The cannabis industry is scorching hot this year, proving to be pandemic-proof thus far. In fact, i's becoming the norm to see states report record sales numbers. Illinois reported a record month, in August with recreational revenue totaling $64 million. Since May, the state's been posting record numbers month after month -- and it only began selling recreational marijuana in January. Even Colorado, a state that legalized pot in 2014, is still seeing expansion. It hit a record in July with recreational and medical marijuana sales coming in at a combined $226.4 million. Then there's Ohio, which recently reported medical marijuana sales of $21.4 million -- also a record for the state. It began selling cannabis products in January 2019.

For investors, trying to figure out the best stock to buy to take advantage of these opportunities can be difficult, since different companies operate in different states. You can also invest in producers such as Green Thumb Industries and Curaleaf Holdings, or a company like GrowGeneration that's in the hydroponics business and helps both businesses and individuals grow pot. Given all these choices, investing in an exchange-traded fund (ETF) can be the best approach, as it gives you a good mix of all those strategies. The AdvisorShares Pure US Cannabis ETF (MSOS -0.52%), which began trading in September, includes all of the stocks mentioned above plus others, and it can be your best way to invest in the U.S. pot market.

Why this ETF stands apart from others

This isn't the only cannabis ETF out there, but it does present one of the best investment opportunities. The reason it's a better buy than other ETFs is that it's focused primarily on the U.S. market. The AdvisorShares Pure Cannabis ETF (YOLO -2.31%) contains many of the same stocks, but it also includes many Canadian pot companies. And while the Canadian cannabis industry is also growing, it's still a fraction of the U.S. market; in July, Statistics Canada reported a record month for cannabis stores with sales totaling just 231.6 million Canadian dollars ($173.7 million) -- and that's for the entire country.

Stack of cash with cannabis leaves.

Image source: Getty Images.

Not only that, but many Canadian pot stocks are struggling. Canopy Growth is in the midst of a transition year and is down 37% over the past 12 months. It's coming off a tough August after its latest earnings report failed to impress investors. However, that's still a better performance than the Horizons Marijuana Life Sciences ETF (HMLSF 3.48%), in which Canopy is a top holding. The ETF also has many other Canadian cannabis stocks in its portfolio, and it's down more than 50% over the same period. The YOLO ETF isn't doing that great either, but it's fallen a more modest 35% during that time frame, which is still far below the S&P 500's returns of about 10%.

For the best growth opportunity, there's little doubt that investors should be looking at the U.S. pot market. Here's a look at how some of the big U.S. cannabis stocks have done over the past year:

CURA Chart

CURA data by YCharts

A balanced strategy

Another important feature of the Pure US Cannabis ETF is that it offers investors a diversified and balanced mix of stocks. Currently, no stock makes up even 9% of its total portfolio weight. Its largest three stocks are Green Thumb, Trulieve Cannabis, and Curaleaf. Collectively, they represent a little more than a quarter of the ETF's total holdings.

By comparison, the YOLO ETF has multiple stocks at more than 10%, and its top three holdings account for 30% of the portfolio -- and none of them are large multistate cannabis producers like the top stocks in the Pure US Cannabis ETF.

Horizons is even less diversified, with its top three holdings making up 38.5% of its total portfolio. One of the limitations of the Horizons ETF is that it only includes pot stocks from major North American exchanges, including the TSX, NASDAQ, and NYSE. As a result, it doesn't include multistate operators, as they can't list on those exchanges because cannabis remains illegal at the federal level in the U.S.

The U.S. pot market still has lots of growth left

Perhaps the best reason to invest in the Pure US Cannabis ETF is that the industry's nowhere near done growing, especially in the U.S. A total of 11 states have legalized adult-use marijuana, but two of those states (Maine and Vermont) aren't selling recreational pot yet. Maine will start next month, but recreational sales in Vermont may not commence until 2021.

Meanwhile, more states may legalize marijuana this year. Voters in Arizona, New Jersey, South Dakota, and Montana will be voting on recreational marijuana this year (in South Dakota's case, both recreational and medical marijuana will be on the ballot in November). Mississippi voters will also decide on whether to allow medical marijuana in their state. And if Joe Biden wins the presidency, there's potential for marijuana reform to take place at the federal level. While outright legalization may not happen, decriminalization could, which would be a critical first step for the industry.

There are many reasons to be bullish on the U.S. pot market in the months and years ahead as legalization continues to progress across the country. And investing in the Pure US Cannabis ETF is a great way to tap into that growth.