Business history is full of epic battles between the top two players in an industry. Coca-Cola vs. Pepsi. Ford vs. GM. Avis vs. Hertz. It's a similar story in the Canadian cannabis industry, with Aurora Cannabis (ACB 0.62%) battling Canopy Growth (CGC -0.30%).

Based on their historical stock performances and current market caps, Canopy Growth stands as the winner over Aurora Cannabis so far. But which of these two stocks is the better pick over the long run?

Hands holding up two cannabis leaves

Image source: Getty Images.

The similarities

There's the adage that a rising tide lifts all boats. For Aurora and Canopy, the rising tide is the expansion of the global cannabis market. And this tide should lift both companies.

The most important market for Aurora and Canopy right now is right at home in Canada. Both companies started out in the Canadian medical cannabis market but dove headfirst into the country's adult-use recreational marijuana market as soon as it launched in October 2018.

Aurora and Canopy quickly became top players in Canada. They also encountered similar challenges, especially with the limited retail cannabis infrastructure in the country's most populous province, Ontario. Both companies stand to benefit from the country's recent launch of a cannabis derivatives market, referred to by many as Cannabis 2.0 or Rec 2.0.

But the international opportunities for cannabis are even bigger. Aurora and Canopy have scrambled over the last couple of years or so to build operations across the world in key medical cannabis markets. Aurora established operations in 20 countries outside of Canada, while Canopy set up shop in 14 other countries.

Both companies also ramped up their production capacity to support a fast-growing global market. Aurora currently can produce 150,000 kilograms of cannabis on an annual basis. Canopy doesn't talk much about its production capacity in terms of kilograms per year, but it's without question Aurora's top rival with respect to capacity.

The differences 

There's probably not a more crucial difference between these two marijuana stocks than their partnerships (or lack thereof).

Alcoholic beverage maker Constellation Brands (STZ 0.62%) first invested in Canopy Growth in 2017, acquiring a 9.9% stake. That was just the beginning of the two companies' relationship, though. Constellation followed up in 2018 by investing $4 billion to raise its ownership in Canopy to around 37%.

Aside from working with mixed martial arts company Ultimate Fighting Championship (UFC) to study CBD, Aurora doesn't have any major partners. The company tapped billionaire investor Nelson Peltz last year to line up major partners from outside the cannabis industry. So far, though, there haven't been any deals from Peltz's efforts. 

The primary advantage that Canopy's close partnership with Constellation provides is that Canopy is in a much better financial position than Aurora is. While Aurora has to rely on dilution-causing moves such as issuing stock and senior convertible notes to raise cash, Canopy still has a big cash stockpile from Constellation's investment.

Canopy's relationship with Constellation also influences its product strategy. Canopy has worked with Constellation to develop cannabis-infused beverages and plans to launch a variety of products in Canada (although those launches have been delayed). On the other hand, Aurora is skeptical about the potential for cannabis-infused beverages and is placing its bet for now on vapes and edibles only. 

Another important difference between Aurora and Canopy Growth is the two companies' U.S. strategies. Canopy has already jumped into the U.S. hemp CBD market. It has also struck a deal to acquire U.S.-based cannabis company Acreage Holdings pending federal legalization of cannabis in the U.S. Although Aurora has repeatedly stated that the U.S. market is a top priority, the company so far hasn't made any moves into the U.S. other than spinning off an investment company that targets U.S. opportunities (a step Canopy has taken also).

There is one key advantage that Aurora claims over Canopy: its cultivation costs. Aurora has one of the lower costs per gram for producing cannabis in the industry. 

The better buy

You could make a pretty good argument that Aurora has more potential catalysts than Canopy does. Cantor Fitzgerald analyst Pablo Zuanic thinks that Aurora stock could double within the next year if the company secures a big equity partner and hires a new CEO who could implement fiscal discipline. 

Aurora's market cap is also currently less than one-third the size of Canopy's. Positive news for Aurora could spark a bigger upswing than it would for Canopy Growth.

But the harsh reality is that Canopy is simply in a better position right now than Aurora is. Aurora might land a partner. But Canopy already has both a partner and a whole lot more cash to fund operations than Aurora does. While Canopy Growth certainly faces its fair share of risks, I think it's the better pick.