89% in 2021.

In the fourth quarter, Innovative Industrial Properties reported a net income of $9.6 million or $0.78 per diluted share, a rise of 293% year over year. Its adjusted funds from operations (AFFO) rose a stellar 211% to $14.3 million or $1.18 per diluted share in Q4.

AFFO is an important metric for REITs, as it provides an accurate picture of a company's financials. This is important because of one accounting figure (depreciation) which can distort an REIT's metrics.

Assets such as equipment and computers have a limited shelf life, so they depreciate over time. However, an apartment building or a REIT doesn't work quite the same; such a property might even appreciate in value over time, which makes the AFFO a more accurate way to measure profitability. 

While most marijuana stocks are affected by mounting losses and precarious cash balances, it is refreshing to see Innovative Industrial Properties crushing market estimates and posting robust profit margins.

A juicy dividend yield

As a REIT, Innovative Industrial Properties has to distribute at least 90% of its taxable income to shareholders. The company most recently announced quarterly dividends of $1 per share, a growth of 186% year over year. Over the past three years, IIP has grown dividends by an annual rate of 93.75%. 

This indicates the stock has a juicy forward dividend of 6.1% Innovative Industrial Properties is yielding an average of 13.3% on its capital investments. This means it will take the company less than six years to receive a complete payback on those investments.

An underserved market

Most cannabis companies are in dire need of cash, and that will be a big driver of Innovative Industrial Properties's sales over the next few quarters, as the company can easily replicate its sale-leaseback business model time and again in other states that have legalized medical marijuana.

Innovative Industrial Properties stock went public at a price of $20 per share in December 2016. It is trading at about $94, meaning it's gained 370% in just over three years. Long-term investors will continue to benefit, given ongoing funding regulations for pot companies -- not to mention Innovative Industrial Properties' stellar revenue growth, expanding bottom line, and tasty dividend yield.