Let me first state unequivocally that I have in no way been a big fan of Tilray (TLRY). Last November, I called Tilray the most dangerous big marijuana stock on the market. I didn't like the company's lack of transparency in its fourth-quarter update last week, with Tilray not disclosing metrics that most of its peers make readily available.

But there are some investors who have bought and some who continue to buy Tilray instead of other marijuana stocks. They do this despite most analysts choosing Aurora Cannabis (ACB -2.42%) or Canopy Growth (CGC 0.54%) as better picks.

Why would anyone think that Tilray is a better buy than Aurora and Canopy Growth? Here's the most compelling argument for Tilray.

Three marijuana leaves on a line chart

Image source: Getty Images.

Tilray's biggest advantage

Tilray CEO Brendan Kennedy stated in the company's Q4 conference call that "the United States and European markets are orders of magnitude larger than Canada." He's right. And these global markets present opportunities for a wide range of products beyond dried cannabis and cannabis oils.

Aurora Cannabis and Canopy Growth are targeting the same markets that Tilray is, of course. The executives of these companies recognize the opportunities as much as Kennedy and his team do. But there's one thing that Tilray has done arguably more effectively than either Aurora or Canopy: build a diverse lineup of partners and acquire companies across multiple global sectors.

Sure, Canopy Growth landed the most important deal so far for marijuana producers by teaming up with alcoholic beverage maker Constellation Brands. But Canopy doesn't have partnerships with major companies in other areas outside of the cannabis industry such as consumer products (other than alcohol) and pharmaceuticals.

Aurora Cannabis doesn't have a major partner at all. The company has brought billionaire investor Nelson Peltz on board as a strategic advisor to try to line up some deals, but it remains to be seen what will actually materialize from Peltz's efforts.

Then there's Tilray. The company has multiple well-known partners across several industries. Tilray and big beer maker Anheuser-Busch InBev are working together to research non-alcoholic cannabis-infused beverages. Although the initial deal between the two companies was focused on Canada, Kennedy said in Tilray's Q4 call that "neither party hopes that agreement is just for R&D in Canada."

What about consumer products? Tilray forged a partnership with Authentic Brands Group (ABG) to market and distribute consumer cannabis-infused products. ABG has more than 50 popular brands, including Nine West, Prince, and Spyder, and a solid North American distribution network. Kennedy expects that ABG will launch its first cannabis consumer products by the end of the year. 

Tilray first teamed up with Novartis' Sandoz unit to market medical cannabis products in Canada. That agreement was revised in December 2018 to be a global partnership. Kennedy thinks this relationship is a huge plus for Tilray. As he put it, "When [physicians and pharmacists] see that Sandoz, a Novartis division, label on our products, it inspires confidence and trust. It builds a halo around our brands."

Last, but not least, Tilray's acquisition of Manitoba Harvest gives the company immediate access to the hemp CBD market in the U.S. Manitoba Harvest is the largest hemp food manufacturer in the world. Its hemp products are already sold in 16,000 retail locations, with around 13,000 of those locations in the U.S.   

Check out the latest earnings call transcripts for Tilray, Canopy Growth, and other companies we cover.

Defying conventional wisdom

The conventional wisdom is that it's best for Canadian marijuana producers to build massive production capacity and find a partner to invest a boatload of money. That's what Canopy Growth has done. Aurora has checked off the first item and hopes to achieve the second one.

Tilray, though, is defying conventional wisdom. The company's production capacity isn't nearly as great as several of its peers. Tilray's deals with big players outside of the cannabis industry haven't involved significant investments by those companies in Tilray.

But I have to admit, it could be smart to buck the conventional wisdom. Tilray isn't tied down to one partner as it might be if a big company owned a huge stake in it. If the company can successfully execute on its strategy, Tilray could even conceivably be the biggest independent marijuana business left standing if Constellation buys a controlling stake in Canopy Growth and Aurora finds a partner to buy it also.

As for production capacity, Tilray should be able to produce around 90,000 kilograms annually by the end of this year. That doesn't include the added capacity that its acquisition of Natura Naturals will bring. And Kennedy said that increasing capacity is now the company's No. 1 objective.

A better buy?

So is Tilray actually a better buy than Aurora Cannabis or Canopy Growth? Despite making the best argument that I could, I'm still not convinced. 

Tilray deserves credit for making deals that could help make the company a huge winner over the long run. It also has built a solid management team chock-full of individuals with great experience in the industries that it hopes to disrupt.

But Canopy Growth, in particular, has something that Tilray doesn't have: a lot of cash that didn't require dilution or debt. Constellation Brands brought $4 billion to the table that Canopy is already using to fund its expansion efforts. Aurora Cannabis is almost certainly hoping for a similar deal. Meanwhile, Tilray must either issue new shares (causing dilution) or issue senior convertible notes (increasing its debt and potentially causing dilution down the road) to raise cash for its initiatives.

Canopy and Aurora also already have the production capacity that Tilray is just getting around to building. A company can only sell what it can supply. Tilray is likely to have to continue sourcing a lot of its cannabis from third-party suppliers -- and that means lower profit margins.

Maybe Tilray will be a better marijuana stock to buy than Aurora Cannabis and Canopy Growth at some point. In my view, though, that time hasn't arrived yet.