Much of the excitement in the marijuana industry today centers around the possibility that the U.S. will legalize cannabis in the near future. Even if you don't fall into the optimistic camp that believes legalization will take place imminently (say, within a year or two), at this point, it's a matter of when and not if. Support for legalization has never been higher, with more than two-thirds of Americans now in favor.

Canadian cannabis companies are making deals ahead of time, trying to position themselves as best as they can for the moment the U.S. pot market finally opens up for them. Canopy Growth (CGC 0.31%)Tilray (TLRY 1.62%), and Cronos Group (CRON 1.26%) are among the biggest cannabis producers north of the border, but which one of them is in the best position to dominate in the U.S.?

A farmer holding a tablet in a hemp field.

Image source: Getty Images.

Canopy Growth has two key partners that put it in the pole position

One of the most aggressive cannabis producers in Canada, when it comes to U.S. expansion, has been Canopy Growth.After securing a key partner in beverage giant Constellation Brands (which first invested in its business in 2017), Canopy Growth also came to an agreement to acquire multi-state operator Acreage Holdings in 2019. 

The one caveat is that the deal remains pending today because of the federal ban on marijuana in the U.S. But with a presence in many hot markets, including Florida, Illinois, and New York, acquiring Acreage Holdings would instantly give Canopy Growth an excellent position to jump into the U.S. market at a moment's notice. Plus, it can also rely on Constellation's distribution network to tap into other areas. After all, once pot is legal in the U.S. (federally), it'll be possible to transport marijuana across state lines. 

Those two deals give Canopy Growth a clear advantage over its peers with respect to U.S. expansion. CEO David Klein is chomping at the bit to get into the U.S. market, and he's perhaps a bit too excited -- earlier this year, he projected that his company would be operating south of the border before the end of 2021, a target that now looks next to impossible.

Tilray isn't far behind

When Tilray merged with Aphria earlier this year, the company became the top marijuana business in Canada in terms of revenue. The deal also provided Tilray with Aphria's Sweetwater Brewing subsidiary, which operates in the U.S., giving Tilray a way to penetrate the market. It's no Constellation Brands, but it's something. Plus, it complements Tilray's joint venture with beverage giant Anheuser-Busch, Fluent Beverages, which the two businesses announced they would launch in 2019.

More recently, Tilray announced that it was acquiring the convertible notes of MSO MedMen, a move that would give it a 21% stake in the business and allow it to enter multiple states, including Florida and California.

But like Canopy Growth, Tilray's deal with MedMen is just a placeholder today. The former won't be able to take a stake in the latter's operations until U.S. legalization takes place. From that standpoint, the argument could be made that Tilray isn't in any worse position than Canopy Growth, since neither company can sell its products in the U.S. just yet. However, I still give the edge to Canopy Growth because MedMen has accumulated losses of $242 million over the past 12 months and hasn't even released financials since May.

Acreage Holdings is no shining star, and it too is incurring losses, but that's where Canopy's partnership with Constellation gives it a big advantage -- having more resources (cash) to tap into could make its U.S. expansion much more seamless. Thus, although this recent move does improve Tilray's prospects for expansion in the U.S., I don't see it as being in a better position than Canopy Growth.

Will Cronos be a formidable threat?

One company investors also shouldn't overlook is cannabis producer Cronos, which also has a key investor -- tobacco giant Altria Group -- that can help accelerate its growth in the U.S. pot market. Like Constellation Brands, Cronos can benefit from Altria's vast resources and distribution network. Although Cronos doesn't have a large potential MSO at its disposal, as investors have seen with Tilray and MedMen, that can change quickly. 

In 2019, Cronos acquired Lord Jones, a U.S.-based cannabidiol (CBD) business, to give it a way to enter the U.S. market -- CBD is legal in the U.S. as long as it is derived from hemp. Earlier this year, Cronos announced that its new CBD brand, Happy Dance, would be carried at over 550 Ulta Beauty locations.

What could tip the scales for Cronos is that the company is working on lab-grown cannabis products, which it could sell in Canada as early as this year. If that's successful and the products are a hit with consumers, they would give Cronos a way to significantly undercut competition, as their cost of production would be a fraction of the expenses that other cannabis producers are incurring in their growing operations. The big question is whether consumers will notice a difference in quality.

That's one of the reasons Cronos is a dark horse worth watching. A way to undercut rivals could quickly attract the attention of MSOs south of the border looking to improve their bottom lines, and finding a partner may take no time at all. If that happens, Cronos could have the potential to become a significant player in the U.S. pot market, rivaling both Canopy Growth and Tilray.