Like many growth stocks, 2022 was a brutal year for most cannabis stocks. The Advisor Shares Pure Cannabis ETF and TFMG Alternative Harvest ETF are down more than 72% and 62%, respectively, at the close of 2022. The main reason cited for plummeting share prices for cannabis stocks is a glut of low-priced marijuana that makes it hard for companies to make much of a profit.

In short, there's too much competition, both from legal cannabis companies and illegal cannabis providers. On top of that, last week, the SAFE Banking Act was left out of a $1.7 trillion government funding package. That means it will continue to be difficult for cannabis retailers to get funding from banks. At the federal level, marijuana is still considered an illegal Schedule 1 drug, so most banks stay away from delivering standard banking services to cannabis companies.

That's a big problem for cannabis retailers, especially the smaller ones that are looking to grow. However, it provides a cottage industry for Innovative Industrial Properties (IIPR 1.17%) and NewLake Capital Partners (NLCP 2.72%), two cannabis real estate investment trusts (REITs). The companies are two of the few sources of capital for cannabis companies because they buy cannabis retailers' facilities and then lease them back with triple-net leases that put most of the costs on the tenants.

While both stocks are down for the year, they've bounced back the past three months because they've become too attractive to pass up. The big attraction for many REITS is their dividends because they are required to distribute to shareholders at least 90% of their taxable income through dividends. That means REITs generally have above-average dividends and Innovative and NewLake fit that mold.

NewLake has an enviable growth rate

NewLake Capital Partners' shares are up more than 24% in the past three months. The REIT, founded in 2019, went public in 2021. It is still relatively small, with a market cap of around $357 million and a portfolio of 32 facilities and dispensaries, but its growth is worth taking note of. 

In the third quarter, the company reported adjusted funds from operations (AFFO) of $10.6 million, up 21.4% sequentially and 75.3% year over year. Revenue was reported as $12.1 million, up 15% sequentially and 50% over the same period last year. 

One of the most attractive features of NewLake is it has little debt, with a debt-to-equity ratio of 0.37%. As of November, it had $3 million in debt and $45 million in cash. One thing that may be holding NewLake back is that it trades over the counter. At its current growth rate, the company could easily qualify to trade on the Nasdaq Stock Market in the next two years. While the company has a strong tenant list that includes big multistate operators (MSOs) such as Curaleaf Holdings, Trulieve Cannabis, and Cresco Labs, it could do with more diversification; Curaleaf, as a tenant, is responsible for 22.3% of NewLake's portfolio.

NewLake, in addition to its dividend, recently announced a $10 million stock buyback plan through the end of next year.

The company just raised its quarterly dividend by 5.4% sequentially and 25.8%, year over year, to $0.39 per share, the seventh consecutive quarter it has raised its dividend. At its current price, that represents a yield of about 9.1%. Even with all the increases, the dividend's AFFO payout ratio is only 75.6%, well within the safety boundaries for a REIT.

IIPR Dividend Chart

IIPR Dividend data by YCharts

Innovative offers a strong dividend with less risk

Innovative Industrial Properties' shares are up more than 13% in the past three months. The company is the largest cannabis REIT, with a market cap of just under $3 billion and 111 properties across 19 states.

The company reported revenue of $70.9 million in the third quarter, up slightly sequentially and 32% year over year. Innovative's third-quarter AFFO was listed at $60.1 million, or AFFO per share of $2.13, up 33.5% and 24.5%, respectively, year over year, but flat sequentially.

The REIT raised its quarterly dividend this year by 2.9% to $1.80 per share, the fifth consecutive year it has increased its dividend. Over that period, it has increased its dividend by 1,031%. Its current yield is 7.08% with an AFFO payout ratio of 84.5%, higher than NewLake's, but still not unreasonable for a REIT.

Innovative's tenant list also includes top MSOs, but its diversification is greater, with no one tenant responsible for more than 14% of the company's portfolio.