Less than four years ago, the market caps of Canopy Growth (CGC -4.29%) and Aphria (APHA) were relatively close. By the end of 2016, though, Canopy was nearly twice the size of Aphria. Today, Canopy's market cap is 8.6 times that of Aphria.

Obviously, investors liked the decisions made by Canopy Growth over the last few years a lot more than they liked the decisions made by Aphria. But which of these top Canadian marijuana stocks is the better pick now?

Marijuana leaf on top of U.S. cash

Image source: Getty Images.

Same opportunities

Sometimes when comparing two stocks, one has a clear advantage in terms of opportunities. That's really not the case with Canopy Growth and Aphria. Both companies pretty much have the same opportunities before them. And those opportunities are significant.

Since both Canopy and Aphria are based in Canada, let's start with the country's medical and recreational marijuana markets. Arcview Market Research and BDS Analytics project legal cannabis sales in Canada will total $2.7 billion this year and grow to $5.5 billion by 2022.

Thirty other countries have also legalized marijuana, two of which have legalized recreational marijuana with the rest legalizing only medical marijuana. Most of these countries also present opportunities for both Canopy Growth and Aphria. Germany currently claims the biggest marijuana market outside of North America and is arguably the most important overseas target. 

Neither Canopy nor Aphria can enter the U.S. marijuana market right now. They can't retain their listings on the New York Stock Exchange and Toronto Stock Exchange and operate in the U.S. marijuana industry as long as marijuana remains illegal at the federal level.

However, the U.S. recently legalized hemp, which by definition is cannabis that contains low levels of psychoactive compound THC. Because hemp isn't illegal at the federal level in the U.S., it means that Canopy and Aphria can compete in the U.S. hemp market. The opportunity is a big one: Market research company Brightfield Group projects hemp-based cannabidiol (CBD) sales in the U.S. of $22 billion by 2022.

There are also opportunities for Canopy and Aphria to disrupt other markets. In particular, Canopy Growth CEO Bruce Linton thinks that cannabis products could make inroads into the multibillion-dollar beverages, opioids, sleep-aid drugs, and veterinary products markets.

Differentiating factors

But while Canopy and Aphria share the same opportunities, the two marijuana producers don't have the same capabilities. One key differentiating factor is production capacity.

Canopy Growth claims over 4.3 million square feet of licensed growing space in Canada. The company plans to increase its growing space to 5.6 million square feet. Although Canopy doesn't provide its projected production capacity in terms of kilograms per year, its space probably translates to an annual production capacity of at least 500,000 kilograms. By comparison, Aphria expects to have an annual production capacity of 255,000 kilograms when its current growing space is fully operational.

Aphria probably has an advantage in cost per gram to produce dried cannabis, though. The statement is tentative, however, for a couple of reasons. First, Aphria's costs are increasing. Second, Canopy doesn't report its cost per gram for producing cannabis anymore. Still, it's likely that Aphria's cost advantage is still in place.

Looking at international markets, Canopy appears to be in a stronger position. While both companies are targeting Germany, Canopy already generates significant revenue in the country while Aphria doesn't. Unlike Aphria, Canopy has also entered the U.K. and Poland medical cannabis markets.

Also, Canopy Growth is already moving into the U.S. hemp market. The company announced recently that it plans to build a large-scale hemp extraction and production facility in New York state. 

Probably the most important difference between the two companies, though, is Canopy's relationship with Constellation Brands (STZ -2.27%). The big alcoholic beverage maker first made an investment in Canopy in 2017. Constellation followed up in August 2018 with a $4 billion investment, boosting its stake in Canopy to around 38%. 

The partnership with Constellation provided Canopy a big cash stockpile to use in funding expansion efforts. It also gave Canopy access to Constellation's expertise in establishing successful consumer brands. So far, Aphria hasn't been able to land a deal that benefits it like the Constellation deal does for Canopy.

Better buy?

Aphria is in a state of flux right now. The company's board of directors appointed a special committee to review allegations that Aphria drastically overpaid for the acquisition of LATAM Holdings in a deal that profited key insiders. Aphria CEO Vic Neufeld is stepping down, with a search for his replacement underway. The company is also fighting off a hostile takeover attempt by U.S.-based Green Growth Brands.

As a result of all of these issues, Aphria's share price looks pretty attractive. Positive results for any of these issues could light a fire beneath the stock. I think it's quite possible that Aphria will outperform most of its peers, including Canopy, over the next year.

But does that make Aphria the better buy for long-term investors? No. My view is that Canopy Growth has stronger global operations, a stronger management team, and better overall prospects than Aphria does.

Aphria isn't a bad pick if it can move past some of its current challenges. However, Canopy has been the better buy over the last several years and remains so.

Check out the latest Canopy Growth and Aphria earnings call transcripts.