The marijuana industry is on a roll. Even amid a global pandemic, sales have kept rising thanks to marijuana's categorization as an "essential item" in Canada and the U.S. during the lockdown. Moreover, with U.S. state legalization ramping up, it seems the industry is gearing up for even more success.

That said, in an evolving industry like marijuana, it is always wise to have some kind of a competitive edge over your peers. U.S. cannabis companies in general are doing exceptionally well. But Illinois-based Green Thumb Industries (GTBIF -4.41%) and Florida-based Trulieve Cannabis (TCNNF -3.66%) hold an added advantage.

Both businesses have established a strong footing in their respective home markets and are ready to take advantage of new legal markets. Let's take a look at their progress so far and where they are headed in 2021.

A person looking at a marijuana plant with a small microscope.

Image source: Getty Images.

Green Thumb Industries is taking full advantage of the new recreational market in Illinois

Green Thumb's exceptional performance is evident from its first quarter of 2021 results (ended March 31). Management stated the new recreational market in its home state of Illinois contributed to a bulk of its sales in the first quarter. The state made recreational cannabis legal in January 2020 and saw close to $669 million in sales that year just from the adult-use market. Total legal sales including medical hit the $1 billion mark. 

Revenue for the company grew 89.5% year over year in Q1, to $194.4 million, driven by higher growth from all 12 states it operates in. Green Thumb attributed this growth to increased foot traffic in its 56 retail stores, as well as 13 new store openings during the quarter. The company also managed to reduce its selling, general, and administrative expenses to $59 million, or 30% of total revenue in the first quarter, versus 44% of total revenue in the year-ago period. This helped it achieve another quarter of positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA). Positive EBITDA shows how well a company has a hold on its operating expenses, while net profits are the total earnings after all deductions (tax, interest, depreciation, and amortization) are made. 

Luckily, Green Thumb managed to succeed on both counts. Its adjusted operating EBITDA came in at $71 million, versus $25.5 million in the year-ago period. Net profits for the quarter came in at $10 million, compared with a net loss of $4.2 million in first -quarter 2020.

But this growth isn't stopping here. Given the rate at which Illinois is generating sales this year, experts believe it could easily cross $1 billion in recreational sales alone. Having a competitive advantage in the state could lead to higher revenue and profits for Green Thumb in 2021. Green Thumb expects to see good gains from Cann, California's No. 1 cannabis beverage brand, with which it formed a partnership in March. The company launched the beverage brand in Illinois in April, and expects to expand to other states this year.

Trulieve Cannabis has dominated the Sunshine State

Florida only allows medical cannabis, and Trulieve is dominating with around 50% market share there. With a market cap of $6.8 billion, this company has grown revenue at an outstanding rate. In its first quarter ended March 31, it showed revenue growth of 102% year over year to $194 million. Most of that is derived from the stronghold it has in the medical cannabis segment in Florida, where it boasts a total of 78 dispensaries.

This consistent growth has also allowed Trulieve to be profitable. Its adjusted EBITDA came in at $91 million, up 87% from the year-ago period. It also recorded a 27% year-over-year jump in net profits to $30 million for the quarter. 

Recreational cannabis legalization in the state could take awhile, but efforts are ongoing. When that happens, Trulieve will have a competitive edge in the state. The good news is that the company has already started offering its derivative products to its medical cannabis patients in Florida. In third-quarter 2020, Trulieve launched a few high-margin cannabis derivatives in the state, including gels, chocolates, cookies, and brownies. 

Trulieve also has an added benefit with its recent acquisition of Arizona-based Harvest Health & Recreation (HRVSF) in a deal valued at $2.1 billion, which allows it access to 126 dispensaries in 11 states. The combined company could generate about $1.2 billion in revenue and $461 million in adjusted EBITDA in 2021, according to Trulieve's management. It will also expand Trulieve's national footprint.

This acquisition has sparked hopes for the company to be one of the strongest contenders in the U.S. cannabis space. Many industry experts believe the combined company will give a tough fight to Massachusetts-based Curaleaf Holdings (CURLF -4.46%), the current leader in terms of revenue and size in the U.S. This $10 billion market cap company grew its revenue by 170% year over year to $260 million in its recent first quarter of 2021 (ended March 31). 

There is a lot of room to grow for these two pot companies

Trulieve is applying the same strategy in Pennsylvania that it did in Florida. As the state works to legalize recreational cannabis (efforts are ongoing there, too, but again could take awhile), Trulieve is focused on taking over the medical cannabis market. In April, it acquired three fully operating medical dispensaries in the state under the name Keystone Shops, bringing its total retail stores to 83 nationally.

Green Thumb already has a stronghold in the Pennsylvania medical cannabis market, which along with Illinois provided the bulk of its sales in the first quarter. It has also expanded to the Virginia market by acquiring 100% of Dharma Pharmaceuticals, which will allow it access to one of five vertical licenses in the state. Virginia will allow legal recreational cannabis from July 1, but retail sales won't begin until Jan. 1, 2024. 

Both Trulieve and Green Thumb had a first-mover advantage in their home states that allowed them to grow their businesses tremendously. Now that they have established their presence there, both are prepared to expand in new legal markets. With state legalization ramping up, more opportunities will arise allowing both these pot stocks to grow at a tremendous rate over the long term.