If you're an investor interested in profiting from the legal cannabis industry, you know there are many ways to gain exposure to this new, rapidly expanding space in your portfolio. You could buy shares of a cannabis producer like Aphria (NYSE:APHA) or invest in a company that owns a large stake in a pot company, like Constellation Brands (NYSE:STZ), which bought a $4 billion stake in Canopy Growth (NYSE:CGC) in 2018. 

While Constellation Brands may be a relatively safer investment, given that it's primarily in the more stable and mature beer, wine and spirits business, Aphria has shown itself to be less risky than its cannabis-centric peers. It has reported a positive number on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for three straight quarters. With both companies posting positive results of late, it may not be easy determining which one is the better buy going forward. Let's take a closer look to see which stock has the edge today.

Has Constellation Brands solved its Canopy Growth problem?

Constellation Brands is best known for its Corona brand of beers but it has also made a sizable investment in cannabis producer Canopy Growth, so how the pot company is faring is a serious consideration for any investor considering buying shares of the brewer and importer.

The cannabis company's losses have been weighing on the beer maker's results over the past year. But with Canopy co-founder Bruce Linton leaving the top spot and Constellation Brands installing its former CFO, David Klein, at the helm, there are reasons for investors to hope the pot producer will soon be a much tighter ship.

Trimming weeds.

Image source: Getty Images.

Canopy Growth is coming off a quarter in which it outperformed analyst expectations, posting an adjusted earnings before interest taxes depreciation and amortization (EBITDA) loss of 91.7 million Canadian dollars, compared to Wall Street's projections of an EBITDA loss of CA$110 million. Net revenue of CA$123.8 million was a 62% improvement over its second-quarter results when Canopy Growth generated CA$76.6 million in net sales and 49% better than its top line of CA$83 million in the prior-year quarter. The good news is that the company is doing a great job of growing sales, and if Klein can help improve its margins, there's hope that profitability may be in sight. But that doesn't mean the company's problems are all fixed yet.

And there's no denying that Constellation Brands needs Canopy Growth to do well in order to drive more sales growth for its top line: In its most recent quarterly results, released in January, Constellation's net sales rose by just 1.3%, from $1.97 billion to a shade below $2 billion. The trailing nine months weren't much better, with revenue up just 1.9% year over year.

It's been a rough ride for Constellation thus far as it incurred a $71.1 million loss related to its investment in Canopy Growth in Q3and that's actually an improvement from Q2 where it incurred a loss of $484 million due to the pot stock. 

But Constellation knows this is a long-term investment and with the Canadian market looking stronger this year with more pot shops open, edibles now available for sale, and a new CEO in place for Canopy Growth who's focused on cost-cutting and producing a positive EBITDA figure, there's plenty of reason to be optimistic that Canopy Growth will continue to make strides toward breakeven in 2020. 

Aphria is safe, but does it offer enough growth?

Aphria released its second-quarter report in January, and its bottom line landed in the red for the first time in three quarters with a net loss of CA$7.9 million. However, there were some important positives that investors could take away from the results.

First, its revenue was more than CA$120 million -- the third time in a row it has been above that number. That's more than rival Aurora Cannabis (NYSE:ACB) has earned in any quarter and prior to Q3, even Canopy Growth hadn't reached that threshold, either. While it hasn't delivered much growth quarter-over-quarter -- a situation that could be troubling to investors -- it's a good sign that it has been able to keep things stable.

One of the advantages for Aphria is that it has more diversification in its business. In its most recent earnings, the company generated CA$86 million in revenue from distribution sales, which mainly comes from CC Pharma, a pharmaceutical company based out of Germany that Aphria acquired in 2019 which distributes pharmaceutical products to 13,000 pharmacies across Europe. In total, Aphria has a footprint in 11 countries on five different continents, giving the company many opportunities for future growth. Aphria also has supply agreements with every province in Canada and is ready to take advantage of the hot new edibles market that's now open for business.

Sales growth is going to be important for Aphria this year as investors want to see stronger revenue numbers sooner rather than later. But the most recent report from Aurora Cannabis showed that Aphria's challenges aren't company-specific. When Aurora released its disappointing fiscal second-quarter results on Feb. 13, management said it expected to see "modest to no growth" for revenue in its third-quarter results. 

That Aphria is generating similar sales numbers to its prior results may not be a horrible indicator for investors. The legal cannabis industry in Canada hasn't exactly been exploding, which can partly be traced to a relative scarcity of retail locations where marijuana and related products can be purchased. And as more pot shops get licensed and open their doors, revenue numbers could get a whole lot stronger for Aphria and its peers. And as long as Aphria can continue producing decent numbers, it will become a more attractive buy by default, especially as other pot stocks struggle to breakeven.

The edge goes to Constellation

Prior to Canopy Growth's most recent earnings release, Aphria likely would have been the better buy. But now that there's some positivity surrounding the industry leader -- and now that it has a new CEO looking to fine-tune operations -- there's reason to hope that things can get better soon for Canopy, and by extension Constellation Brands.

Although Canopy Growth has a tremendous growth opportunity on its own, there's also still significant risk because the cannabis industry has been very volatile. By investing in Constellation Brands, investors can benefit from the beer maker's stability while also taking advantage of the growth in the cannabis industry, effectively giving investors the best of both worlds. While Aphria is a cheaper buy, trading at just three times sales compared to 26 for Canopy, that could change in a hurry if it doesn't generate the same level of sales growth that Canopy is.

Constellation also has the advantage of being more financially sound than Aphria. While it needs Canopy Growth to inject some life into its top line, it still has a sound business that's generated more than $1.5 billion in free cash over the trailing 12 months. Aphria, meanwhile, burned through CA$269 million during its past four quarters. But with CA$497.7 million of cash and cash equivalents on its books as of Q3, the company still has plenty of cash in the bank to handle that burn rate.

Given its stronger financials, and with Canopy Growth performing better, Constellation Brands is the hands-down winner in this comparison.