Robinhood (HOOD -5.42%) investors like cannabis stocks. That seems clear considering that there are seven cannabis stocks on the trading platform's 100 most popular list.

Two of those stocks made the top 20 on the list. Sundial Growers (SNDL -4.31%) currently ranks No. 4, while Aurora Cannabis (ACB -3.37%) holds the No. 16 spot. But Sundial and Aurora have been big losers in recent months. Sundial's shares have plunged 75% below the highs from early this year. Aurora stock has fallen 65% from its February peak.

Why are Aurora and Sundial still the most popular pot stocks on Robinhood? Here are a few likely explanations.

Two people looking at a laptop with two canisters containing cannabis in front of the laptop.

Image source: Getty Images.

Applying physics

Two important concepts in physics can sometimes apply to investing. In the physical world, momentum measures the motion of a moving body, while inertia is the tendency of objects to resist change. I think we're seeing both of these physics ideas at work with Robinhood investors when it comes to Sundial and Aurora.

Sundial captured online investors' attention in late 2020 and early 2021. It quickly became one of the hottest meme stocks on the market. Aurora's popularity goes back to several years ago, when the adult-use recreational marijuana market in Canada was about to open.

The fame that both marijuana stocks gained hasn't evaporated despite their dismal performances in recent months. So when Robinhood investors interested in the cannabis industry look for ideas, it's unsurprising that Sundial and Aurora are high on the list. That's momentum.

At the same time, investors frequently hate to admit that they're wrong about a stock. This is especially the case with meme stocks for which online communities are particularly fervent. Inertia reigns as investors are reluctant to change their strategy. 

Limited and poor alternatives

There's another big reason why Robinhood investors are sticking with Sundial and Aurora: The alternatives among cannabis stocks are limited and, in most cases, not much better picks. For example, the following chart shows how all of the pot stocks in the Robinhood top 100 have fallen from their highs set earlier this year.

Chart showing drop in prices of all seven Robinhood cannabis stocks in 2021.

ACB data by YCharts

It's not just Sundial and Aurora. None of Robinhood investors' favorite marijuana stocks are performing well. Most of these businesses aren't firing on all cylinders, either.

For example, the first question from retail investors in Aurora Cannabis' quarterly conference call this week was about when the company would generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA). Aurora has failed on previous promises to achieve adjusted EBITDA profitability. Sundial posted an adjusted EBITDA loss in its latest quarter as well. 

But most of the other top Robinhood pot stocks also remain unprofitable. Canopy Growth, Cronos Group, Hexo, and OrganiGram reported negative adjusted EBITDA in their latest quarterly updates. Only Tilray posted a profit. 

Quite a few U.S.-based cannabis companies are profitable and arguably have better growth prospects than Sundial and Aurora. However, their shares are only available over the counter (OTC) for U.S. investors. Robinhood doesn't support trading most OTC stocks.

Better picks

For Robinhood investors wanting to profit from cannabis stocks, one option is to use a different trading platform that supports buying and selling OTC stocks. There are several better picks than Sundial and Aurora that trade over the counter. I'd rank Ayr Wellness (AYRW.F -4.33%) and Cresco Labs (CRLBF -6.98%) near the top of the list.

Are there other better cannabis picks that can be bought on Robinhood? Yep. Innovative Industrial Properties (IIPR -0.69%) is a cannabis-focused real estate investment trust (REIT) with tremendous growth prospects plus a solid dividend. Scotts Miracle-Gro (SMG -3.33%) is best known for its lawn and garden products, but also operates the leading supplier of hydroponics products to cannabis operators.

I don't expect that any of these alternatives will displace Sundial and Aurora on the Robinhood top 100 list anytime soon. However, if you're looking for profits instead of popularity, there are better bets than either of these two pot stocks.