Investors continue to believe in the long-term prospects of the cannabis industry, but it's been tough to endure the past couple of years. Most of the best-known cultivation stocks, such as Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB), have seen their shares drop significantly since early 2018. Along with peers Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON), these companies haven't cashed in as quickly on new opportunities for growth as most shareholders had hoped, and that's been the primary reason for the big declines they've posted.

Yet there's one stock in the cannabis industry that's posted solid positive returns over the past two years. Innovative Industrial Properties (NYSE:IIPR) continued to profit from its real-estate-minded approach to the marijuana market, and despite attacks from skeptical investing analysts, Innovative Industrial hasn't slowed down in its pursuit of promising properties for its cannabis partners.

Jar with cannabis leaf, with a scoop on a wood table.

Image source: Getty Images.

The basics of Innovative Industrial Properties

Innovative Industrial Properties has a business model that's far different from the big-name marijuana growers above. Rather than engaging in cultivation itself, Innovative Industrial tries to find suitable real estate for growing companies. Set up as a real estate investment trust, Innovative Industrial has extensive knowledge of the rules and regulations that growers need to follow in order to establish medical marijuana growing facilities in states across the U.S., and that gives it a competitive advantage over more generalized real estate specialists.

The result has been a huge first-mover advantage for the company that has resulted in dramatic growth. In addition, because it's a REIT, Innovative Industrial pays out the majority of its income to its shareholders in dividend distributions. That payout has grown from $0.15 per share quarterly as recently as late 2017 to $1 per share in its most recent dividend.

How Innovative Industrial hopes to fuel higher future dividends

Innovative Industrial has been able to give dividend investors what they want to see by continually looking for good prospects in the real estate market. Its success in doing so has let it expand its portfolio at a reasonable pace and put it in position to keep growing its funds from operations.

In just the past month alone, Innovative Industrial has announced two transactions to foster its expansion. Early in the month, the marijuana REIT spent almost $27 million on a facility in central Massachusetts, with almost 200,000 square feet of space. Here, Innovative Industrial is working with longtime partner Ascend Wellness, which had done two real estate transactions with the company before. Ascend's triple net lease provides for rent equal to 13.5% of Innovative Industrial's total investment in the property, which includes a $22 million tenant improvement reimbursement provision.

In Michigan, Innovative Industrial did a sale and leaseback transaction with Cresco Labs on a property with 115,000 square feet for cultivation and processing. The real-estate specialist will spend a total of $16 million on the purchase and additional improvements, and Cresco will lease the space back under undisclosed terms.

When you put those new transactions into the mix, Innovative Industrial now has 55 properties in 15 states, with a total of 4.1 million square feet and an occupancy rate of 99.1%. With average weighted lease terms extending 16 years into the future, Innovative Industrial has high expectations for its ability to keep pulling in income from the real estate it's leasing to its marijuana company partners.

Firing back at critics

Innovative Industrial has gotten criticism from skeptics. Earlier this month, Grizzly Research accused the company of owning low-quality real estate and failing to ensure that tenants have the staying power to meet their lease obligations. Yet some of those accusations don't seem to stand up to further scrutiny.

The marijuana industry  continues to evolve, and some cannabis growers have succeeded at the expense of others. Innovative Industrial, however, has found a niche it can keep expanding. So far, shareholders have been quite happy with what they've seen.