Here's a story of two marijuana stocks. One of them claims one of the largest market caps in the cannabis industry. The other remains relatively small. One focuses largely on the Canadian marijuana market. The other does business in Canada but primarily operates in the U.S. One has seen its share price climb by a double-digit percentage so far in 2018. The other stock has jumped nearly 90%.

Which two marijuana stocks am I referring to? The first is Aurora Cannabis (NYSE:ACB), the big Canadian marijuana grower with a good -- but not great -- year-to-date performance. The second is CannaRoyalty (NASDAQOTH:ORHOF).

But can CannaRoyalty continue to beat Aurora in stock performance, or is it time for a reversal in fortunes? Here's the rest of the story about how Aurora and CannaRoyalty stack up against each other.

Marijuana buds on top of a pile of cash.

Image source: Getty Images.

The case for Aurora Cannabis

You can't fairly judge Aurora Cannabis by its past performance. That's because things are about to dramatically change for the company.

Canada's recreational marijuana market opens on Oct. 17, 2018. Aurora's revenue should skyrocket as this new market ramps up. The company already has supply agreements lined up with several Canadian provinces, the most important of which is Ontario. 

Aurora Cannabis is also arguably in better shape than any of its peers to distribute enough cannabis products to meet what's expected to be strong demand. The company can currently produce around 45,000 kilograms per year. It expects to boost its annual production capacity to more than 150,000 kilograms by the end of the year and ultimately to more than 500,000 kilograms.

But as important as the Canadian recreational marijuana market is to Aurora, the global medical marijuana market is even more critical to the company's future. For now, the biggest international opportunity for Aurora is in Germany. Aurora's German subsidiary is the largest distributor of cannabis in Europe.

Aurora has also expanded into several other countries that have legalized medical marijuana. European countries outside of Germany in which the company operates include Denmark and Italy. Aurora plans to build a cannabis facility in Malta. It has a medical cannabis supply agreement in the Cayman Islands. Aurora owns a licensed cannabis company in Colombia. And the company owns a stake in its Australian partner, Cann Group.

There's also the possibility that Aurora could partner with a major company outside of the cannabis industry. BNN Bloomberg TV reported a few weeks ago that Coca-Cola was in discussions with Aurora about developing wellness beverages that include cannabidiol (CBD), a nonpsychoactive compound in cannabis. Nothing has materialized from these reported discussions yet, but even if Aurora doesn't strike a deal with Coke, the company should still be on the shortlists of other beverage companies seeking a cannabis partner.

The case for CannaRoyalty

Like Aurora Cannabis, CannaRoyalty is based in Canada. But CannaRoyalty has a much different business model than Aurora does.

The company started out focusing on royalty-streaming deals in which it would provide funds to other marijuana businesses in exchange for a share of future revenue, a percentage of products produced, and/or an equity stake. Several of those deals have paid off nicely for CannaRoyalty as the company has cashed out. Two of them involved the sale of preroll technology developed by Wagner Dimas and the sale of Anandia Labs to none other than Aurora Cannabis.

CannaRoyalty still makes these types of streaming transactions. For example, the company recently provided financing to Utopia Cannabis, a California-based marijuana grower, in exchange for future supplies of cannabis products. However, these kinds of deals aren't CannaRoyalty's primary focus now.

The company has shifted its attention to California. CannaRoyalty is now the largest distributor of legal cannabis products in the state. That's an important mantle to claim, because California is the largest legal marijuana market in the U.S. -- and in the world.

What's more, as the largest distributor in California, CannaRoyalty has more insight into which brands are performing well than perhaps any other participant in the industry. This has enabled the company to identify top brands to acquire. CannaRoyalty now owns several brands of cannabis products including cannabis flowers, edibles, and vapes.

The company could focus only on California and still have a nice runway for growth. However, CannaRoyalty also plans to expand into neighboring Nevada. Arcview Market Research and BDS Analytics project that Nevada will be the ninth-biggest cannabis market in the U.S. by 2022, with sales of more than $650 million.

Better marijuana stock

I think that both Aurora Cannabis and CannaRoyalty should enjoy strong revenue growth in the coming years. Aurora could experience catalysts as it lists its stock on a U.S. stock exchange soon and as the Canadian recreational marijuana market opens. CannaRoyalty should benefit from resolution of initial issues following California's launch of its own recreational marijuana market earlier this year.

But which is the better marijuana stock right now? I think the nod goes to CannaRoyalty for one key reason: valuation. Aurora's market cap of around $8.6 billion reflects expectations of enormous growth that could take a really long time to achieve. In my view, though, CannaRoyalty's market cap of roughly $335 million doesn't reflect the potential for growth that the company could have over the next five years.

Either of these companies could run into problems. Cautious investors will probably want to avoid both stocks. However, I think that aggressive investors willing to take on considerable risk could find that CannaRoyalty presents an intriguing way to invest in the anticipated growth of the U.S. marijuana market.

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.