Investing in cannabis stocks comes with plenty of ups and downs, and it's been heavy on the downswings over the last few months. However, there are some reasons to be more optimistic about the fourth quarter, with the launch of the cannabis derivatives market in Canada and progress on improving banking laws for the U.S. marijuana industry.

Which pot stocks are among the top picks to buy in Q4? Here's why I like Constellation Brands (STZ -2.27%), Innovative Industrial Properties (IIPR -0.69%), Trulieve Cannabis (TCNNF -5.97%), and Charlotte's Web Holdings (CWBHF -5.21%).

Cannabis leaf on top of $100 bills

Image source: Getty Images.

1. Constellation Brands

I like Constellation Brands because it has a strong core business and it gives investors solid exposure to the cannabis industry via the company's major stake in Canopy Growth (CGC -4.29%), the largest marijuana producer based on market cap. Although it's likely that Constellation's position in Canopy will continue be a drag on its financial results for a while to come, Canopy's long-term prospects in cannabis still look quite good.

My view is that Canopy Growth is in a better position than any other marijuana company to win in the "Cannabis 2.0" market that will soon open in Canada. Canopy checks off all of the boxes with the products that it plans to launch: cannabis-infused beverages, edibles, and vape products. And its market research should pave the way for the company to differentiate its products. I also think that Canopy is in arguably the best spot among Canadian marijuana producers to succeed in the U.S. hemp market and potentially the U.S. cannabis market should federal marijuana laws change.

In the meantime, Constellation's core alcoholic beverage business is performing very well. The company's premium beers, especially Corona and Modelo, absolutely dominate the U.S. market in terms of sales growth. Constellation has also taken steps to shore up its wine and spirits business. I think that Constellation's beverage products will continue to drive solid growth while Canopy picks up momentum.

2. Innovative Industrial Properties

There's no better alternative for income-seeking investors to profit from the cannabis boom than Innovative Industrial Properties (IIP), in my opinion. The marijuana-focused real estate investment trust (REIT) pays a dividend that currently yields nearly 3.3%. And IIP has been quite generous in increasing its dividend, most recently boosting the payout by 30% quarter over quarter in September.

But IIP isn't just a great dividend stock. It's also a terrific growth stock, with shares doubling so far in 2019. IIP's strategy is to buy a property then lease it to a cannabis operator under a long-term agreement that frees up capital for the client and provides a steady revenue stream to IIP.

The company currently owns 31 properties in 12 states. All of the properties are leased, with a weighted-average remaining lease term of nearly 16 years. I think that IIP should be able to keep its impressive growth streak going by continuing to invest in new properties in the states where it's already operating, as well as expanding into new states where either medical or recreational marijuana is legal.

3. Trulieve Cannabis

Several U.S. vertically integrated marijuana operators present intriguing opportunities for investors. I'd put Trulieve Cannabis at the top of that list. After soaring more than 90% earlier this year, Trulieve has given up most of those gains. But my prediction is that this stock will bounce back in a big way.

Trulieve focuses on the medical cannabis market in Florida. The company dominates the state's market, capturing nearly 50% of sales. Florida appears to be on course to become the third-largest legal marijuana market in the U.S. based solely on its medical cannabis sales, trailing only California and Colorado, both of which also allow legal recreational sales.

There are also other growth opportunities for Trulieve. The company has operations in California, Connecticut, and Massachusetts. And should efforts to legalize recreational pot in Florida succeed, Trulieve should be in a great position to jump into what would almost certainly be a fast-growing market in the state.

4. Charlotte's Web

Charlotte's Web has become practically synonymous with hemp cannabidiol (CBD). That only makes sense, considering the company pioneered the hemp CBD market and claims a leading market share in hemp CBD products.

The stock has taken investors on a roller-coaster ride so far in 2019. Charlotte's Web reported a year-over-year earnings decline in the second quarter that caused some concerns. I'm not worried, though. The company's spending has increased in anticipation of significant market growth. My view is that growth is on the way.

Charlotte's Web more than doubled the number of retail stores that carry its products in the first nine months of 2019. At this point, most of those products are hemp CBD topicals. Sooner or later, though, the U.S. Food and Drug Administration (FDA) will finalize its regulations for other CBD products, including food supplements. I expect the FDA to place limits on the quantities of CBD allowed in foods. But even if there are tight restrictions in the regulations, Charlotte's Web could enjoy a huge catalyst when the regs are finalized.