The recent downward trend of pot stocks shouldn't be a reason to give up on them. Like any other evolving industry, the marijuana sector experiences ups and downs. But the prospects of this industry are intriguing. Even without federal legalization, the sector is flourishing in the U.S., and so are the domestic players. There are many outstanding pot stocks to choose from to earn some fruitful returns over the long term.

But my eyes are on these two that stand out. After establishing a strong presence in their respective home markets, Florida-based Trulieve Cannabis (TCNNF -0.43%) and Illinois-based Green Thumb Industries (GTBIF -1.00%) are all set to spread their roots in other key cannabis state markets. Let's take a look at why these two explosive pot stocks are investors' best bet for 2022 and beyond.

A person holding a hemp seedling in a greenhouse.

Image source: Getty Images.

1. Trulieve Cannabis

Trulieve's sole focus in the Florida market had investors questioning its growth. But the company was smart in strengthening its roots in its home state before planning any expansions. It operates 112 stores in Florida, dominating the medical cannabis market there. It also now operates stores in California, Massachusetts, and Connecticut. From a total of just 47 stores at the start of 2020 to a total of 160 stores nationally now, Trulieve has come a long way. 

Its third-quarter results also demonstrate its exceptional performance. Q3 marked its 15th consecutive profitable quarter; net profit surged 7% to $19 million from Q3 2020. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also jumped 43% to $98 million from the year-ago period. It reported 64% year-over-year growth in net revenue for the quarter to $224 million.

As more and more states legalize marijuana, Trulieve's financial stability will allow it to expand smoothly. Management stated in the earnings call that the company has enough cash to fund its growth initiatives. It ended its Q3 with a cash balance of $213.6 million. Regarding its debt position, the CFO noted, "We have retired $270 million of high-cost and short-term Harvest debt and $18 million of Trulieve notes payable." Its acquisition of Arizona-based Harvest Health & Recreation (finalized in October) also strengthened Trulieve's position in key markets of Arizona, Pennsylvania, and Maryland. 

When federal legalization happens, I see Trulieve as one of the top contenders in the domestic cannabis space.

2. Green Thumb Industries

Increased traffic from 65 of its operating dispensaries drew in another exceptional quarter for Green Thumb. Total revenue surged 49% to $233.7 million from the year-ago quarter. Q3 marked Green Thumb's fifth consecutive quarter of profitability, wherein GAAP net income of $20.8 million came in better than the net profit of $9 million in the year-ago period.

While growing revenue and profit, the company is aggressively expanding, too. It opened 13 new stores this year. On Dec. 6, it opened another Rise dispensary in Nevada, bringing its total store count to 67 nationally. Green Thumb holds an additional 114 retail store licenses in 14 U.S. markets, the plans of which the company hasn't disclosed yet. But if and when Green Thumb decides to use them, imagine the hold the company will have on the U.S. cannabis market over the years. Since cannabis is still federally illegal, states are careful how many licenses they issue, and to whom; the procedure is quite tedious as well. Thus, holding this many licenses helps create a competitive advantage for Green Thumb over its peers in the long run.

The added perk is being a profitable company which will be able to smoothly carry out its expansion plans. Management is hopeful for the future and believes the cannabis industry could triple in the next 10 years. They further noted in the earnings press release that the company is "laying tracks for strong growth in 2022, 2023, and beyond."

A lot of scope for these pot stocks in 2022 and beyond

Green Thumb has already established its presence in the recreational cannabis segment with its products under the Rhythm, Dogwalkers, and Incredibles brand names. The company gave credit to the Illinois and Pennsylvania markets for its Q3 revenue growth. Ever since Illinois legalized recreational marijuana in January 2020, sales have been outstanding. Even before 2021 ends, the state has already beaten its last year's record of $1 billion in recreational marijuana sales.

After realizing the importance of the adult-use market, Trulieve is also slowly trying to make a mark in this segment. It launched a few high-margin cannabis derivatives in its third quarter of 2020 for its medical cannabis patients in Florida. The state hasn't legalized recreational marijuana, but efforts to do so are ongoing. Recently, Trulieve launched Bhang's THC-infused chocolate products in Massachusetts and Florida. In November, it also introduced its first edible drink mix, each unit of which contains 10 prepackaged, 5 milligram THC doses.

The recreational cannabis market is burgeoning right now. Experts predict that U.S. recreational cannabis market sales could reach about $42 billion by 2026. Both companies can capitalize once more states make pot legal, and both are already on their way to crossing $1 billion in revenue for the year. Analysts see growth of 161% and 89%, respectively, for Trulieve's and Green Thumb's stock in the next 12 months. Both are trading 50% below their 52-week high now, making it the right time to consider grabbing these explosive pot stocks.