In case you haven't noticed, the cannabis industry has been all the buzz on Wall Street for the past couple of years. And it's not hard to understand why if you dig into the potential of legal cannabis.

According to the State of the Legal Cannabis Markets report, released by Arcview Market Research and BDS Analytics, worldwide legal weed sales in licensed stores more than tripled between 2014 and 2018 to nearly $11 billion. But over the next decade, Wall Street has chimed in and is looking for anywhere from $50 billion on the low end to as much as $200 billion on the high end (pardon the pun) in annual sales. If this most aggressive estimate is correct, the pot industry would be somewhere between 2 and 2.5 times larger than the soda industry by this time next decade.

That's growth Wall Street and investors would be foolish (with a small 'f') to ignore.

A large dried cannabis bud lying atop a doctor's prescription pad.

Image source: Getty Images.

All eyes are on recreational marijuana (and that could be a mistake)

The question that remains, though, is "Where to park your money?" There are numerous variables to consider when buying cannabis stocks, including geographic focus, as well as the supply deals and partnerships that individual pot stocks have landed over the past two years.

Perhaps the one near-constant with Wall Street's projections and various independent reports on the industry has been the expectation that recreational marijuana will dominate the marketplace. State of the Legal Cannabis Markets forecasts that worldwide recreational marijuana sales will be nearly double that of medical marijuana sales by 2024: $26.7 billion to $13.9 billion.

This thesis is backed by the idea that new markets (e.g., Mexico) will legalize adult-use cannabis in the years to come, and that in fully legalized markets we often see the medical industry cannibalized by the adult-use industry. After all, why are patients going to pay more or take the extra step of seeing a doctor to be prescribed cannabis when they could simply go to a dispensary and buy it themselves?

A physician with a stethoscope around his neck holding a cannabis leaf upright between his hands.

Image source: Getty Images.

Don't sleep on medical cannabis' potential

Although all eyes appear to be on the potential of the recreational weed industry to thrive, investors would be smart not to sleep on medical marijuana. In fact, medical cannabis could turn out to be the smarter play. Keep in mind that when I say "medical cannabis," I'm not talking about cannabinoid-based drug developers, which haven't offered the best investment opportunity. Rather, I'm talking about consumers purchasing dried flower and alternative consumption options from licensed dispensaries.

Following are five reasons medical marijuana should remain at the top of your radar.

1. Medical pot patients use/buy more often

To begin with, medical marijuana patients tend to be much more attractive consumers for pot stocks. Based on initial surveys in Canada during the fourth quarter of 2018, medical weed patients tend to buy cannabis products more often, as well as use that product more frequently, when compared to recreational marijuana users.

2. It's a higher-margin patient pool

More importantly, medical marijuana users generally yield much higher margins for cannabis stocks than recreational consumers. The reason for that difference is that medical marijuana patients are far more willing to purchase derivatives, such as edibles, beverages, oils, topicals, concentrates, or vapes. Compared to dried cannabis flower, which typically has low margins and runs the risk of oversupply and commoditization, derivatives yield stronger margins and have virtually no supply or pricing concerns at the moment.

A person holding cannabis leaves in front of a globe of the Earth.

Image source: Getty Images.

3. The global market could actually be larger

Investors should also consider the fact that the global market may be more conducive to medical marijuana sales over the next decade. Even if Mexico winds up legalizing recreational marijuana in October, there would only be three adult-use legal markets worldwide. By comparison, more than 40 countries have waved the green flag on medical cannabis, to some degree. For the foreseeable future, medical cannabis is the only global opportunity in the pot industry.

4. It may speak to a younger generation of users

Medical cannabis products may also be a smart way to connect with or attract a younger generation of consumers. Young adults able to purchase cannabis products have demonstrated an affinity for high-margin derivatives and have avoided dried flower, relative to other age groups. With this younger generation expected to drive pot industry growth for decades to come, it only makes sense for marijuana stocks to focus their attention on this burgeoning class of consumers.

5. It's the smart way to gain CBD exposure

Finally, the medical marijuana industry is where investors are going to get their greatest degree of exposure to the rise of cannabidiol (CBD). CBD being the nonpsychoactive cannabinoid best known for its perceived medical benefits. With one estimate suggesting that the U.S. CBD market alone could be worth $23.7 billion by 2023, it should pay for investors to have CBD exposure.

A physician with a stethoscope holding a baggie filled with dried cannabis in his left hand, and cannabis oil capsules in his right hand.

Image source: Getty Images.

These pot stocks have a distinct medical focus

Though all marijuana stocks have some sort of medical marijuana exposure, a handful have made it clear that medical pot patients, and the high margins they typically generate, are a priority.

For instance, Aurora Cannabis (ACB -2.02%), the largest marijuana producer in the world, has made no secret that it intends to be a medical marijuana company. During the company's fiscal fourth quarter, ended in June, Aurora's recreational weed sales of around 45 million Canadian dollars did outpace medical sales of about CA$30 million. Nevertheless, as production ramps up, Aurora will be able to lean on its presence in 24 countries outside of Canada, nearly all of which are legal only for medical cannabis. Aurora Cannabis' fourth-quarter margin of 58%, which compares very favorable to similarly sized peers, demonstrates the value of focusing on medical patients.

Likewise, Cronos Group (CRON -0.91%) continues to tout itself not as a marijuana business but a cannabinoid company. Cronos Group etched a deal in 2018 with Ginkgo Bioworks that it'll give it access to Ginkgo's microorganism development platform. This can be used to create yeast strains capable of targeted cannabinoid production at commercial scale. Cronos has also worked out a handful of extraction-services agreements that'll provide the company with a bounty of concentrates that it'll be able to use to make high-margin derivative products. These derivatives are set to launch in Canada by mid-December.

Even tiny tots are getting in on the action. Aleafia Health (ALEAF 10.22%) merged with Emblem in March, creating a company with 40 medical clinics and a clear desire to keep those medical patients within its umbrella, so to speak. According to a recent update from Aleafia, it's gained more than 3,000 registered medical patients since July, pushing its total over 10,000. As long as Aleafia Health continues to build around its clinic model, it could create an incredibly loyal (and profitable) base of patients.

To reiterate, don't sleep on the medical marijuana industry.