Medical marijuana has never been more popular. And neither have medical marijuana stocks. With 29 U.S. states plus the District of Columbia and a growing number of nations across the world now permitting legal use of cannabis for medical purposes, many investors are eager to pour money into the best companies in the industry.

There are quite a few alternatives available for investing in medical marijuana. Many of them are penny stocks of tiny companies that aren't great choices for most investors. Several, though, are stocks of relatively large companies with significant growth potential. Five of the very best medical marijuana stocks on the market today are Canopy Growth Corporation (NYSE:CGC), Aurora Cannabis (NYSE:ACB), MedReleaf (NASDAQOTH:MEDFF), Aphria (NASDAQOTH:APHQF), and Cronos Group (NASDAQ:CRON). Here's what makes these stocks stand out.

Marijuana on top of $100 bills

Image source: Getty Images.

1. Canopy Growth Corporation

I'd rank Canopy Growth at the top of the list of medical marijuana stocks. For one thing, it's currently the biggest, with a market cap of close to $3 billion. Canopy Growth has also attracted the interest of a much larger company. Fortune 500 alcoholic beverage leader Constellation Brands recently spent $245 million for a 9.9% stake in Canopy Growth and plans to launch a cannabis-infused beer.

Canopy Growth's medical marijuana sales in Canada are rapidly growing. The company has also made a big push to expand internationally, with subsidiaries or partnerships in Australia, Brazil, Chile, Denmark, Germany, Jamaica, and Spain. Canopy Growth's best news of all, though, is that it should be in a great position to profit from legalization of recreational marijuana in Canada in 2018. 

2. Aurora Cannabis

Aurora Cannabis is the second-largest medical marijuana stock, with a market cap of around $2 billion. However, the company could soon surpass Canopy Growth in size. Aurora intends to acquire another Canadian medical marijuana grower, CanniMed Therapeutics. If the deal goes through, the combined entity would likely be valued at more than $3 billion.

Like Canopy Growth, Aurora is eyeing international markets. The company's subsidiary Pedanios is going through the regulatory process to become a licensed producer of medical cannabis in Germany. In addition, Aurora owns nearly 20% of a company that supplies medical cannabis in Australia. Also like Canopy Growth, Aurora could see a huge revenue opportunity with Canadian legalization of recreational marijuana next year. 

3. MedReleaf

MedReleaf's market cap stands at around $1.2 billion. Even though its valuation is smaller than that of Aurora Cannabis, the company's sales are greater and trail only Canopy Growth among the leading medical marijuana growers. 

Why isn't MedReleaf stock worth more than it is? The company's sales growth hasn't been nearly as impressive as its peers. This relatively sluggish growth stems in large part from MedReleaf's reliance on sales of dried cannabis, which don't command the premium prices that cannabidiol (CBD) products do. However, MedReleaf claims one of the lowest cost structures in the industry, which should position the company very well to compete when Canada opens up the market for legalized recreational marijuana. 

4. Aphria

Aphria comes in slightly behind MedReleaf in market cap, with the company currently valued around $1 billion. In terms of revenue, though, Aphria has been well below both Canopy Growth and MedReleaf. However, its sales have routinely topped those of Aurora Cannabis. 

One thing that sets Aphria apart from its peers is the company's focus on the U.S. market. Aphria forged a deal over the summer that gave it a foothold in the medical marijuana market for Florida. And while Florida represents around 14% of the total medical marijuana market in the U.S., the state is probably just the beginning for Aphria's southern strategy. The company plans to expand into other U.S. states that have legalized use of medical cannabis. 

5. Cronos Group

Cronos Group is the smallest of these medical marijuana stocks, with a market cap of around $475 million. And unlike all of the other companies mentioned, Cronos Group is an investment company rather than a marijuana grower itself. But the company's focus is definitely on medical marijuana.

Three small Canadian marijuana growers are 100% owned by Cronos Group: In the Zone Produce, Peace Naturals and Original BC. Cronos also owns a 21.5% stake in Whistler Medical Marijuana Company as well as smaller positions in several other marijuana growers, including Canopy Growth. Although Cronos Group has a different business model than the others on the list, its opportunities are similar. The company anticipates growth both in Canada and internationally, especially in the German market.  

Caution required

If you're looking to invest in medical marijuana, I think these five stocks are the best on the market. However, there are significant risks of which investors should be aware.

Caution sign with exclamation point

Image source: Getty Images.

The most glaring risk is valuation. Each of these stocks is priced at stratospheric levels. Cronus Group is the most expensive, with shares trading at nearly 130 times sales. Aurora Cannabis isn't far behind, with a price-to-sales multiple of 129. Canopy Growth follows, with shares trading at 73 times sales. Aphria's sales multiple is 60. And while MedReleaf is the cheapest of the group, the stock still trades at nearly 35 times sales. 

These sky-high valuations reflect expectations of astronomical growth for each of these stocks. While the medical marijuana companies should enjoy tremendous growth from legalization of recreational marijuana in Canada and continued international expansion, there's a real possibility that the growth could fail to meet the lofty expectations of investors.

Aphria, in particular, faces two other risks. Because of the company's focused effort to expand in the U.S., Aphria's expansion plans could be derailed if the U.S. Department of Justice decided to crack down in states that have legalized medical marijuana in violation of federal laws.

Also, the Toronto Stock Exchange, on which all five of these medical marijuana stocks are listed, issued a notice in October that companies with stocks listed on the exchange that engage in ongoing business activities in violation of U.S. federal laws related to marijuana are not in compliance with listing requirements. It's possible that companies such as Aphria that are actively working to sell medical marijuana in the U.S. could have their stocks delisted from the Toronto Stock Exchange. 

Even with medical marijuana taking off like never before, the risks of investing in the industry shouldn't be ignored.