It's been a mostly down year for cannabis stocks. Declining profits for some multi-state operators (MSOs) have soured many investors on the sector, with the ETFMG Alternative Harvest ETF and the AdvisorShares Pure Cannabis ETF down roughly 46% and 58%, respectively, so far this year.

The reasons for declining profits include a glut of cannabis, persistent illegal cannabis markets in some states that compete against legal cannabis growers, and complex regulatory environments in some states that include high levels of taxation for cannabis companies.

But some cannabis companies continue to thrive and it stands to reason that if they can do well in difficult periods, they will make better long-term investments, particularly if the expected growth in cannabis comes to fruition. A study by Grand View Research says legal cannabis in the U.S. will be a $40 billion market by 2030, after a compound annual growth rate of 14.9%. This month, Innovative Industrial Properties (IIPR -0.82%), Green Thumb Industries (GTBIF -5.60%) and Jazz Pharmaceuticals (JAZZ -0.82%) all reported third-quarter results that showed revenue growth, both year over year and sequentially, and I think they are stocks worth buying now.

1. Innovative Industrial Properties

Innovative's shares are down 57% so far this year as of this writing, and the company is trading for just a little over 23 times earnings. The cannabis real estate investment trust (REIT) just raised its quarterly dividend by 2.9% to $1.80 a share. It has boosted its dividend every year since it began offering one in 2017.

With a dividend yield of 6.4%, more than three times the S&P 500 average dividend yield, the stock is too inviting to pass up considering the company's solid financials.

In the third quarter, the company reported revenue of $71 million, up 32% year over year and 1% from the previous quarter. It reported net income of $37.3 million, or $1.32 in earnings per share (EPS), an increase of 25% and 10%, respectively, over the same period in 2021.

The company also grew adjusted funds from operations (AFFO) to $60 million, up 34% year over year. AFFO per share was $2.13, an increase of 25% over the third quarter of 2021. The company's AFFO payout ratio for its dividend is 84.5%, well within the commonly accepted safety guidelines for a REIT.

Much of the reason for the stock's share decline is because one of its largest tenants, Kings Garden, defaulted on its rent. Overall, the company's properties are 97% occupied and there's no shortage of tenants to replace Kings Garden.

Because of federal banking prohibitions, cannabis operators are reliant on Innovative to provide capital by buying their properties and then leasing them back with long-term triple-net leases, with all property expenses paid by the tenant. When the company was founded in 2016, it had one tenant and owned one facility. Today it has 30 tenants and 111 facilities and the future looks bright.

2. Green Thumb Industries

Green Thumb Industries is the only major pure-play marijuana MSO that is profitable by net income. In the third quarter, the company reported $261 million in revenue, up 11.8% year over year and 2.7% sequentially.

While net income in the quarter was $9.8 million, down 51.3% year over year and 59.7% sequentially, it was still the company's ninth consecutive quarter of positive net income.

Despite solid fundamentals of the company, the stock is down more than 39% this year, leaving it with a better price point for investors. With a price-to-earnings ratio of about 36, it is well-priced considering its potential growth and the fact that most cannabis retailers aren't profitable.

Investors are watching to see how well the company's partnership with Circle K convenience stores in Florida works out. In October, the company said it had an exclusive agreement to allow Green Thumb to open its Rise Express dispensaries adjacent to Circle K stores at 10 locations.  If the partnership works out, it is worth noting that Circle K has 600 locations in the state.

3. Jazz Pharmaceuticals

Jazz Pharmaceuticals specializes in oncology and neuroscience therapies. It is an ancillary cannabis stock because two of its antiseizure and antispasm therapies contain cannabis compounds: Epidiolex and Sativex (sold only overseas). The company reported third-quarter revenue of $940.7 million, up 12% year over year and a small amount sequentially. It said it lost $19.6 million in net income, or an EPS loss of $0.36, compared to a loss of $52.8 million and an EPS loss of $0.86 in the same period last year. 

Through the first nine months of 2022, the company reported revenue of $2.68 billion, up 22% year over year, and net income of $16.6 million, up from a loss of $294.3 million in the first nine months of 2021.

The growth in revenue was attributed to sales gains for narcolepsy drug Xywav, which had reported sales of $256 million, up 67% year over year, and Epidiolex, which had nine-month revenue of $196.2 million, up 22% over the same period in 2021.

The company also boosted its yearly guidance, saying it expects revenue between $3.6 billion and $3.7 billion, compared to revenue of $3.1 billion in 2021. Jazz said it expects full-year EPS to be positive -- between $0.75 and $2.75 -- compared to an EPS loss of $5.52 in 2021.

I see Jazz as a solid buy because Xyway's sales seem to be ramping up, the company has consistently grown revenue and now it seems to be getting its costs in check while reducing long-term debt.