The marijuana industry has been on a roller-coaster ride since 2019, and the volatility of those ups and downs came as no surprise to me. Any evolving industry is apt to experience growing pains -- and marijuana is probably the fastest-growing new sector right now.

With November's U.S. presidential election drawing closer, it's a good time to keep an eye on domestic cannabis stocks. These companies have performed outstandingly well this year, even with a limited legal market. With hopes for federal legalization by 2022, U.S. marijuana companies are leaving no stone unturned in their efforts to expand and prepare to capture market share if and when their wares can be sold nationwide. 

Among those vying for position, these two cannabis stocks look the best to me right now.

male scientist in a medical cannabis field

Image Source: Getty Images.

1. Green Thumb Industries

Green Thumb (OTC:GTBIF) operates the Rise and Essence cannabis stores chains, with 48 locations -- including nine it opened in the second quarter -- across 12 states. Its products are sold under the Dogwalkers, Dr. Solomon's, and Rhythm brands.

Revenue came in at $119.6 million in Q2, a surge of 167.5% year over year. The company's consumer packaged goods segment, which sells vape pens, cannabis strains, edibles, flowers, and cannabidiol skincare products through its retail segment, did well for the quarter. Higher revenues also led to another quarter of bottom-line growth: EBITDA hit $35.4 million, which was quite a jump from $2.3 million in the prior-year period.

One thing to applaud is Green Thumb's wise move in investing in its home state of Illinois, which made recreational marijuana legal in January. In that first month, cannabis sales in the state were $39.2 million; by August, they had soared to $63 million. The company opened its eighth store in the state in May to capitalize on that growing demand. It is also doing well in other key markets like Pennsylvania, where it opened two new medical cannabis stores in June. It holds 96 retail licenses in total, and has a strong balance sheet to fuel its expansion plans. At the end of Q2, it had $82.9 million in cash and cash equivalents, compared with $95.2 million in total debt.

2. Cresco Labs

Cresco Labs (OTC:CRLBF) offers a wide variety of medical and recreational marijuana products to consumers under the brand names Cresco, Reserve, Remedi, Good News, and High Supply. It operates through two segments -- retail and wholesale.

While its market cap of $1.2 billion is lower than Green Thumb's $3 billion, it's just as capable of success. Furthermore, as a vertically integrated company, it's more in control of its supply chain, which has been an advantage during the COVID-19 pandemic. Cresco's revenue grew a stunning 216% year over year to $94.2 million in the second quarter. Its wholesale segment provided 59% of total revenue, while retail delivered the remainder.

cbd, thc oil, capsules, and marijuana leaf on a table

Image Source: Getty Images.

Its strength in the U.S. is evident from the 30% sales increase it experienced in all of its markets in the quarter, except for Massachusetts. That state temporarily halted recreational cannabis sales for part of the second quarter as the crisis unfolded. The rise in revenue produced EBITDA of $16.4 million, up from $2.2 million in Q2 2019.

Like Green Thumb, Cresco is headquartered in Illinois, and it too has focused in its home state, where it has nine stores. Management also stated they see tremendous potential in Pennsylvania, Ohio, and Maryland, and the company is well-positioned to expand thanks to its robust cash position -- it has $71 million in cash and cash equivalents on the books, while its short-term debt and the current portion of its long-term debt adds up to $24 million.

The legal cannabis market in Illinois is still in an early stage of growth; the state will be issuing 75 cannabis dispensary licenses in the coming weeks, allowing for more opportunities for both of these companies. Shares of Green Thumb are up 45% year to date, while Cresco Labs and the Horizons Marijuana Life Sciences ETF, an industry benchmark, are down 17% and 8%, respectively.

CRLBF Chart

CRLBF data by YCharts

The marijuana sector hasn't lost its steam

The U.S. cannabis industry's legal sales could reach $30 billion annually by 2025, according to New Frontier Data -- and that estimate only includes sales from locales that have already made it legal. Currently, medical cannabis is legal in 33 states and the District of Colombia, while recreational cannabis is legal in 11 states and D.C. Imagine the growth when more states join the legal list or if federal legalization sees daylight by 2022.

The cannabis sector will boom if the estimates prove right -- and so will these two companies, which have established themselves as among the strongest players in the space. If post-pandemic revenue growth continues at the same pace, there will be no stopping Green Thumb and Cresco Labs. With thriving revenue, consistent EBITDA, and strong cash positions to support their growth, these two pot stocks would make solid picks for new and seasoned investors.