For a long time, Cronos Group (CRON 0.72%) was unable to climb higher than third place among Canadian cannabis producers based on market cap. That changed this year, though, with Cronos rising to second-place position thanks to the rapidly deteriorating share price of Aurora Cannabis. Meanwhile, Canopy Growth (CGC -6.92%) has fairly consistently held onto the top spot except for brief periods.

Neither Cronos nor Canopy has made investors happy so far in 2020, however. Both companies' shares are down more than 30% year to date. But investors need to look ahead, not backward, so the question is, which of those leading Canadian marijuana stocks is the better pick to buy now?

Shadow of a Canadian maple leaf on top of a pile of cannabis leaves

Image source: Getty Images.

The case for Cronos Group

One reason to favor Cronos Group right now is its Lord Jones business. Cronos acquired the luxury hemp-derived CBD product line in 2019 for $300 million. In the second quarter of this year, Lord Jones was responsible for nearly all of Cronos' revenue growth. While the COVID-19 pandemic has been a drag on CBD product sales, Cronos could be poised for accelerated growth over the next few years.

You could argue, though, that the Lord Jones acquisition might not have happened were it not for Altria's big investment. The tobacco giant bought a 45% stake in Cronos for $1.8 billion early in 2019. That deal put Cronos at the center of investors' attention like never before. It also enabled the company to expand like never before, including buying Lord Jones.

Price competition has been a major challenge for the company, and it hasn't delivered impressive results in Canada this year. However, it should be able to generate growth in that country's still-developing Cannabis 2.0 market, especially with its launch of cannabis vaporizers.

In addition, Cronos has forged several key partnerships that should pay off over the long term. It teamed up with Ginkgo Bioworks to develop a method for producing high-quality cannabinoids at scale via the use of genetically engineered yeast. Its Natuera joint venture should provide growth opportunities in Latin America. And with the recent launch of its Peace Naturals products in Israel's medical cannabis market, it's beginning to see results from its Cronos Israel joint venture.

Generally, analysts think that Cronos could be the fastest-growing pot stock over the next four years. It's uncertain how long it will take for the company to achieve profitability, but thanks to Altria, it has a hefty stockpile of more than $1.3 billion in cash, cash equivalents, and short-term investments.

The case for Canopy Growth

Canopy Growth landed a major equity partner well before Cronos Group did. Constellation Brands first invested in it in 2017 with a 9.9% position. The alcoholic beverage giant significantly upped its investment the next year, spending $4 billion to raise its ownership stake to 38%.

Here, too, the infusion of cash from a big partner allowed the cannabis company to accelerate its expansion plans. In particular, it focused on the huge U.S. market opportunity by forging a deal to acquire Acreage Holdings at whatever point it becomes federally permissible to sell cannabis in the U.S. At this point, Canopy can't operate cannabis businesses in this country and retain its listing on a major U.S. stock exchange while marijuana remains illegal at the federal level. 

Canopy's relationship with Constellation has also made a difference in Canada. The two companies worked together to develop cannabis-infused beverages that are now on the market. Canopy more than doubled its beverage production in July and nearly doubled production in August to keep up with demand. In addition to its leading share in the cannabis beverages market, Canopy claims the second-highest market share in Canada's medical cannabis market and ranks in the top three in recreational marijuana markets in most of the country's provinces.

The company also maintains a No. 1 market share for dried flower products in Germany's medical cannabis market. Its acquisition of German vaping technology pioneer Storz & Bickel has boosted sales, as has its acquisition of German cannabinoid drugmaker C3.

Like Cronos, Canopy isn't yet profitable. However, it too has a large cash stockpile, one that totals more than $1.5 billion. It has taken steps to cut costs and is working to lift gross margins to at least 40% in its push for profitability.

Better marijuana stock?

Both of these marijuana stocks could continue to languish. Both could also be big winners in the long run. If I had to pick just one of them, though, it would be Canopy Growth. I think that Canopy stands to benefit more from the potential for cannabis to be legalized at the federal level in the U.S. While there's no guarantee that will happen soon, the upcoming election could be game-changing for this industry.