The marijuana industry had a groundbreaking, yet odd, 2018, with history made at seemingly every turn and most investors ultimately disappointed.

A year of highs and buzzkills

On one hand, the cannabis industry gained legitimacy like never before. That's because Canada tore down the curtain on nine decades of recreational marijuana prohibition and became the first industrialized country in the world to legalize adult-use weed. Given a few years, the Canadian legal cannabis industry could be generating $5 billion in added annual sales as a result of this legalization.

A person holding a cannabis leaf in his hand in the middle of a grow farm.

Image source: Getty Images.

Success was also seen in the U.S. market, where Utah and Missouri legalized medical cannabis, and Vermont and Michigan gave the green light to adult-use marijuana. As icing on the cake, the Food and Drug Administration approved its first cannabis-derived drug in June, and President Trump signed the Farm Bill into law on Dec. 20, legalizing hemp and hemp-based cannabidiol oil.

On the other side of the coin, marijuana stocks had a terrible year. Many finished lower by 20%, 30%, or beyond 40%. Although not all pot stocks will turn out to be winners, there will clearly be survivors among the carnage. In essence, the potential is there for growth -- but investors have to be patient.

The new year brings with it a period of transition. Whereas 2018 focused on capacity expansion and plenty of promises, 2019 will feature an emphasis on branding, marketing, international expansion, supply deals, partnerships, and, yes, earnings reports that actually matter!

The best marijuana stocks to buy in 2019

So, where can investors find the best marijuana stocks to buy in 2019? Interestingly, there are just as many in the U.S. as there are in Canada, which is a departure from the Canada-heavy thesis last year. The top marijuana stocks this year just might be CannTrust Holdings (CNTTQ), OrganiGram Holdings (OGI -0.49%), KushCo Holdings (KSHB), and Innovative Industrial Properties (IIPR 0.20%). That's right, folks -- under-the-radar small-cap pot stocks could be 2019's top performers.

An indoor hydroponic cannabis grow farm.

Image source: Getty Images.

CannTrust Holdings

CannTrust Holdings is unique in that its greenhouses will rely on hydroponics for cannabis production rather than traditional soil-growing methods. Hydroponics (growing plants in a nutrient-rich water solvent), if done correctly, can be an incredibly low-cost and predictable growing option. Between its Niagara and Vaughan facilities, CannTrust should have approximately 1.1 million square feet of capacity that's capable of more than 100,000 kilograms annually, slotting the company in as a top-10 producer at peak production.

CannTrust will also rely on moving containerized benches at its Niagara greenhouse, creating a perpetual harvest of cannabis, rather than the lumpy production we're used to from CannTrust peers. Presumably, this'll help the company better meet the supply needs of dispensaries, medical patients, and consumers.

Despite being a top-10 producer by projected output, CannTrust certainly isn't priced like one at just 22 times forward earnings. If the company can indeed complete all of its capacity expansion projects and get fully licensed and permitted this year, it could surprise investors.

Potted cannabis plants growing under special indoor lights.

Image source: Getty Images.

OrganiGram Holdings

Another under-the-radar grower that could be among the best marijuana stocks to buy in 2019 is OrganiGram Holdings. OrganiGram is based in New Brunswick, which is odd given that most growers hail from British Columbia, Quebec, or Ontario. But this company's far-east location hasn't impacted its potential.

Last March, the company updated its capacity expansion and peak production forecast. Rather than yielding 65,000 kilograms annually, OrganiGram upped its peak output to 113,000 kilograms after generating better-than-expected yields from initial harvests. Like CannTrust, this makes OrganiGram a top-10 producer when running on all cylinders.

OrganiGram also utilizes its three-tiered growing system at its Moncton facility in New Brunswick. Stacking plants in tiers across its 490,000 square feet of growing space allows OrganiGram to be arguably the most cost-efficient grower among its peers. It also doesn't hurt that it operates a single grow site, rather than multiple grow sites throughout a province or Canada, which should help keep costs down. If OrganiGram doesn't get acquired, it could really thrive.

An assortment of legal Canadian cannabis products.on a counter.

Image source: Getty Images.

KushCo Holdings

Within the U.S., KushCo Holdings is probably the most exciting ancillary marijuana stock -- and by "ancillary" I'm referring to a business that doesn't come into contact with the cannabis plant.

KushCo is best known for its line of packaging and branding solutions to more than 5,000 cannabis growers worldwide. Since there are seemingly countless laws governing the packaging, labeling, and marketing of marijuana products, KushCo works with growers to ensure that they remain compliant with federal, state, and local laws, where applicable. At the same time, it also works with these growers to ensure they have a unique product that stands out in an increasingly crowded field.

But what most folks probably overlook is KushCo's acquisition of Summit Innovations in 2018. Summit is a producer of hydrocarbon gases and solvents. The former is used in the production of cannabis oils, with the latter an integral part of cannabis concentrates. These alternative consumption options offer much better margins than traditional dried cannabis, suggesting that as growers push for greater product diversity, this alternative sales channel should blossom for KushCo.

And, yes, a forecast for 120%-plus sales growth (at the midpoint) in 2019 isn't bad, either!

An indoor cannabis growing greenhouse.

Image source: Getty Images.

Innovative Industrial Properties

Last, but not least, U.S.-based cannabis real estate investment trust Innovative Industrial Properties could continue its outperformance throughout 2019.

The marijuana REIT model is pretty simple. As with most REITs, Innovative Industrial Properties is acquiring greenhouses, processing facilities, or land assets with the intent of constructing these facilities, in exchange for a long-term lease agreement with a grower. These lease agreements span 15 to 20 years, have built-in rental increases each year, and come with a 1.5% annual management fee. This ensures that the company will stay ahead of the inflation rate. Many years down the road, Innovative Industrial Properties can choose to dispose of its assets for a profit and start the cycle anew.

As of Dec. 21, the date of its most recent acquisition, Innovative Industrial Properties owned 11 properties totaling just over 1 million square feet in eight states. These leases had an average remaining term of 14.8 years, which means steady, predictable cash flow for this REIT. With plenty of cash on hand following two stock offerings, Innovative Industrial is liable to make a handful of new property acquisitions in 2019. Generally speaking, as new assets are added, funds from operations, and therefore prospective dividend payments per quarter, should rise. 

If you're looking for the top marijuana stocks to buy in 2019, my suggestion would be to think small.

Check out the latest CannTrust Holdings and Innovative Industrial Properties earnings call transcripts.