Spring may be in the air, but there are far more reasons investors are seeing green. The marijuana industry has been on fire for more than two years now, with many of the largest pot stocks by market cap having gained in excess of 1,000% since 2016 began.

At the heart of these gains is rapid sales growth and a discernible shift in the way the public views cannabis. Last year, according to research firm ArcView, the legal weed industry grew sales by 33% to $9.7 billion in North America. By 2021, North American legal pot sales could nearly reach $25 billion, signaling the power of the "green rush."

A bottle of dried cannabis tipped over onto a cannabis leaf.

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In terms of favorability, at least within the U.S., more people than ever support legalizing cannabis. Gallup, which has been conducting polls on the public's opinion of marijuana for 48 years, found in October that nearly two-thirds of its survey takers supported legalization. That's up from 25% in 1995, the year before California became the first state to legalize medical marijuana for compassionate use patients. 

The green rush is on in Canada

Despite this strong growth and improving favorability, marijuana remains firmly illegal in the U.S. -- and that doesn't look to change anytime soon. Instead, all eyes have turned to Canada, which appears to be on the verge of legalizing recreational marijuana by this coming summer. All signs are currently pointing to a strong possibility of approval in June, leading to an expected $5 billion or more in annual sales.

As a result, Canadian cannabis growers have been working feverishly to expand their growing capacity. Because no developed country has ever legalized marijuana for adult-use before, no one really knows what the demand picture might look like in Canada. Nevertheless, having production at the ready when the proverbial green flag waves could allow growers to lock in long-term supply agreements, as well as forge emotional connections with consumers, leading to loyal customers.

A number of growers have, in recent months, announced massive expansion projects, partnerships, or acquisitions. For example, Aurora Cannabis (NASDAQ:ACB) acquired the Saskatchewan-based CanniMed Therapeutics in the most expensive pot buyout in history earlier this year. Following this acquisition, as well as a strategic partnership in Denmark with tomato producer Alfred Pedersen & Son (known as Aurora Nordic), and its recently announced acquisition of 71 acres of land in Alberta, Aurora Cannabis is on track to yield in excess of 430,000 kilograms per year at some point in the future. 

An indoor cannabis grow facility.

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A similar story is found with Aphria (NASDAQOTH: APHQF), which recently completed its purchase of Nuuvera, the second-priciest marijuana deal in history. In addition to working on an organic four-phase project spanning 1 million square feet, Aphria's partnership with Double Diamond Farms should help push its annual production up to 230,000 kilograms a year. Having begun 2018 with around 100,000 kilograms in expected yield, Aphria has more than doubled its expected yield in less than four months. 

This leading marijuana stock just tripled its licensed production capacity

While this growth might seem almost unbelievable, it's nothing compared to industry kingpin Canopy Growth Corp. (NASDAQ:CGC).

On April 13, Canopy announced that its majority-owned subsidiary BC Tweed received licensing approval for two of its greenhouses. First, its Aldergrove, British Columbia, facility, which spans 1.3 million square feet, was licensed for up to 840,000 square feet of growing space, up from a previously granted 400,000 square feet. Secondly, a separate 1.7 million-square-foot greenhouse site received its first cultivation license totaling 900,000 square feet. All told, Canopy Growth now has 2.4 million square feet of licensed domestic capacity -- that's tripled from where it began the year -- and is on pace to hit 5.6 million square feet of licensed production capacity at some point in the future. 

Jars filled with cannabis stacked on top of each other.

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Compared to its peers, Canopy's 5.6 million square feet of capacity is huge. MedReleaf, which recently quadrupled its expected annual yield to 140,000 kilograms, is only working with around 1.3 million square feet of growing space. Aurora Cannabis has its 800,000-square-foot Aurora Sky facility, 1 million-square-foot Aurora Nordic facility, 1.2 million-square-foot Alberta facility, and the nearly 250,000 square feet of growing space inherited from CanniMed. Along with existing smaller facilities, it still trails Canopy by more than 2 million square feet of eventual growing space.

Canopy Growth has itself remained tightlipped about its production potential. However, spanning across the industry, it's not uncommon for producers to generate around 75,000 kilograms to 85,000 kilograms, on average, per 1 million square feet of growing space. This would suggest that Canopy Growth could produce well in excess of 400,000 kilograms of cannabis a year by perhaps 2020 or 2021, if not over 500,000 kilograms, depending on when its construction is complete and licensing from Health Canada is granted. Coupled with its top-tier distribution channels, Canopy is a force to be reckoned with.

A marijuana wildcard

Of course, there's a wildcard that's yet to be discussed: oversupply.

Though there's no precedent for a developed country legalizing recreational weed, it hasn't stopped analysts and governments from formulating educated guesses as to what domestic demand might look like. While estimates vary, initial demand looks to be around 800,000 kilograms annually. Even if this figure were to inch higher in the years to come, it's possible that Canada could be looking at domestic oversupply of up to 1 million kilograms per year, if not more.

A person holding up a puzzle piece with a question mark drawn on it.

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So, what happens to this oversupply? That's the $64,000 question. You see, Canada is one of just a small handful of countries that's been given the green light to export cannabis to foreign markets where medical weed is legal. What we don't know is just how much of this oversupply (assuming there is oversupply) will be offset by overseas medical cannabis demand. If foreign markets don't gobble up all excess supply, the expectation is that Canadian cannabis prices and margins would plunge. Even with its numerous distribution channels, premium brands, and supply agreements, this would be bad news for Canopy.

Worse yet, given the staggered completion dates of expansion projects for many of the biggest producers, it could take years before we have any reliable and consistent data on supply and demand within the cannabis industry.

While Canopy Growth has the makings of a dominant force within the industry, it's still exposed to many of the same risks as its peers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.