The cannabis investing fad of the year has no doubt been Sundial Growers (NASDAQ:SNDL). A beaten-down cannabis player with a low share price -- which is not to be confused with low valuation -- Sundial recently caught the attention of the Reddit army, who came together and pushed the penny stock up as much as 500% at one point. Today, Sundial shares are still up 223% on the year.

To Sundial's credit, management quickly capitalized on the opportunity, going out and selling equity shares to raise capital, and now sports a whopping $610 million of balance sheet cash as of the most recent disclosure on Feb. 4.

Despite the nice cash infusion, the increase in shares gives Sundial and market cap of $2.4 billion – not exactly small. In addition, Sundial really needed the cash; its operating performance in the most recently reported third quarter was dismal, with declining revenue and negative gross margins.

However, there's no doubt the global cannabis market is exciting, and primed for heady long-term growth. In an emerging industry, the biggest gains can also come from small-cap companies like Sundial, should they find a way to out-execute competitors or get bought out by a larger company.

Yet instead of the struggling Sundial, investors may want to gravitate toward the following small U.S. cannabis players that are, by contrast, showing very strong growth and profit expansion.

hands scan a bag of cannabis next to jars of cannabis jars.

Cannabis stocks are hot again, but investors need to be selective. Image source: Getty Images.

TerrAscend

TerrAscend (OTC:TRSSF) is roughly a $4.4 billion market cap company in the U.S., and has the backing of large Canadian company Canopy Growth (NASDAQ:CGC). TerrAscend has operations in Pennsylvania, New Jersey, and California, concentrated in the San Francisco Bay Area. Pennsylvania and New Jersey are highly attractive markets, as they limited-license states. While California is a bit more difficult with unlimited licenses and high regulations, its massive size could make it worth the bet.

TerrAscend actually just preannounced its fourth quarter 2020 results on Friday, which came in well ahead of expectations, sending the stock soaring over 13%. Q4 Revenue grew 152% year-on-year, with adjusted EBITDA margins expanding a whopping five percentage points over the prior Q3 and 16 percentage points over Q2. Management expects the strength to continue in 2021, forecasting near-100% growth, continued EBITDA margin expansion, and profits up about 1.5x over 2020.

As we'll see with TerrAscend and the others below, triple-digit growth and profit expansion is a huge contrast with Sundial's struggling business up in Canada.

Jushi Holdings

Jushi Holdings (OTC:JUSHF) is a $1.8 billion company, which, despite being a smaller company than TerrAscend, has a wider footprint across seven states: New York, Pennsylvania, Ohio, Illinois, Virginia, Nevada and California.

Jushi has a very clear process of being opportunistic and targeting limited-license states and jurisdictions. Aside from the strong core positions in Pennsylvania and Illinois, two limited-license states with large populations and strong growth, Jushi is also one of the first to enter Virginia, and plans an aggressive rollout in the densely populated Northern Virginia region. Currently, it looks as though adult-use legalization will happen soon in Virginia, as two bills have passed through both houses of the state legislature but will need to be reconciled before it can be signed by the governor.

Furthermore, while California is a more competitive state, Jushi points out that it only targets highly attractive localities with limited licenses, often where the neighboring locality has banned cannabis dispensaries. Jushi just acquired a dispensary in Palm Springs and another in Grover Beach, while also beginning construction on its licensed Culver City dispensary. These are in addition to its current Santa Barbara dispensary which opened in October.

Like TerrAscend, Jushi predicts strong growth of nearly 100% in 2021, and also with expanding margins.

Shelves of jars of weed.

Image source: Getty Images.

Harvest Health & Recreation

Finally, Harvest Health & Recreation (OTC:HRVSF) is another $1.8 billion U.S. company with a similar growth trajectory to the above two names. Harvest has struggled a little bit with a bloated cost structure and lower margins, but the good news is, it's getting that under control as of late. 

Harvest has a retail footprint across six states, with a particular concentration in the newly legal market of Arizona, which legalized adult-use in November. Harvest also has operations in California, Florida, Maryland, North Dakota, and Pennsylvania. Harvest's results have also been on a strong upswing, with 86% third quarter revenue growth. Having gotten its costs under control, the company has also reached positive adjusted EBITDA in each of the past two quarters for the first time.

All of these are better bets than Sundial

While Sundial has an opportunity to improve going forward with its newfound cash horde, the U.S. market is clearly a much better place to be than Canada. All of the three smallish companies above are growing fast, expanding margins, and are prime acquisition targets for larger corporations if and when cannabis gets legalized at the federal level.

Miraculously, both Jushi and Harvest are still smaller than Sundial overall, making them near no-brainer choices over the overhyped Canadian producer. And TerrAscend also looks like a strong candidate to add to a U.S. small-cap cannabis portfolio.

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.