NEW YORK CITY-  Industrial Innovation Properties, a real estate investment trust focused on cannabis-leased industrial and greenhouse buildings, has outperformed on the New York Stock Exchange as the early-mover and lone REIT investment option for cannabis-related industrial properties. Investors anticipate further growth in its returns as conversations grow about the legalization of medical and recreational use of cannabis at the state-level nationwide, according to a new analysis by the Advisory & Consulting arm of Green Street Advisors, a real estate research firm.

IIPR strategy includes planting the flag in states with approved medical-use laws that are perceived to have low regulatory risk. The NYSE-traded REIT was one of the sole options for investors looking to add exposure to cannabis-related industrial properties for the past several years.

The West-coast headquartered firm was one of the only cannabis-focused REITs to begin trading on the NYSE on December 1, 2016. When it debuted on the public market, its shares lagged for the first 12 months. But soon thereafter, the tune changed as legalization became widespread, according to Dirk Aulabaugh, managing director at Green Street Advisors, who authored the analysis. IIPR investors have reaped the benefits of betting on the early mover. From when the company began trading to this July, the market rewarded IIPR investors with a cumulative total return of 634%, outperforming the Nareit All Equity REIT Index, which posted a 33% total return, and the Nareit industrial total return index gained 66%, according to the analysis.

The company's management team identifies states with stern approved medical-use laws, which is a majority of the states nationwide. Medical-use cannabis is now legal in 38 states and the District of Columbia. State policies that adopt either recreational or medical use have gained momentum and proved promising for the REIT in bulking up its market share.

Since IIPR went public at the end of 2016, 12 states have legalized either medical-use or recreational-use cannabis. In tandem, the company traded up by at least 20% in the 30 trading days immediately following four out of these six approval periods. The four periods that witnessed this strong performance involved states with large populations. In November 2018, the stock performed the best after states like Michigan, Utah, Massachusetts and Missouri adopted legalization, accounting for 8% of the U.S. population, and in mid-2019, when Illinois and Texas joined them, representing nearly 13% of the country's population, according to the analysis.

Policy tailwinds are expected to continue as marijuana-use for medical and recreational purposes become less taboo and more acceptable on a federal level.  Approximately 15% of the U.S. population resides in states where both medical and recreational cannabis use remains illegal, which is expected to change as demand increases and as younger generations age up, according to Aulabaugh.

Hanging over the whole cannabis industry is what will Congress do. There are at least a half a dozen bills pending before Congress, according to Stanley Jutkowitz, senior counsel at Seyfarth Shaw and head of the firm's cannabis practice. "These bills that will legalize marijuana, will obliviate all of these problems and the need for caution and anxiety, propelling investors off the sidelines. The potential for growth is innumerable."

And with IIPR as an early mover in the space and its posted strong historical performance without any federal policy support, the REIT is expected to continue to outperform over the next several years.