It's been a rough summer and fall for Canadian cannabis stocks. Valuations are at two-year lows. Cannabis companies reported losses and trimmed expansion plans. Then the vaping crisis hit, sending shares tumbling even further.

In the markets, sometimes promising investments sink by association with struggling stocks in the same industry. But change brings opportunity. Let's examine Aphria (NYSE:APHA) and Canopy Growth (NYSE:CGC) to see if either large-cap cannabis stock could be a gem among the rubble.

Cannabis plant superimposed on an upward-trending stock chart.

Image Source: Getty Images.

Aphria

Aphria is a Canadian company that produces and sells cannabis domestically and internationally. Over the last several months, the company's stock has been clobbered along with all the others in the cannabis sector due to product oversupply and vaping-related illnesses and deaths.

But then Aphria surprised with a positive earnings report in October, and the market took notice.

Earnings posted Oct. 15 showed net revenue of 126.1 million Canadian dollars for a year-over-year increase of 849%. Adjusted EBITDA was CA$1 million, with adjusted EBITDA from cannabis operations ending at CA$1.3 million. Aphria's cash position is strong, with $464 million of cash and marketable securities.

Aphria maintained its full-year 2020 guidance of annualized revenue of CA$1 billion.

To achieve the forecast, more stores will have to be opened in Toronto and Quebec, and consumers would have to show a preference for the Aphria brand. Branded products have been available for the past five years, and the company believes a loyal customer base is established and growing.

Management is experienced in the cannabis, consumer packaged goods, and beverage sectors, a strong set of ingredients for profit growth, especially with the cannabis derivative market opening up in Canada.

Canopy Growth

The ups and downs of the Canopy Growth story remind us that the cannabis industry is still establishing itself. Shares of Canopy Growth are down more than 60% in the last six months due to product missteps, industry oversupply, and vaping fears.

Thanks to the 2018 investment of CA$5 billion by Constellation Brands (NYSE:STZ), Canopy has CA$3.1 billion of cash sitting on its balance sheet. Armed with the highest cash balance in the industry, Canopy invested in Acreage Holdings (OTC:ACRGF) and initiated a U.S. investment to build out a hemp industrial park.

As a major stockholder and strategic partner, Constellation precipitated the firing of company founder Bruce Linton. Canopy has an interim CEO in place and is searching for a seasoned permanent CEO.

In the second-quarter 2020 results released Nov. 14, the company posted a loss of CA$374.6 million, or CA$1.08 per share. Compared to the same quarter in 2018, the losses were higher than the CA$330.6 million loss or CA$1.52 per share the company posted.

Besides facing industrywide issues driving down its share price, the company really dropped the ball on product selection. In the recent quarter, Canopy took a restructuring charge of CA$32.7 million due to the unpopularity of its softgel and oil products. It also took a CA$15.9 million inventory charge in the reporting period.

What does this mean for investors?

On Nov. 20, Bank of America Merrill Lynch analyst Christopher Carey said that while things are not perfect at Canopy -- and the company still has to prove itself -- the worst seems to be over, and the market might reconsider Canopy's potential. Retail sales of pot have begun to pick up in Canada, with encouraging signs that outlets are also working through a glut in inventory, Carey said.

Canopy Growth has learned to deal with many issues this year, from oversupply to bad product selections to expectations from 38% stockholder Constellation Brands. Those issues are being worked through, and the company has gained some much-needed experience and the chance to evolve.

With financial stability, progress on key issues, and share prices recently touching 52-week lows, the stock finally presents a buying opportunity.

Aphira and Canopy stock prices in a chart

Image Source: YCharts

Aphria is also poised to grow, has a good management team in place, and boasts a healthy financial cushion. It was a bit puzzling when the company reported hard-to-find cannabis-industry profits and the market was not impressed. In fact, the share price dropped near 52-week lows. But I think that like Canopy, Aphria stock finally presents a buying opportunity, given the news that oversupply is easing and retail sales are increasing in Canada, albeit slowly.

It's a tough call, but I'm picking Canopy as the better buy right now, mainly because of its partnership with Constellation Brands. The team-up provided financial strength and validation by a big company, but more importantly, Constellation raised the bar for performance expectations and has a vested interest in Canopy's success.