A market rotation appears to be underway. No, I'm not talking about the shift from growth stocks to value stocks in the broader market. Instead, I'm referring to the relative rise of Canadian cannabis stocks compared to U.S. pot stocks.

In 2020, most Canadian marijuana stocks languished, while many U.S.-based stocks soared. Although quite a few of the U.S. stocks are performing well in 2021, their Canadian counterparts have roared back.

Here are the three best marijuana stocks so far this year -- and whether or not they're smart picks to buy now. (Note: This list excludes any stocks with market caps below $200 million.)

Three cannabis leaves on a line trending upward

Image source: Getty Images.

1. Tilray

It feels a little like deja vu with Tilray (TLRY). The Canadian cannabis stock enjoyed widespread attention back in 2018 after its initial public offering (IPO).

At one point, Tilray's shares skyrocketed nearly 1,400%. The stock hasn't delivered that kind of return so far in 2021. However, Tilray ranks as the best performing pot stock year to date with an impressive gain of more than 130%.

Arguably the most important reason behind Tilray's strong performance this year is the company's pending merger with Aphria (APHA). The combination of the two rivals will create the largest cannabis company in the world.

Investors have also been excited about the possibility that Tilray (and other Canadian cannabis operators) could be allowed to expand into the lucrative U.S. cannabis market in the not-too-distant future. With Democrats in control of the U.S. Congress and the Biden administration's campaign pledge to decriminalize marijuana, the chances of major cannabis reform is better than it's ever been.

Tilray also reported better-than-expected fourth-quarter results in February. The company's revenue rebounded strongly and its gross margin improved significantly. Tilray also met its goal of achieving positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

2. Aphria

Perhaps unsurprisingly, the second-best marijuana stock this year belongs to the company that plans to merge with Tilray -- Aphria. The Canadian cannabis producer's shares have soared nearly 130%, trailing only slightly behind Tilray's gain.

All of the reasons for Tilray's big gains also apply to Aphria. The impending merger and the hopes of entering the U.S. market have boosted investors' enthusiasm for the stock. Like Tilray, Aphria also posted better-than-expected quarterly results earlier this year.

Aphria's and Tilray's stocks pretty much move in lockstep these days. Under the terms of the companies' merger agreement, Aphria shareholders will receive 0.8381 shares of Tilray for each of their shares of Aphria. The ratio between the two stock prices has been closing in on this level in recent weeks, pushing Aphria's shares higher.

3. Sundial Growers

Sundial Growers (SNDL -3.70%) vaulted onto the stage in 2021 as a red-hot meme stock. Its shares jumped more than 500% at one point. Some of the sizzle has fizzled, but Sundial stock has still nearly doubled year to date.

Most of Sundial's gains stemmed from the buzz initially created for the stock on Reddit. This mushroomed into widespread interest in the previously little-known Canadian pot stock. Sundial now ranks as the third most widely held stock among Robinhood investors and is the most popular marijuana stock on the trading platform.

It also helped that investors liked Sundial's Q4 results announced in March. The company beat the consensus analyst revenue estimate. In addition, Sundial reported that it's forming a joint venture with SunStream Bancorp to invest in cannabis companies in Canada and other countries.

Are they buys now?

A few weeks ago, there was one compelling reason to buy Aphria stock. An arbitrage opportunity existed because the ratio between Aphria's share price and Tilray's share price was well below the exchange ratio established in the companies' merger agreement. However, as I mentioned earlier, the ratio between the two stock prices has now closed in on the target level. As a result, the arbitrage play with Aphria has largely evaporated.

My view is that none of these stocks are great picks to buy right now. Sundial continues to post hefty losses and faces significant competitive challenges in the Canadian market. Aphria and Tilray will certainly be big after their merger, but I don't think the combined entity will be in the strongest position to win in the U.S. market if and when federal cannabis laws clear the way for entry.

The reality is that there are other marijuana stocks that have stronger financial positions and better growth prospects than Tilray, Aphria, or Sundial Growers. Investing in the stocks with the best chances of future success makes more sense than buying stocks that have delivered the biggest gains over the last three months.