Way back in the long-ago days of December 2020, I wrote an article detailing how much you would have gained by holding $1,000 worth of Innovative Industrial Properties (IIPR -0.17%) stock since the beginning of that year. Clever and lucky, you would have more than doubled your investment.

In revisiting the trajectory of this real estate investment trust (REIT) that focuses on marijuana growers, what a difference a few years can make. Moving the time frame forward from the beginning of 2021 until now, investors in Innovative Industrial Properties wouldn't have gained at all -- in fact, they would have lost a considerable amount of money. Let's find out how much, then dig into whether that makes the shares a bargain now.

Plummeting pot

As we all know, the numbers don't lie. Across that stretch of time, a $1,000 buy-in of Innovative Industrial Properties (IIP for short) would have shrunk to $483 today. And that's after a recent surge in pot stocks thanks to some recent stirrings within the federal government. But we'll get to that in a minute.

That sort of decline isn't unusual for the marijuana industry, which is IIP's exclusive tenant base. Weed generally isn't a profitable business, given the patchwork nature of U.S. legalization, the competitiveness of the black market, and a host of other challenges. 

As a REIT, the company isn't directly exposed to the vagaries of the pot industry, but it can't escape the gloomy sentiment that has blanketed it for years. Few cannabis companies turn a profit, and almost all are struggling; IIP is consistently profitable, by contrast, but in many minds it's guilty by association regardless.

Despite that profitability, IIP's growth hasn't been as impressive lately as it was in the past. This is a consequence of the general sluggishness of the marijuana industry: It's hard for a specialty REIT to get the numbers up if its tenant base isn't expanding much.

Speaking of tenants, another ding to sentiment on IIP is the three rent defaults it experienced last year. Compounding that, it also executed lease amendments for two other tenants to either avoid or defer defaults, and applied part of a third tenant's security deposit to help it make rent. "Default" is a dirty word in the REIT space, and investors often get spooked when they hear it. 

Sparking up some legalization

Yet given the industry it's chosen to work with, Innovative Industrial Properties is weathering these storms rather well. Six struggling tenants sound like a lot, but the company's total number of renters is 30, and the six are among the smaller companies.

Meanwhile, the list includes such leading multi-state operators (MSOs) as Curaleaf Holdings and Trulieve Cannabis. Combined, those two sector heavyweights held 14 of Innovative's leases at the end of June.

So its tenant list is sturdier than it might seem in the wake of those defaults and amendments.

IIP's numbers have actually been holding up well. No, growth isn't as hot as it was in various periods past, but it's still there. In the REIT's second quarter, its total revenue rose by 8% year over year to nearly $76.5 million, while adjusted funds from operations (or FFO, the No. 1 profitability metric for REITs) inched up by 6% to almost $64 million. 

Recent developments in the halls of power also bode well for Innovative Industrial Properties, not to mention for the rest of the marijuana industry. At the end of August, an unnamed high-ranking official at the federal government's Department of Health and Human Services (HHS) requested that the Drug Enforcement Agency (DEA) reclassify the drug. 

Doing so would put weed in a "schedule," as per the DEA's term, occupied by fairly unthreatening substances such as ketamine, Tylenol with codeine, and testosterone. At the moment, marijuana is in Schedule I next to heroin and LSD.

The DEA said it will conduct a formal review on the HHS request. Even if it doesn't budge on reclassification, the request is only the latest sign that support for marijuana reform is spreading into the higher ranks of government in this country. It seems only a matter of time before pot is de facto legalized.

When that occurs, Innovative Industrial Properties -- already doing a good job as a top landlord to the scrappy cannabis sector -- will surely be a beneficiary. And, I'm willing to bet, it will be the subject of a more-positive future article about how investing in it has produced good returns once again.