Here's a tale of two marijuana stocks. One is a top Canadian marijuana grower with a market cap approaching $2 billion that has expanded rapidly through acquisitions. Its stock is down 45% so far in 2018. The other focuses on providing financing to marijuana-related businesses. The company has a market cap of only $216 million, but its stock has jumped 23% year to date.

The first stock is Aphria (NASDAQOTH:APHQF), while the second stock is CannaRoyalty (NASDAQOTH:CNNRF). Does Aphria's size and beaten-down valuation make it the better pick? Or does CannaRoyalty's smaller size and momentum give it an advantage? Here are the arguments as to why investors should consider Aphria and CannaRoyalty -- and which looks like the better choice right now. 

Marijuana buds on top of cash

Image source: Getty Images.

The case for Aphria

Investors were disappointed by Aphria's fiscal Q4 results, announced on Aug. 1. However, there were plenty of positives to be found that highlight the potential for the company. 

Aphria's year-over-year revenue growth of 110% stemmed primarily from its acquisition of Broken Coast earlier this year. But that same acquisition gives the company more capacity to meet the demand that's on the way when Canada's legal recreational marijuana market opens in October. With its other expansion efforts on top of the acquisitions that it's made, Aphria anticipates an annual production capacity of 255,000 kilograms next year. 

You can expect Aphria's revenue to grow dramatically when Canada begins allowing the adult use of recreational marijuana. Eventually, however, supply will catch up with and exceed demand. Aphria CEO Vic Neufeld thinks the company will still be in a good position when this supply glut hits in Canada. He foresees Aphria as one of a few major players that will be able to deliver cannabis at low costs and potentially buy smaller marijuana growers at a steep discount from current valuations.

Another reason for Neufeld's optimism is the global opportunity. Germany legalized medical marijuana last year. Neufeld expressed confidence that the company will achieve success in the German market. Aphria is also expanding into other international markets.

The company recently completed its largest international shipment of cannabis oil so far to Australia. In July, Aphria announced acquisitions of cannabis-related businesses in Argentina, Colombia, and Jamaica. It's also keeping a close eye on the opportunity to sell medical marijuana in the U.K. as well as potentially step into the U.S. market should federal marijuana laws change. 

The case for CannaRoyalty

Why consider buying CannaRoyalty stock? The company itself provides one great reason to investors: "Canada is big. California is huge."

CannaRoyalty's statement references the sizes of the potential marijuana markets in Canada as compared to California. Arcview Market Research and BDS Analytics estimate that the total Canadian marijuana market, including both medical and recreational cannabis, will be around $5.5 billion by 2022. However, the firms project that the California marijuana market will top $7.7 billion by then.

The company emphasizes the California opportunity because its primary focus is on the state. CannaRoyalty wholly owns four cannabis brands that are marketed in California, including cannabis flower, edibles, and vaping products. In addition, the company holds exclusive rights to Bhang edibles, concentrates, and vapes. 

While California is CannaRoyalty's top focus, the company does have other areas of interest. The company operates in five other U.S. states -- Arizona, Florida, Nevada, and Washington. CannaRoyalty also does business in Canada and Puerto Rico. 

As mentioned earlier, CannaRoyalty's business model is to provide financing to marijuana-related businesses. In exchange, the company receives equity in the businesses and a stream of royalties from sales. CannaRoyalty also participates in licensing deals and other strategic partnerships. This model should be attractive to investors who like the thought of spreading their eggs across multiple baskets with one stock. 

Better marijuana stock

I like CannaRoyalty's business model. My view is that the company could be successful with its strategy over the long run. But it has a long way to go. It's one thing to point to the great opportunity in California, but effectively capitalizing on that opportunity is easier said than done. I'll definitely keep CannaRoyalty on my radar screen.

For now, though, I think Aphria gets the nod. For one thing, the company has achieved 11 consecutive quarters of positive EBITDA -- a feat no other Canadian marijuana grower has done. Aphria should enjoy tremendous revenue growth over the next few years as the markets in Canada and in other countries grow.

However, I'm more than a little concerned about the timing of Aphria's growth prospects. My hunch is that the global marijuana market won't increase as quickly as the company would like. That could mean Aphria's future is highly volatile -- just like its past has been. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.