Last year might have been a terrible time to be a marijuana stock investor, but there's no denying the long-term potential of this industry. After all, global sales more than tripled between 2014 and 2018 to $10.9 billion, all while tens of billions of dollars in black-market sales continue to take place behind the scenes. If additional countries around the world, as well as U.S. states, give cannabis the green light, worldwide weed sales should have no trouble hitting $50 billion on an annual basis by 2030.

Of course, a healthy chunk of this global revenue is bound to come from the United States. Even with cannabis firmly remaining a Schedule I substance at the federal level in the U.S., the U.S. is far and away the most lucrative marijuana market in the world. That means investments in vertically integrated multistate operators (MSO) could prove particularly profitable over the long run.

An assortment of clear jars containing cannabis buds that are on top of a counter inside of a dispensary.

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Curaleaf stands at the top of the MSO mountain...for now

While size is no guarantee of success, as we've witnessed in the early going from Canadian pot stocks, there's not an MSO in the U.S. that looms larger than Curaleaf Holdings (CURLF 4.06%).

Right now, Curaleaf has 53 open dispensaries, 15 cultivation farms, and 24 processing sites spanning 14 states. Since marijuana can't be transported on an interstate basis, MSOs like Curaleaf are required to set up these redundant growing and processing operations in the states where they also sell cannabis in order to control the seed-to-sale process.

At 53 open dispensaries, Curaleaf is well ahead of all other MSOs -- and its lead looks to grow even more. Curaleaf's all-stock acquisition of privately held Grassroots is currently pending, and all signs point to it closing in the near future. This deal will expand Curaleaf's reach to 19 states, as well as add at least 20 operational retail stores and 60 total retail licenses. In other words, Curaleaf is going to have the ability to open as many as 131 dispensaries across 19 states should it so choose.

The addition of the recently closed Select brands purchase, coupled with its now-pending Grassroots acquisition, should give Curaleaf a real shot at becoming the first North American pure-play pot stock to reach $1 billion in annual sales. If it doesn't happen in 2020, it looks assured to occur in 2021.

However, Curaleaf's spot at the head of the table might not last as long as Wall Street or investors expect.

A large cannabis dispensary sign in front of a retail store.

Image source: Getty Images.

This surprising pot stock might unseat Curaleaf as the top dispensary operator

This past Wednesday, Feb. 19, Arizona-headquartered Harvest Health & Recreation (HRVSF) announced that it was acquiring Arizona Natural Selections, which has four vertical medical licenses in the Grand Canyon State, for an undisclosed amount of stock. This deal will increase Harvest's home-market presence to 14 retail locations, four cultivation facilities, and three processing sites.

But Harvest Health isn't just counting on an eventual legalization of adult-use weed in Arizona to drive growth. Rather, it's been building up a retail license smorgasbord through a host of pending acquisitions that'll eventually allow it to serve 18 states.

I'll be the first to admit that keeping track of Harvest Health's acquisition activity is not easy. The company has made some giant leaps, such as the purchase of privately held Verano Holdings and its six unique brands. However, it's also terminated two planned purchases, including Falcon International and CannaPharmacy. Harvest claims that Falcon International failed to provide auditable financial records, which should allow it to walk away without any financial penalties, although a judge will ultimately decide if that's the case.

Yet even after these nixed deals, Harvest Health & Recreation has close to three dozen operational locations and should have more than 130 retail licenses at its disposal. Assuming it has sufficient capital and operating cash flow, Harvest Health has the opportunity to open more dispensaries than Curaleaf.

An accountant chewing on a pencil while closely analyzing figures from his printing calculator.

Image source: Getty Images.

Keep in mind that bigger doesn't necessarily mean better

Once again, though, it's worth pointing out that bigger isn't necessarily going to be better. Although Harvest Health's management team foresees $700 million to $1 billion in pro forma fiscal 2020 sales, a lot is riding on the company's ability to fund its numerous acquisitions and organic expansion. This is a company that ended September with only $18.3 million in cash and $8 million of restricted cash on its balance sheet, which likely won't be sufficient to cover its organic growth objectives.

What's more, we've witnessed just how hard it is for U.S.-focused cannabis stocks to find traditional forms of financing. This suggests that Harvest Health might have little choice but to continue burying its shareholders with dilutive common stock offerings to fund its acquisitions and organic store openings.

As one final caution, Harvest Health has a $100 million convertible note due in May 2022. If the company can complete its acquisitions and put its licenses to work, this unsecured debt shouldn't be a big problem. But with only $18.3 million in available cash as of Sept. 30, 2019, this convertible debenture is going to start looming large very soon.

While Harvest Health & Recreation has a real chance to unseat Curaleaf at the head of the MSO table, it's just as possible that its aggressive expansion strategy could be its undoing.