According to a Pew Research poll, 88% of U.S. adults support the legalization of marijuana for medical and recreational purposes. Only 10% oppose it. Therefore, it’s likely only a matter of time before cannabis is federally legalized. So, investors should have some top cannabis stocks to watch on their radar.

Late last year, a bipartisan group of Congress members sent a letter to President Joe Biden asking that he back federal legalization. “While we do not always agree on specific measures, we recognize across the aisle that continued federal prohibition and criminalization of marijuana does not reflect the will of the broader American electorate,” the letter said. “It is time that your administration’s agenda fully reflect this reality as well.”

Many states have already passed laws legalizing cannabis, while the Biden administration is reviewing cannabis scheduling. When federal legalization comes to pass, the sector is likely to explode higher. In the meantime, why not get paid to wait with dividend-paying cannabis stocks?

AFC Gamma (AFCG)

First up on the list of cannabis stocks to watch is AFC Gamma (NASDAQ:AFCG), a commercial mortgage real estate investment trust that provides financing to the cannabis industry in the form of loans.

Shares have struggled over the past year, falling 31%. However, they are up close to 4% so far in 2023. With more U.S. states and countries throughout Europe looking to legalize cannabis for recreational and medicinal purposes, bullish momentum could continue in the sector this year.

Due to current federal laws, cannabis companies can’t get regular financing from banks. Companies like AFC Gamma have an important role to play in providing things like mortgage and construction loans. One might think, then, that legalization would not be a positive for AFC Gamma, as it would increase competition from banks. However, the benefits of legalization, which is likely to lead to a big spike in demand and dollars flowing to the sector, should far exceed the drawbacks of increased competition.

In its most recent quarter, the company posted net income of $11.5 million, up 45% year over year. Moreover, AFC Gamma paid a quarterly dividend of 56 cents per common share, which was 30% higher than the year-ago payout. Shares currently throw off a yield of more than 14%.

As a high-yielding REIT, AFC Gamma represents a great way to trade the sector’s potential.

NewLake Capital Partners (NLCP)

The next of the dividend-paying cannabis stocks to watch is NewLake Capital Partners (OTCMKTS:NLCP), which provides real estate capital to state-licensed cannabis operators. NewLake has “a portfolio of 32 cultivation facilities and dispensaries that are leased to single tenants on a triple-net basis,” which means tenants are responsible for paying monthly base rent, as well as insurance, maintenance, taxes and utilities associated with leased properties.

NLCP is down 40% over the past year. However, shares have rallied 30% since hitting a 52-week low in late September.

NewLake released its third-quarter results in early November. Revenue increased 50% year over year to $12.1 million. Net income attributable to common stockholders and participating securities jumped 71% from a year ago to $6.5 million, while diluted funds from operations were up 56% to $10.3 million.

Following this strong quarter, the company announced a $10 million share buyback program, which is a positive sign. And, of course, it’s also rewarding shareholders through dividends, paying out 37 cents per share in the most recent quarter for a forward annual yield of 9.6%.

Innovative Industrial Properties (IIPR)

Last up on today’s list of cannabis stocks to watch is Innovative Industrial Properties (NYSE:IIPR), a real estate investment trust with 111 properties and approximately 8.7 million rentable square feet that it leases to state-licensed cannabis operators.

The company reported better-than-expected Q3 results in November.  Revenue rose 32% year over year to $70.9 million, while net income of $37.3 million was up 25%. Adjusted funds from earnings rose 34% from a year ago to $60.1 million.

Shares are down 50% over the past year. More recently, they fell from a high above $125 in early December to a low of $95.50 on Jan. 5. At its current level around $106, IIPR appears technically attractive. Shares have just started to pivot higher and could retest $110 again shortly.

Longer term, I expect to see IIPR trade back up to $122.50, which is 15% above today’s price. Roth Capital analysts are even more bullish. They see shares going to $170, implying upside of 60%.

While investors wait, they can collect a hefty dividend yield of 7.2%.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.