Don't think that if you've seen one marijuana stock you've seen them all. The business models and growth prospects for different pot stocks can vary significantly. Auxly Cannabis (OTC:CBWTF) and Village Farms International (NASDAQ:VFF) prove the point.

Some investors might conclude that Village Farms is the better pick between these two stocks based on their year-to-date performances. But the past doesn't dictate the future. Here's what you need to know to decide between Auxly and Village Farms.

Cannabis growing in a greenhouse.

Image source: Getty Images.

The case for Auxly Cannabis

If you like pithy summaries of why to buy a given stock, here are two words to keep in mind with respect to Auxly Cannabis: vertical diversification. In fact, there's probably no better argument for investing in Auxly than the company's diversified, vertical integration throughout the cannabis supply chain.

Auxly's diversification stems from a combination of acquisitions, partnerships, joint ventures, and investments. The company claims a portfolio of assets that gives it an annual production capacity of more than 100,000 kilograms of cannabis and hemp. This portfolio includes Auxly's partnerships with Atlantic Cultivation and Delta 9 Cannabis, its joint venture with Sunens Farms, as well as its subsidiaries, Inverell and Robinsons.

The company is poised to enter Canada's "Cannabis 2.0" cannabis derivatives market with its midstream Dosecann subsidiary. Dosecann operates a facility on Prince Edward Island that's ready to go for extracting cannabis derivatives for use in a wide range of products targeting the Cannabis 2.0 market, including capsules, chewables, chocolates, lozenges, oils, sprays, topicals, and vapes. 

On the retail front, Auxly has partnered with Spiritleaf to launch retail cannabis franchise stores throughout Canada. The company has its own brands for marketing to consumers in the country's adult-use recreational cannabis market, as well as a licensing deal with U.S.-based Dixie Brands to distribute Dixie's products in Canada. 

Auxly's diversification across the cannabis supply chain was likely a major attraction for its big partner, Imperial Brands. In July, the tobacco maker announced that it was investing 123 million Canadian dollars in Auxly through a convertible debenture. The deal gave Imperial a 19.9% interest in Auxly. Imperial is also allowing Auxly to use its vaping technology.

The main knock against Auxly is that it isn't profitable. Auxly lost nearly CA$14 million in the second quarter. However, it's still really early for the company. As its network of internal and external assets crank up, Auxly has the potential to deliver solid growth.

The case for Village Farms International

Since we saw a short and sweet description of the investing argument for Auxly, it's only fair that we get one for Village Farms as well. I'd say the main reason to buy Village Farms is that it's a profitable up-and-comer.

Don't underestimate the importance of Village Farms' profitability. The company posted net income of $9.9 million in the second quarter thanks to a strong performance for its Pure Sunfarms joint venture with Emerald Health Therapeutics. Village Farms' relatively healthy bottom line means that shareholders shouldn't have to worry too much about dilution -- a huge concern for many marijuana stocks.

The company is an up-and-comer in the cannabis industry because it started out as a grower of greenhouse bell peppers, cucumbers, and tomatoes. Village Farms continues to sell greenhouse produce, and that's still the primary source of the company's revenue. But it's marijuana that's the growth driver for the company now.

Pure Sunfarms can produce 75,000 kilograms of cannabis per year. It plans to double its capacity by the end of 2020 with a twin facility to its current Delta 3 greenhouse in British Columbia. Village Farms receives 50% of the revenue and profits from Pure Sunfarms.

While Village Farms' primary focus is in Canada, it's also hoping to make its mark in the U.S. hemp market. Village Farms is already growing hemp outdoors in the U.S. and plans to begin selling hemp biomass later this year. The company intends to start selling CBD oils in 2020.

Probably the biggest downside for Village Farms is that it could be at risk when the supply of cannabis inevitably catches up with demand in Canada. The company doesn't currently sell any of its cannabis products in Europe or other international markets.

Better marijuana stock

Although Village Farms has been a big winner so far in 2019, I think that Auxly Cannabis could generate higher returns in the future. My view is that Auxly could see a big jump in revenue as the Cannabis 2.0 market in Canada ramps up next year.

But I'm not a fan of either of these stocks at this point. The last few months have underscored the volatility and risks associated with investing in marijuana stocks. While Auxly and Village Farms shares could move higher, I think there are other marijuana stocks with even stronger risk-reward profiles.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.