The marijuana industry had what can only be described as an odd year in 2018. In one sense, it gained legitimacy like never before with Canada choosing to legalize recreational marijuana, and a handful of U.S. states also giving cannabis the green light in some capacity.

Then again, after years of big gains, marijuana stock investors weren't able to participate in this good news in 2018. Most pot stocks ended the year lower by a double-digit percentage, with some losing more than half of their value.

Cannabis buds lying atop a messy stack of cash bills.

Image source: Getty Images.

The top value pot stocks for the new year

As we enter the new year, one thing is certain: The way Wall Street and investors analyze marijuana stocks has changed forever. Now that cannabis is legal in Canada, and a growing number of countries worldwide allow its medical use, operating results actually matter. This means marijuana stocks that can "deliver the green" should outperform those that continue to burn through their precious cash.

Using forward price-to-earnings multiples as the basis of value, and taking into account that profitability could be skewed positively or negatively by International Financial Reporting Standards, the following five pure-play marijuana stocks offer the best value proposition in 2019.

The Supreme Cannabis Company: Forward P/E of 13.1

Interestingly enough, the marijuana stock with the most intriguing value proposition based on forward P/E is a company that's probably not even on the radars of most investors: The Supreme Cannabis Company (OTC:SPRWF).

The reason you haven't heard about The Supreme Cannabis Company is pretty simple: It's not a major cannabis grower. With at least 10 producers set for what looks to be in excess of 100,000 kilograms (about 220,000 pounds) of peak annual production, companies that aren't on track to reach 100,000 kilograms are getting lost in the shuffle. Supreme Cannabis Co. has one key facility, known as 7ACRES, that'll span 342,000 square feet and likely produce around 50,000 kilograms per year when at full capacity.

Though Supreme Cannabis could miss out on lucrative long-term supply deals as a smaller player, its focus on a single site of premium, high-yield flower should lead to very low costs, and therefore above-average operating margins. In 2019, Supreme Cannabis will be focused on building up its 7ACRES premium recreational cannabis brand, as well as moving into international markets, as evidenced by its December partnership with Khalifa Kush Enterprises. 

At just 13 times forward earnings, this marijuana small cap could be worth a closer look.

Potted cannabis plants growing in an indoor commercial farm under special lighting.

Image source: Getty Images.

OrganiGram Holdings: Forward P/E of 14.1

One of my favorite marijuana stocks, Atlantic-based OrganiGram Holdings (NASDAQ:OGI) is nipping at Supreme Cannabis Co.'s heels with a very low forward P/E of just over 14.

There are two things that set OrganiGram apart from peers. First, it's the only top-tier producer based in New Brunswick. Most pot growers are instead located in Ontario, Quebec, or British Columbia. OrganiGram's location gives it precedence among Atlantic-based provinces and territories.

Second, OrganiGram is the only large producer to employ a three-tiered growing system. According to the company, it should be capable of producing 113,000 kilograms of marijuana at peak capacity, with its growing space in Moncton spanning just 490,000 square feet. There are producers out there with close to 1.3 million square feet of capacity that aren't expected to produce as much weed as OrganiGram will with just 490,000 square feet. That's a mark of efficiency.

OrganiGram will primarily be focused on expanding into alternative cannabis products and growing its reach within Canada in 2019. As long as its three-stage, phase 4 expansion remains on time and within budget, this could turn into quite the bargain for patient investors.

A hand reaching for a neat stack of hundred dollar bills in a mouse trap.

Image source: Getty Images.

Aphria: Forward P/E of 16.4

Sometimes investors can't rely on metrics alone, as is the case with Aphria (NYSE:APHA). Although Aphria is among the top value marijuana stocks in 2019, with a forward P/E of around 16, it's cheap for a reason.

About a month ago, short-side firm Quintessential Capital Management released a report co-authored with forensic analysis firm Hindenburg Research that alleged Aphria purchased three assets from SOL Global Investments (then known as Scythian Biosciences) for an overinflated price, and that these Latin American assets were, in fact, worthless. Aphria has refuted these claims repeatedly, but it could take time to sort out their legitimacy and to regain investor trust.

To boot, this isn't the first time that an Aphria acquisition has raised questions. In March, when Aphria completed the purchase of Nuuvera, for 425 million Canadian dollars, its management team came under fire for disclosing ownership stakes in Nuuvera just a day prior to closing. While it's not unheard of for insiders to own a stake in a company being acquired, investors would want to know about that well in advance of a day prior to closing.

With 255,000 kilograms in peak annual production possible, and a hostile bid to acquire the company recently coming to light, Aphria does appear inexpensive. But looks can be deceiving if Aphria is unable to earn investors' trust.

An indoor cannabis growing greenhouse.

Image source: Getty Images.

HEXO: Forward P/E of 21.9

Continuing with the theme of cannabis growers, Quebec-based HEXO (NYSE:HEXO) might also offer intriguing value for investors at less than 22 times forward earnings.

With 310,000 square feet of completed capacity, HEXO is working to bring a 1-million-square-foot expansion adjacent to its Gatineau, Quebec, facility online. When cultivation license and sales permits are issued, HEXO should have around 1.3 million square feet available and be able to produce roughly 108,000 kilograms per year at peak capacity. This makes HEXO a top 10 producer by annual output. More importantly, as production ramps up, growing costs per gram should decline, leading to better margins and higher earnings per share.

The real wild card for HEXO in 2019 is the company's joint venture with Molson Coors Brewing Company, announced at the beginning of August. The duo will be looking to create cannabis-infused beverages, assuming Canada's Parliament legalizes new consumption options beyond dried flower and cannabis oils. If Canada does stick to its timeline of making this move by the upcoming summer, it then becomes a question of whether this HEXO-Molson Coors joint venture can quickly get infused beverages in front of consumers. If it can, HEXO could see a real bottom-line impact.

While not my favorite grower, HEXO remains very much worthy of a spot on an investment watch list.

A black silhouette of the U.S., partially filled in by cannabis baggies, pre-rolled joints, and a scale.

Image source: Getty Images.

Innovative Industrial Properties: Forward P/E of 23.3

Check out the latest Innovative Industrial Properties earnings call transcript.

Last, but not least, cannabis real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) may offer value at a little over 23 times its forward profit per share.

A marijuana REIT is a company that acquires growing or processing facilities -- or the land on which to then build those facilities -- and then leases them out for an extended period of time for profit. Innovative Industrial Properties has 11 properties spanning eight states, with an average lease period of 14.8 years, as of Dec. 21, 2018, and an average yield on invested capital of 15.3%.

What makes its business model so profitable is that Innovative Industrial Properties has an annual rental increase of 3.25% built into its lease contracts, as well as 1.5% property management fee. This ensures it's able to stay ahead of the inflationary curve and generate consistent cash flow, which is crucial to the $0.35-per-quarter dividend it also pays shareholders. 

In 2019, look for Innovative Industrial Properties to add to its burgeoning portfolio of cannabis facilities. With support for legalization at an all-time high in the U.S., per Gallup, it wouldn't be surprising to see Innovative Industrial end the year with 15 to 17 owned medical cannabis properties.