Amid the chaos of 2020, cannabis stocks stood out for all the right reasons. It certainly didn't hurt that five states overwhelmingly passed marijuana legalization initiatives or amendments on election night. As we entered 2021, 36 states had legalized medical marijuana, 15 of which also allow adult-use consumption and/or retail sale.

But the crown jewel for cannabis enthusiasts has always been the federal legalization of pot. That's a longtime dream that might finally be within reach.

A black silhouette of the U.S., partially filled in by cannabis baggies, rolled joints, and a scale.

Image source: Getty Images.

It's now considerably more likely that cannabis could be legalized in the U.S.

In early November, Americans went to the polls and elected Democrat Joe Biden as the 46th President of the United States. Even though Biden has only pledged to decriminalize and reschedule marijuana at the federal level, Biden's view will represent the most progressive stance on cannabis by a sitting president in the modern era.

Things got even better on Jan. 5, when Georgia voters elected two Democrats to the U.S. Senate. Prior to this vote, Republicans held 50 seats to the Democrats' 48 (this figure includes Independents). A 50-50 tie in the Senate allows the soon-to-be Vice President, Democrat Kamala Harris, to cast any tiebreaking votes. Effectively, Democrats have control of the Oval Office and both houses of Congress.

In November, national pollster Gallup released its annual survey on Americans' sentiment toward marijuana. Its poll showed an all-time record 68% of survey-takers favor legalizing pot nationwide. More importantly, 83% of the survey-takers who identified with the Democrat Party support legalization. That compares to only 48% of self-identified Republicans. 

The table is clearly set for lawmakers to do what the American public has been waiting for them to do for the past couple of years: Legalize marijuana.

Potted cannabis plants under special lighting in an indoor cultivation farm.

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Legalizing marijuana would be bad news for this pot stock

While giving cannabis the green light would be a net-positive for most North American marijuana stocks, there's one pure-play cannabis company that won't be cheering for such news.

Since its debut on the New York Stock Exchange in 2016, cannabis-focused marijuana real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) has been virtually unstoppable. As a REIT, Innovative Industrial is looking to acquire medical marijuana cultivation and processing sites, with the intent of leasing these assets out for long periods of time (10 to 20 years).

On a surface-scratching level, IIP, as the company is known, has done an excellent job of gobbling up and leasing its assets. It ended 2020 with 66 properties in 17 states, with more than 99% of its rentable square footage leased out. For some context on how quickly IIP has expanded, the company only owned 11 properties at the end of 2018.

In addition to rapidly growing its revenue and funds from operation through acquisitions, IIP also passes along annual rental hikes, and charges a 1.5% management fee based on the annual rental rate, to generate very modest organic growth.

However, the company's biggest growth driver in 2020 was its sale-leaseback program. Since cannabis is illegal at the federal level, banks and credit unions aren't always willing to offer basic financial services to pot companies. This includes checking accounts, lines of credit, and loans. As a result, cash-strapped cultivators and processors have turned to IIP to raise capital.

A jar packed with cannabis buds that's placed atop a neatly fanned pile of twenty dollar bills.

Image source: Getty Images.

Under the sale-leaseback program, IIP acquires marijuana growing and processing assets for cash, then immediately leases these properties back to the seller for an extended period of time. This program has helped IIP land major multistate operators (Green Thumb Industries, Curaleaf Holdings, and Cresco Labs) as customers.

If marijuana were legalized at the federal level, banks would be free to provide loans and lines of credit to cannabis companies. This would effectively neutralize Innovative Industrial Properties' biggest growth driver over the past 12-to-18 months. This is why the status quo is actually better for IIP.

Keep in mind, though, that even without its top growth catalyst, selling IIP stock or betting against it probably isn't the right move. Even if cash is easier to come by for pot companies in a legalized environment, I'd expect smaller businesses that lack the track record needed to obtain a sizable bank loan to lean on IIP to boost their capital. In other words, the biggest change might be that IIP sees a dip in sale-leaseback deals with brand-name cannabis stocks and multistate operators.

Furthermore, it'll still have its 66 property portfolio, which has a weighted-average lease length of 16.6 years. Although the company stopped reporting its average yield on invested capital almost a year ago (it was north of 13% at the time), there's a pretty good chance IIP recoups its invested capital in under seven years. That means plenty of gravy to come, even if its sale-leaseback agreements fail to pack their typical punch in a legalized environment.

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.