Steadily, the cannabis industry is budding into a big-money business. After generating a little more than $3 billion in worldwide licensed-store sales in 2014, the global pot industry nearly hit $11 billion in sales last year. By 2024, the team of Arcview Market Research and BDS Analytics foresees worldwide weed sales surpassing $40 billion, at least according to their newest report, State of the Legal Cannabis Markets.

Regardless of how widely sales estimates vary among researchers and on Wall Street, it's abundantly clear that the legal cannabis industry is going to be a force to be reckoned with – and that could mean great news for investors.

Of course, the age-old question remains: Which marijuana stocks to buy?

According to 124-year-old Wall Street investment bank Piper Jaffray, the answer is pretty clear. Last week, the investment bank initiated coverage on four cannabis stocks, labeling three with a rating of overweight, the equivalent of "buy," with one company receiving a neutral rating, which is the same as a "hold." Here are the three cannabis stocks long-tenured Wall Street firm Piper Jaffray thinks you'd be smart to buy.

A person writing and circling the word buy underneath a dip in a stock chart.

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Cronos Group: price target $18, representing 36% upside

The most prominent name of the bunch that Piper is bullish on is Canadian grower Cronos Group (CRON -4.14%), albeit it has the lowest respective upside of the three companies that had coverage initiated.

The excitement surrounding Cronos Group primarily has to do with its tie-ins to Altria (MO -0.39%). As you may recall, Altria invested $1.8 billion into Cronos in mid-March, netting itself a 45% equity stake in return. But Altria brings much more to the table for Cronos than just cash. It has much-needed regulatory expertise, access to more than 230,000 U.S. retail locations, and can provide the necessary knowledge needed for Cronos to roll out a line of vape products throughout North America, where it's legal, of course.

Covering analyst Michael Lavery pointed out in his note to clients that he expects Cronos to generate about 60% of its 2020 sales from cannabidiol (CBD) products. CBD being the cannabinoid best known for its perceived medical benefits that doesn't get users high. Cronos has already agreed to acquire Redwood Holdings in the U.S., which has a line of CBD-infused beauty products sold under the Lord Jones brand, for $300 million, and will likely push further into the lucrative U.S. CBD market.

While I agree with Lavery that Cronos Group has made a smart choice by focusing on CBD products, and that its nearly $1.8 billion in cash provides some form of downside buffer in the stock, I still can't stomach its valuation knowing that Cronos may not be profitable until 2021. For Yours Truly, it's a hard pass on Cronos

A gloved individual holding a full vial and dropper of CBD-rich liquid in front of a hemp plant.

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CV Sciences: price target $5, representing 62% upside

Considering Piper Jaffray's excitement concerning CBD growth in the United States – an industry that Lavery believes could reach $8 billion to $15 billion in annual sales in five years – it's no surprise that CV Sciences (CVSI 11.20%) is Piper's second overweight pot stock.

CV Sciences and its line of PlusCBD Oil products have had a number of big wins this year, with the creme-de-la-creme being its distribution partnership with Kroger (KR -0.57%), the nation's largest grocer. CV Sciences initially signed a deal to get its products into more than 900 Kroger family stores in mid-June, but expanded its relationship to 1,350 stores in 22 states a month later. Since the beginning of the year, CV Sciences retail door count has more than doubled. 

Lavery notes that CV Sciences is the second-largest U.S. CBD stock by revenue, and that ongoing distribution deals will expand its top line. Further, Lavery and his firm will be looking for clarity from the U.S. Food and Drug Administration on CBD as a food and beverage additive. This is a "looming catalyst," according to his note to clients. 

While I generally agree with Lavery, and note that CV Sciences is one of only a few pot stocks to generate an operating profit, I'm cautious in the near term with Charlotte's Web's also securing a distribution deal to appear on Kroger's shelves in 1,350 stores. Charlotte's Web is the leading hemp-derived CBD company by market share in the U.S., and I'm curious to see how well CV Sciences can compete in Kroger when placed in the same shelf space as the top dog.

Clearly labeled jars of unique dried cannabis strains on a dispensary store counter.

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Cresco Labs: price target $11, representing 43% upside

The third bargain in the cannabis industry, in the eyes of Piper Jaffray, is vertically integrated multistate dispensary operator Cresco Labs (CRLBF -1.39%).

Piper's love for Cresco Labs boils down to the immense opportunity that the U.S. marijuana and CBD market offers. Over the very long term, Lavery foresees between $70 billion and $140 billion in annual sales. With Cresco laying the groundwork by building its brands in close to a dozen states, Lavery believes that Cresco has a head start on most of its competition.

Furthermore, Piper Jaffray believes that marijuana's scheduling in the U.S. (it's entirely illegal) provides a valuation overhang that represents an opportunity for investors to buy in at a bargain price. 

Then again, I believe the biggest opportunity for Cresco remains its pending all-stock acquisition of Origin House (ORHOF). Origin House is one of a select few companies to hold cannabis distribution licenses in California, which projects as the leading marijuana market in the world. By acquiring Origin House, Cresco will be able to place its branded products into more than 500 Californian dispensaries, rapidly boosting its sales at a relatively small cost.

Suffice to say that this is a price target I could potentially get behind.

A man in a suit holding up his hands as if to say, no thanks.

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The one pot stock you shouldn't buy...

Interestingly, the one marijuana stock Piper Jaffray suggests investors not buy is Aurora Cannabis (ACB 0.27%), which happens to be the most popular weed stock of them all. Lavery and his team initiated Aurora with a neutral rating and a $7 price target, implying about 6% upside from its current price.

Although Lavery points out that Aurora Cannabis has leading production potential in Canada, he also notes that the company has a premium valuation relative to its peers, and is lacking visibility on a number of key growth opportunities. Further, Lavery suggests that oversupply could begin as early as 2020 in Canada, which could adversely affect Aurora Cannabis. 

All I can say is that it's good to see other analysts out there who aren't subscribing into Aurora being a runaway stock to buy just because it's a production leader and has gone on an acquisition spree. Aurora does have the tools to be a success, but it's done everything possible with its rampant dilution to ensure that its shareholders get the short-end of the stick in the near term.

Where I disagree with Lavery is over the possibility of oversupply hitting Canada in 2020. Personally, I believe supply issues could continue well into 2021. Additionally, I see oversupply in Canada as a positive, rather than negative, for Aurora since it has two dozen foreign markets waiting to be supplied with medical marijuana products. These markets won't be major revenue generators for Aurora until Canadian demand is satiated.