On Election Day, majorities of voters in New Jersey, Arizona, South Dakota, and Montana cast their ballots to legalize recreational marijuana. That brings the number of states in which adult-use cannabis is legal to 15 states plus Washington, D.C. Another 20 states have legalized the use of marijuana for medical purposes. Next year, Florida, New York, and Ohio are likely to pass their own legalization proposals, at which point close to one in two American adults would live in a state where they'd have legal access to cannabis.

Marijuana stocks have been on fire since a new handful of legal walls were toppled last week. The Horizons Medical Marijuana Life Science ETF (TSX:HMMJ), a benchmark fund that tracks the overall performance of the industry, rallied by more than 25% in just five trading sessions.

Let's consider two U.S. marijuana companies that have the potential to surge ahead on the green wave that's rippling across the nation, and discuss why you might consider grabbing some shares of each as they deliver their earnings reports this month.

Cannabis leaf in hand with U.S. flag in background.

Image Source: Getty Images.

1. Cresco Labs

Founded in 2013, Cresco Labs (CNSX:CL) (OTC:CRLBF) is one of the nation's fastest-growing marijuana companies. It currently operates 19 dispensaries across nine states, and its products are sold in more than 780 dispensaries.

Based on its second-quarter (ended June 30) revenue of $94 million, Cresco Labs is the third-largest cannabis producer in the U.S. behind Curaleaf Holdings (OTC:CURLF) and Green Thumb Industries (OTC:GTBIF). Further, with annual revenue growth of more than 212% in Q2, it's among the fastest growing operators in the industry. Among the states where it operates, California is by far its most lucrative market. In the nation's most competitive marijuana space, Cresco Labs delivered quarter-to-quarter sales growth of 41%.

Cresco Labs caters to a large consumer base with its varied selection of dried cannabis, vapes, popcorn, gummies, shake, and pre-rolls. It also launched its line of tetrahydrocannabinol (THC) and cannabidiol (CBD) capsules and sprays in New York this October. 

Right now, the company is trading at a price-to-sales (P/S) ratio of 5.8, which may seem like a hefty premium considering the company isn't profitable (although it's close to breaking-even). However, investors have good reason to think they'll one day get their money's worth, as the almost all of the company 's dispensaries saw over 30% sequential sales growth. Cresco Labs will report its third-quarter results on Nov. 18. 

2. GrowGeneration 

One of the biggest beneficiaries of the legalization of marijuana will be GrowGeneration (NASDAQ:GRWG). If states give people the right to grow their own cannabis plants, some sales could shift from commercial producers to individual growers. GrowGeneration provides the nutrients, additives, lighting, fertilizers, and environmental control solutions those individuals will need. However, it's important to remember that there could be more regulation as to how cannabis is produced once legalization becomes widespread, effectively limiting the future market for GrowGeneration.

For now, the company runs the nation's largest hydroponic garden center chain, with 31 stores across 11 states. As such, it offers an essential service to hobbyist cannabis growers and industrial-size producers alike. In addition, GrowGeneration also supplies the needs of hydroponic growers of a host of other agricultural products.

Last year, the company's revenue increased by 175% to $76.4 million. And in 2021, management expects it will be able to bring in up to $300 million in sales and $36 million in operating income, excluding non-cash items (EBITDA). That's nearly double the adjusted EBITDA of $20 million that GrowGeneration expects to bring in this year. The company also plans to grow its store count to 50 in 15 states by the end of 2021.

GrowGeneration's shares look expensive too, trading at a P/S ratio of eight. But, like Cresco, that high valuation suddenly looks cheap when viewed in the context of its revenue growth -- which was 153% year over year in Q3 (ended Sept. 2020).

Riding the green wave

Federal marijuana decriminalization is beginning to feel like more of a near-term possibility after President-elect Joe Biden's victory. The growing number of states allowing recreational marijuana in its entirety suggests that investors should brace themselves for a huge green wave sweeping across the nation in the next couple of years. During this time, it is best to pay attention to cannabis stocks that are exhibiting the highest amount of revenue growth. That might mean looking past their losses for the moment. After all, it takes a lot of capital to expand in what will be a hyper-competitive market, and it is arguably more important to pick out companies with solid production volumes and product choice -- whether they're pure play or ancillary pot stocks -- such as Cresco Labs and GrowGeneration.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.