For much of 2024, Innovative Industrial Properties (IIPR 0.72%) was atypical for a marijuana stock in that its share price generally rose. Two news items that hit headlines toward the end of the year, however, reversed that trend, and the pot real estate investment trust (REIT) ended up closing the year with an annual stock price decline of almost 34%.

A Fall full of falls

The first of the downbeat developments -- at least from Innovative's standpoint -- occurred on Election Day. All three recreational cannabis legalization measures up for a vote failed to pass -- specifically, in North and South Dakota and Florida.

Because of a host of negative factors such as heavy competition, aggressive taxation, and the lack of access to even basic financial services, the overwhelming majority of marijuana businesses are unprofitable. The multstate operators that crowd the scene badly need a wider national market for their goods. On Nov. 5, they didn't get one.

This unhappy piece of industry-shaking news was soon compounded on Dec. 19 when one of Innovative's renters, privately held PharmaCann, defaulted on that month's rent for six of its 11 leased properties. Worse, cross-default provisions it's bound to meant that it defaulted on all of the 11, technically speaking. All told, the unpaid rent for the half-dozen facilities was $4.2 million.

That was quite a blow for Innovative, as PharmaCann was its top tenant in terms of both total number of properties and percentage of overall lease revenue as of the REIT's latest reported quarter, ended Sept. 30. The uncomfortable figures for the two metrics were, respectively, 11 and 17%. At the time, Innovative said it was in talks with PharmaCann on the situation and said it might be compelled to begin eviction proceedings.

Since then, both companies have been mum on said talks. No news feels like bad news to many of Innovative's investors.

Reasons to be cheerful

So as the year turned, investors weren't liking the buzz they were catching from Innovative. A REIT spoiled for choice with clients probably would have booted PharmaCann from its tenant list by now and replaced it with a more reliable rent payer. It's worrying that the issue hasn't yet been resolved.

Yet I continue to be bullish on Innovative. It's one of the very rare consistently profitable companies in the pot sector, and as far as it goes, it's the industry's top REIT. Tenant defaults are a fact of life in the real estate business, and I think management will find a way to get past this one, although investors are right in wishing it would get a move on.

I also believe the U.S. will ultimately decriminalize marijuana. There's too much public support for such a move, politicians can score easy points with the public for pushing it, and various levels of government will benefit from the tax revenue it draws.