Recreational marijuana sales begin on Oct. 17 in Canada, and investors convinced the program will be a hit have pushed shares of Canopy Growth Corporation (NASDAQ:CGC) and Aphria Inc. (NASDAQOTH: APHQF) up by 60% or better over the past few months. Now that these companies have grown to immense proportions, though, the next gains won't be so easy.

Laws governing the sale of cannabis around the globe are relaxing, but which of these cannabis stocks is in a better position to reap the rewards? Here's a side-by-side comparison to see which company comes out on top.

Marijuana leaf on a stack of hundred-dollar bills.

Image source: Getty Images.

The case for Canopy Growth Corporation

In just two short years, Canopy Growth Corporation's market cap has exploded from just $476 million two years ago to $10.1 billion at recent prices, and it looks like there could be more fireworks ahead. Canopy Growth has secured contracts that will require it to provide at least 67,000 kilograms of cannabis annually to Canadian provinces and territories. Based on results from the most recent quarter, that's around 6.2 times more than it's selling at currently.

Of course, Canopy Growth isn't putting all its eggs in the same basket. Sales to Germany made up 14% of total product revenue during the fiscal first quarter. Competing suppliers in North American markets have pushed down average selling prices for simple dried flower, but Canopy was able to report average sale prices increased 12% overall, to 8.94 Canadian dollars per gram, thanks to high prices in Germany. 

The marijuana producers that are most likely to survive an oncoming supply glut are those getting the highest prices at the lowest production costs, and Canopy Growth looks pretty good on both fronts. The company reported an impressive 64% gross margin during the quarter ended June.

Analysts and most of the CEOs running the larger companies agree that there will be a wave of consolidation ahead. Canopy Growth has plenty of capital to see it through tough times or fuel more acquisitions following a $4 billion investment from Constellation Brands (NYSE:STZ), the beverage company that markets Corona. 

Marijuana flower and oil.

Image source: Getty Images.

The case for Aphria Inc.

Aphria Inc. doesn't have a listing on a major U.S. stock market and its recent market cap is less than one-third of Canopy's at just $3 billion. With that in mind, you might be surprised to learn the company thinks it can produce 255,000 kilograms (kg) annually beginning next year. 

Aphria sold just 1,778 kilograms in the quarter ended August, so ramping up enough to move all the product it can produce won't be easy. Aphria's recent divestment of all U.S. assets won't help, but a recent deal will. Emblem Corp. has agreed to buy at least 175,000 kg from Aphria over a five-year period beginning May 2019. The company's products also will be available in all provinces through online or in-store retailers. 

Aphria recorded CA$7.47 of revenue for every gram sold during the quarter ended August, which isn't as high as Canopy Growth. Since the company only spent a total of CA$1.83 to produce every gram sold, it achieved a 64% adjusted gross margin. That appears on par with Canopy Growth's recent performance, although investors should always take these adjusted figures with a grain of salt.

Right now, the most important figure investors need to know about Aphria is on the balance sheet. The company finished August with CA$314 million in cash and marketable securities. Operations lost CA$10 million, but gains on long-term assets and other non-operating items allowed the company to report a CA$21 million profit during the three months that ended in August. Aphria's cash balance and low production costs give this company a solid chance to stay afloat when Canadian prices drop, but probably not enough firepower to make major acquisitions without heavily diluting shareholder value.

The better marijuana stock

The United Nations thinks global marijuana sales will add up to around $150 billion annually, but much of it will stay locked up in the illicit market for longer than hoped. It's important to remember that legalization is usually followed by regulation that tends to drive up costs. With a balance sheet enforced by Constellation's massive investment, Canopy Growth is in a much better position to make it through tough times ahead.

While Canopy might be the better pick among this pair, it's so expensive at the moment that investors would do well to keep it on their watchlists instead of in their portfolios.

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.