Let's be honest -- the marijuana industry isn't a hotbed of great investments these days. Beset by a host of challenges, including but certainly not limited to black-market competition, falling prices, and patchwork legalization, many pot companies have struggled to make a buck.

But even in a down-at-heel industry, there are always good companies to be found. In the case of Innovative Industrial Properties (IIPR -0.02%), weed has quite an excellent standard bearer. Read on to find out what I like so much about this company, and why it's my top marijuana stock pick for 2023.

The pot industry's No. 1 landlord

There is plenty of demand for marijuana in the U.S., but those aforementioned roadblocks make it tough for any company in the business to prosper. That's why it's necessary to look at a company that, while closely associated with the cannabis industry, isn't directly involved in the drug's production, distribution, or sale.

Innovative is a real estate investment trust (REIT) that specializes in properties crucial to the pot companies (grow spaces, processing facilities, etc). Although to an extent it's dependent on the fortunes of the business, at the same time it's also isolated from them as merely a landlord to the business. Happily, that demand won't melt away anytime soon, so there will always be a wide base of potential tenants for the REIT.

Weedies like renting Innovative's spaces, and the company's client list reads like a who's who of the marijuana sector. Top multi-state operators (MSOs) are clients, with Trulieve Cannabis, Curaleaf, and Green Thumb Industries -- among others -- leasing several Innovative facilities.

Innovative ropes in many of its clients with an active and well-publicized sale-leaseback program. Many marijuana companies struggle with profitability and cash flow, so a sale of property to a well-capitalized operator like Innovative can bring in a pile of badly needed cash. At the same time, in a sale-leaseback deal the seller can stay in its facility as a tenant, so there's no need to move shop.

With these strong dynamics behind it, Innovative continues to be one of the very few marijuana companies that consistently posts a profit while continuing to grow robustly. In its most recently reported quarter, the REIT managed to increase its revenue by a sturdy 32% year over year. Lagging only slightly, funds from operations (considered to be the most important profitability metric for REITs) improved at a 25% clip.

This wasn't a one-off quarter or a period where Innovative had an unusual event that moved the fundamentals higher. Double-digit percentage growth is typical for this REIT, which is impressive given that it's now been on the scene since 2016 -- a long stretch for the relatively young marijuana industry.

The magic combination: Growth and income

As has been the habit over the past few election cycles, voters in yet another clutch of states voted to legalize recreational marijuana in November 2022. For obvious reasons, Innovative is a beneficiary of this long-tail trend (in the absence of full-scale federal descheduling of the drug, which would de facto legalize it nationwide).

Another positive for the company's future is that several legalizers are at the very beginning of their marijuana markets. I'm thinking in particular of massive New York, which at the very end of 2022 finally launched its official recreational market. The state currently has quite a laughably low dispensary license count, but that's sure to rise notably once state officials realize how much tax revenue they can make.

As a group, the analysts tracking Innovative are fully expecting it to ride this wave. On average, they are expecting 35% growth in revenue for full year 2022 compared to 2021. And while net income isn't the No. 1 profitability metric in the REIT world, those prognosticators are nevertheless modeling nearly 20% growth in the per-share figure for that line item for 2022.

And as those numbers continue to head north, doubtless the all-important dividend will too. Since late 2017 the company has consistently, and at times aggressively, raised its shareholder payout. Innovative absolutely qualifies as a high-yield dividend stock, as its yield tops 7.1% these days. That's rich not only compared to the standard stock market distribution, but also in the relatively high-yield dividend space that is the REIT sector.

I have been an Innovative bull for years now, and I see no reason to change my stance now. This is not only a fine stock to own, it has been and remains the best in the broader pot sector. It is a worthy addition to any portfolio.