The marijuana industry is big business, and Canada is about to find that out firsthand. In just 20 days' time, Canada will become the first industrialized nation in the world to legalize recreational cannabis. When the industry is fully operational from a production capacity perspective, Wall Street will be looking for somewhere in the neighborhood of $5 billion in added annual revenue. Remember, pot stocks have already been benefiting from domestic medical cannabis sales and via exports to foreign countries where medical marijuana is legal.

This expected flurry of demand and spike higher in sales has been the impetus leading marijuana stocks higher over the past couple of years. The North American Marijuana Index, which tracks a variety of growers, ancillary players, and cannabinoid-based drugmakers throughout North America, has tripled over the trailing-12-month period, and is up well over 600% since February 2016.

A cannabis leaf lying atop a hundred dollar bill with Ben Franklin's eyes poking out between the leaves.

Image source: Getty Images.

This a first for the 10-largest pot stocks

Perhaps even more indicative of what investor expectations have done to the industry, a record 10 marijuana stocks now have (as of Friday, Sept. 21) a market cap of at least $1 billion. In descending order, here are the largest publicly traded marijuana stocks, with accompanying market cap:

  1. Tilray (NASDAQ:TLRY): $11.5 billion
  2. Canopy Growth Corp.: $11.4 billion
  3. Aurora Cannabis (NYSE:ACB): $8.8 billion
  4. GW Pharmaceuticals (NASDAQ:GWPH): $4.7 billion
  5. Aphria: $3.6 billion
  6. Cronos Group: $2.2 billion
  7. MedMen Enterprises: $2 billion
  8. The Green Organic Dutchman: $1.6 billion
  9. HEXO Corp.: $1.3 billion
  10. CannTrust Holdings (NASDAQOTH:CNTTF): $1 billion

Amazingly enough, many of these market caps were even higher midway through the previous week, when Tilray caught fire as a result of its low share float and a subsequent short squeeze. At its peak, prior to being halted on numerous occasions, Tilray reached a valuation of approximately $28 billion. Although it remains the largest marijuana stock in the world now, Tilray may not stay that way for much longer given that its production capacity falls well short of behemoths like Canopy Growth, Aurora Cannabis, and Aphria.

A magnifying glass being held over data in a financial newspaper.

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These utopian valuations may not last much longer

However, Tilray's ascendance isn't unique. Practically all of these valuations have been arguably stretched to their limit -- at least given the fact that recreational weed isn't even legal for 20 more days.

For example, Aurora Cannabis is commanding a nearly $9 billion market cap because it's expected to be the production leader, when at full capacity. In the company's most recent quarterly report, management called for north of 570,000 kilograms of peak production. But, as has been common this year with Aurora Cannabis, its acquisition of ICC Labs should boost production even more. Perhaps even to 700,000 kilograms a year, when all is said and done.

The thing is, though, there's a lot more to running a successful cannabis business than just producing as much pot as possible. Branding, marketing, international infrastructure, and having a top-notch e-commerce solution are all examples of other factors that growers need to consider beyond just production to stand out. Aurora Cannabis hasn't exactly done an exceptional job of differentiating itself beyond production capacity, which makes its valuation somewhat suspect.

And don't think I'm going to only pick on growers. Drugmaker GW Pharmaceuticals has neared a $5 billion valuation following the approval of cannabidiol-based oral solution Epidiolex on June 25. Being the very first cannabis-derived drug on pharmacy shelves comes with high expectations, especially since one of the two indications it was approved for (Dravet syndrome) didn't have an approved medicine prior to June 25.

The concern is that Epidiolex isn't liable to the top dog in Dravet syndrome for long. An experimental medicine known as ZX008 from Zogenix ran circles around the placebo in late-stage trials in terms of reducing seizure frequency from baseline in Dravet syndrome patients. There appears to be a very good chance that it'll be approved in the not-so-distant future, which'll provide competition for GW Pharmaceuticals.

An indoor hydroponic cannabis grow farm.

Image source: Getty Images.

The one marijuana stock that has a reasonable valuation is...

Then again, there is one marijuana stock among this group that could be worth its weight in cannabis: CannTrust Holdings.

CannTrust's Niagara Greenhouse facility is expected to span more than 1 million square feet and yield "in excess of 100,000 kilograms," according to management, when complete. This facility is leaning on production via hydroponics, which means that plants are being grown in a nutrient-rich water solvent as opposed to traditional soil.

Additionally, CannTrust is employing moving containerized benches at Niagara, which will create a perpetual harvesting system, rather than the lumpy production yields experienced by its peers. Combining this perpetual harvest system with growth via hydroponics is expected to generate below-average production costs and healthy profits, especially with the company focused on alternative products, such as high-margin cannabis oils.

Of course, there's a lot of expansion left to be done at Niagara, which means that its larger peers still have the upper hand with regard to securing supply deals. In an industry with lofty market caps and a lot to prove, CannTrust looks to be the most reasonable valuation of all.

Sean Williams 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.