Although all eyes are on tech stocks, it's marijuana that could give tech a run for its money in the growth department over the next decade. According to estimates from financial services company Canaccord Genuity, legal pot sales in the U.S. should double between 2020 and 2024 to $30 billion. Some Wall Street analysts projecting that U.S. legal weed sales could come in around $75 billion annually by 2030. That blazing-hot growth is bound to get investors' attention.

Unfortunately, not all marijuana stocks can be winners. We've watched several North American pot stocks (mostly Canadian ones) overextend their balance sheets or make poor decisions.

However, the top marijuana stock to buy in December hasn't fallen into any of the traps that largely plagued the industry's earliest players. If you're looking for superior growth prospects from a predominantly undiscovered gem in the cannabis space, now seems like the time to buy vertically integrated multistate operator (MSO) Jushi Holdings (OTC:JUSHF).

An up-close view of a flowering cannabis plant in an indoor commercial cultivation farm.

Image source: Getty Images.

The biggest challenges newcomer Jushi may face

There's a laundry list of reasons I believe small-cap pot stock Jushi belongs in investors' portfolios, but I'm going to first walk through some of the challenges the company will face moving forward. Remember, no matter how perfect a stock may look, there are always hurdles and X-factors to overcome.

Probably the biggest concern for shareholders will be the prospect of ongoing share-based dilution. Since cannabis is still federally illegal in the U.S., access to basic financial services isn't always a given. This means marijuana-focused businesses will often turn to share issuances (sometimes with warrants included) to raise capital.

In Jushi's case, it sold 11.5 million shares in October at $3.55 Canadian ($2.73 U.S.), raising CA$40.8 million (about $29 million) in the process. With ambitions to open new retail locations and potentially make complementary acquisitions, it's quite possible that additional capital will be necessary (i.e., more dilutive share offerings). 

Jushi is also going to have its work cut out for it in terms of standing out from the crowd. Despite rapid sequential quarterly sales growth and its first quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), the company is losing quite a bit of money: $55.2 million through the first nine months of 2020. Even though that's to be expected of a relatively new operation, a number of other MSOs are expected to become profitable on a recurring basis in early 2021, if not in the current quarter. Having been burned by Canadian pot stocks, investors have little tolerance for steep losses in the cannabis space. 

Now that you understand some of these early stage risks, let's take a closer look at the myriad reasons Jushi should be on your buy list.

A large cannabis dispensary sign in front of a retail store.

Image source: Getty Images.

Here's why Jushi is the top cannabis stock to buy now

Jushi's management team has chosen some very interesting targeted markets. It has a presence or assets in seven states, with a core focus on three states: Pennsylvania, Virginia, and Illinois. All three are limited license states, which means they only approve a predetermined number of dispensary license applications. By focusing on these limited license states, Jushi is taking advantage of a high or impenetrable barrier to entry, which should allow the company to scoop up significant market share.

There's a lot of room for growth. The company has a dozen operational dispensaries, but holds licenses to open around 30 retail locations. The goal is to have 15 total stores in Pennsylvania, six in Virginia, and four in Illinois. Of the $205 million to $255 million in full-year sales forecast by the company for 2021, $182 million to $215 million should derive from these three states, with Pennsylvania's $95 million to $110 million stealing the show. 

A bit of digging on the company's income statement reveals that Jushi is a lot closer to profitability than its net losses would indicate. Excluding fair-value changes and one-time costs and benefits, the company's gross profit of $11.03 million in Q3 compares pretty favorably to $11.93 million in total expenses. Sure, Jushi still lost about $906,000 on a pure operating basis, but that's not bad at all considering how much it's reinvesting back into its business as it opens new locations and gears up for Virginia's medical cannabis industry. Remove one-time costs like fair-value changes in derivative warrants, and you'll see a company that could hit operating and recurring profitability as soon as next year.

Jushi should see its full-year sales jump from less than $80 million in 2020 to that aforementioned range of $205 million to $255 million in 2021. Though price-to-sales ratios aren't too relevant in the early stages of a fast-growing business, the midpoint of Jushi's 2021 forecast ($230 million) places Jushi at only 1.6 times next year's sales. According to estimates at FactSet, Jushi is on track for $340 million in sales by 2022, which works out to 1.1 times sales. The company is mind-bogglingly cheap for a growth stock.

A clear jar packed with dried cannabis buds that's set atop a fanned pile of twenty dollar bills.

Image source: Getty Images.

The company's management team is another point to consider. As noted, capital raises are quite common for companies in the cannabis industry. What you might not realize is that, of the roughly $250 million raised since inception, $45 million came from insiders and founders. The people in charge are literally putting their money where their mouth is, which should give investors additional confidence that management is steering the company toward long-term profitability.

Lastly, don't overlook Jushi's acquisition strategy as a complementary growth driver. An acquisition is how Jushi entered Illinois. It also acquired a grower-processing permit from Vireo Health International in August for a total consideration of up to $37 million. This purchase includes a 90,000-square-foot grow facility, half of which is designed for higher-quality indoor production. 

The stage is set for Jushi to shine.

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.