After voters in four states (Arizona, Montana, New Jersey, and South Dakota) chose to legalize recreational marijuana last November, the cannabis industry looks even hotter than usual -- especially given the optimism that under a Joe Biden administration, we could see marijuana reform at the federal level. It's an exciting time for the industry, and buying cheap pot stocks before they take off can be a way to significantly grow your portfolio's value.

Two pot stocks that aren't expensive buys today are Harvest Health (OTC:HRVSF) and OrganiGram (NASDAQ:OGI). Individually, you can buy a share of both companies for less than the cost of a cup of coffee each. It wasn't all that long ago that they were trading significantly higher; 2020 was a tough year for both businesses, with their share prices falling by more than 30%. Let's examine whether these stocks are likely to rebound in 2021, and whether they're good buys right now.

Cannabis greenhouse.

Image source: Getty Images.

Harvest Health's home market could help accelerate its growth

Arizona-based Harvest Health doesn't need to look far for growth opportunities. With Arizona as one of the states in the process of making legal recreational marijuana available (sales could commence by March), the company is already in a great position to benefit from its 15 locations there. It also has locations in California, Florida, Maryland, and Pennsylvania.

But its biggest presence is in Arizona, and that's one of the reasons the stock could be a hot buy this year. Sales are likely to surge. Cannabis research company New Frontier Data estimates that the adult-use market for pot in Arizona will be more than $340 million in the first year of legalization, and by year four it'll hit $1 billion.

After New Jersey, where analysts are expecting sales to reach $1.8 billion by year four, Arizona is the next-hottest market among the states that recently legalized marijuana. Montana may only reach $175 million by year four, while analysts project South Dakota will only be worth about $120 million. 

However, there's reason to be bullish on Harvest Health beyond just the opportunities in Arizona. In its most recent earnings report, released Nov. 10 for the period ending Sept. 30, the company generated good growth, with sales of $61.6 million nearly doubling from the $33.2 million it reported in the prior-year period. Its net loss of $2.1 million was a fraction of the $39.1 million loss incurred a year ago. The company also raised its revenue guidance for fiscal 2020, now expecting to bring in more than $225 million. Previously, Harvest Health was estimating it would generate between $215 million and $220 million in sales.

The company's stock fell more than 30% last year even as the S&P 500 rose by more than 16%. But that trend has been changing of late. Last week, the cannabis producer's stock closed at $2.81, and in just the past three months the stock has doubled in value while the index rose by 11%. This could be a sign of things to come this year, especially if the Arizona recreational pot market takes off. 

With some strong recent numbers and more opportunities opening up in its home market, Harvest Health could be one of the best buys of 2021, and it's possible the stock could double in value again.

Can OrganiGram stock do the same?

OrganiGram shares closed last week at $1.70, even cheaper than those of Harvest Health. The stock cratered by more than 45% in 2020 after hitting a high of more than $3.60 just a year ago. That said, the Canadian pot stock has also been rallying of late, up 35% in three months -- even though it's unlikely to get a boost from the recent developments in the U.S. cannabis market. Until the U.S. government legalizes pot federally, marijuana products can't legally cross the border from Canada. That means if OrganiGram is to rise in value this year, it'll need stronger results from its existing operations.

In its most recent fiscal year, which ended Aug. 31, the company's numbers were underwhelming. OrganiGram reported net revenue of 86.8 million Canadian dollars, up just 8% from fiscal 2019. Meanwhile, the company's bottom line looked even worse, growing from a negative CA$9.5 million in the previous year to a loss of CA$136.2 million this past fiscal year. A big concern is that inventory is just sitting there, and that's leading to writedowns. OrganiGram incurred inventory writedowns of CA$35.6 million in fiscal 2020, compared with just CA$744,000 in the previous year.

Unlike Harvest Health, OrganiGram doesn't have a big new market it can tap into that will make 2021 a much stronger year for the company, or any particular catalyst for things to get better. And although its sales of CA$20.4 million in the fourth quarter were up 25% year over year, that's only 13.2% higher than the CA$18 million it reported in the third quarter.

With higher-growing stocks like Harvest Health achieving much better numbers, it's going to be difficult to get cannabis investors to buy shares of OrganiGram instead, especially given its poor bottom line. While the stock costs less, it's not likely to double in value anytime soon. And it likely won't be a good buy until investors can see a drastic improvement in both its top and bottom lines.