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Better Marijuana Stock: Canopy Growth vs. Green Thumb Industries

By Keith Speights - Oct 3, 2019 at 7:45AM

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Which stock wins in a one-on-one matchup between the top Canadian cannabis producer and a leading U.S. cannabis operator?

Both Canopy Growth (CGC 7.41%) and Green Thumb Industries (GTBIF -5.42%) were up more than 90% earlier this year. But both marijuana stocks gave up most of those gains, with Canopy's shares even falling into negative territory year to date.

Which of these two stocks is the better pick for long-term investors now? Here's how Canopy Growth and Green Thumb Industries stack up against each other.

Cannabis leaf in a shopping cart

Image source: Getty Images.

The case for Canopy Growth

Canopy Growth has taken a lot of flak for missing revenue expectations in its fiscal 2020 first-quarter results. The company also isn't nearly as far along as investors would like toward achieving profitability. But don't let these issues obscure several big advantages for Canopy.

The main focus right now is on Canada, where Canopy continues to rank as a leader in the country's adult-use recreational cannabis and medical cannabis markets. A new phase of the adult-use market is just around the corner with the coming launch of the Cannabis 2.0 cannabis derivatives market. 

Canopy Growth should be a top player in this expanded market as well, maybe even the top player. It's on track to introduce a line of cannabis-infused beverages developed with partner Constellation Brands (STZ 0.80%). Canopy plans to roll out multiple cannabis edibles, including chocolates. The company has also worked to develop its own distinctive vape products.

However, international markets are where Canopy hopes to make even bigger money. The company has operations in Europe, South America, Australia, and Lesotho, including owning Europe's largest cannabinoid drugmaker.

Canopy is arguably in the best position of any Canadian cannabis producer for the huge U.S. market. The company claims a large-scale hemp production facility in New York state and plans to launch hemp CBD products later this year. Canopy also has a deal in place to acquire U.S.-based cannabis operator Acreage Holdings when U.S. federal laws permit.

Thanks to a $4 billion investment from Constellation Brands, Canopy Growth has the largest cash stockpile in the cannabis industry. Although the company will burn through some of that cash funding operations until it becomes profitable, Canopy is in good shape to be able to take advantage of opportunities to fuel more growth.

The case for Green Thumb Industries

While Canopy Growth hopes to score big in the U.S. cannabis market, Green Thumb Industries (GTI) is already doing so. The company distributes several of its own cannabis brands in the U.S. and operates two national retail cannabis chains, Rise and Essence. 

GTI currently has retail cannabis stores in 12 states. So far, the company has generated revenue in 10 of those states, notably including three top legal cannabis markets in California, Colorado, and Florida. GTI is laying the groundwork to begin revenue generation in the other two states, New York and New Jersey. 

Speaking of revenue, it's growing like crazy. GTI's revenue more than tripled year over year in the second quarter. Much of this growth was driven by increased sales in the company's Rise and Essence retail cannabis stores. GTI also received a boost from an acquisition in Nevada.

The main knock against the stock is that GTI still isn't profitable. It posted a net loss of $22.2 million in Q2. However, GTI is still in expansion mode, so it's not surprising that the company's spending remains higher than its revenue.

GTI's growth prospects appear to be strong. The company currently owns 95 retail licenses. It plans to have as many as 40 retail cannabis stores open by the end of 2019. With the legal cannabis markets in several of the states where it operates still only in their early innings, GTI should have plenty of room to run.

Better marijuana stock

My view is that both of these stocks could deliver nice returns for investors over the long run. If I could only pick one of them, though, it would be Canopy Growth.

Canopy's relationship with Constellation Brands gives it a huge advantage. Although investing in marijuana stocks can involve a bumpy ride (as Canopy has clearly demonstrated so far this year), the opportunities in the global market remain very attractive. Constellation's money and its successful track record in building consumer brands should benefit Canopy Growth tremendously as the promise for the cannabis industry transitions from hype to reality.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$4.06 (7.41%) $0.28
Green Thumb Industries Stock Quote
Green Thumb Industries
$10.47 (-5.42%) $0.60
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$250.15 (0.80%) $1.98

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