It's hard for investors to get excited about cannabis stocks these days because they have had such a tough year thus far. The ETFMG Alternative Harvest ETF is down more than 42%, and the AdvisorShares Pure Cannabis ETF has lost 55%. The underperformance is based on declining earnings for many cannabis companies.

However, there are a few companies in the industry whose business models are still quite strong, even if their share prices have fallen along with their competitors. The global cannabis industry is expected to reach $197.7 billion by 2028, clocking a compound annual growth rate of 32%, according to a report from Fortune Business Insights. So it makes plenty of sense to buy quality cannabis stocks now, while their valuations are low.

AFC Gamma (AFCG 1.87%) may be one of the best deals out there among cannabis stocks -- a profitable company with first-mover status and triple-digit growth in the last quarter. I'm also impressed by Trulieve Cannabis (TCNNF 2.54%) because it had already shown the business acumen to run a profitable cannabis company before it really expanded with its $2.1 billion purchase last year of Harvest Health and Recreation. The resulting company is the biggest multistate operator (MSO), and with that size comes certain economies of scale that will serve it well in the future.

AFC Gamma: Buy it for the dividend, stay for the growth

AFC Gamma is a cannabis real estate investment trust (REIT), along the lines of Innovative Industrial Properties, but its shares are more attractively priced, with a price-to-earnings ratio of 9.15 -- nearly half that of Innovative Industrial Properties. And because it is a newer company, founded in 2020, it has more potential growth. That makes it a good stock to buy now.

AFC Gamma is profitable, with $0.53 in earnings per share (EPS) in the first quarter, up 165% year over year and 22.3% sequentially. It reported distributable Q1 earnings of $11.9 million, up 271% year over year.

Then there's the company's dividend, which it raised last quarter by 10% to $0.56 per share, the fourth consecutive quarter it has increased its dividend. At its current share price, the yield is 12.73%.

Unlike Innovative Industrial Properties, AFC Gamma isn't a cannabis landlord. The company provides mortgage loans, construction loans, and other types of financing to cannabis companies who, because of federal marijuana laws, can't get regular financing from banks. Even if the SAFE Banking Act got passed and opened up more traditional financing to cannabis retailers, AFC Gamma already has the first-mover advantage and understands the industry better than traditional banks.

While the dividend is attractive, the company intends to keep dividends below distributable earnings, which protects the dividend. For example, while it had a dividend of $0.55 per share last quarter, distributable earnings per share were $0.62. A payout ratio of 83% is fine for a REIT

Trulieve: The benefits of being big

Trulieve is not only the largest MSO in terms of revenue but the most consistently profitable one. The company posted first-quarter revenue of $318.3 million, up 64% year over year and 4% sequentially. It also reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $105.5 million, up 16.2% year over year and 4.5% sequentially. It has had 17 consecutive quarters of positive adjusted EBITDA and as of May 31, it had 167 dispensaries.

The stock is down more than 49%, which makes this a good time to buy shares of perhaps the most likely MSO to survive and thrive going forward. While Trulieve has expanded, it is doing so in selected key states: Of the 11 states where it has dispensaries, it holds a dominant position in Florida and Arizona and is building its presence in Pennsylvania. That focus on certain states helps it with supply issues and understanding their key markets. The company has released 2022 guidance of $1.3 billion to $1.4 billion in revenue and adjusted EBITDA of $450 million to $500 million, compared to the $938.4 million in revenue and adjusted EBITDA of $384.6 million that Trulieve reported in 2021.

The stock is currently trading at a price-to-sales ratio (P/S) of only 1.97, which, makes it a better buy from that standpont than AFC Gamma with a P/S of 5.93. Trulieve becomes an even better bargain going forward -- especially as it incorporates its Harvest Health and Recreation properties and personnel, finds more cost savings, and builds market expertise.

TCNNF PS Ratio Chart

TCNNF PS Ratio data by YCharts

Looking to the future

Everyone knows the future of marijuana business is growing. Though cannabis stocks will likely have hills and valleys for years to come, long-term investors can scoop up these two companies that already seem to have their acts together. The three states that Trulieve dominates right now (as listed above), only allow medical marijuana use. Just think of what that means for the company's revenue when they eventually permit adult-use sales. The company will already have a solid base to increase sales.

The same holds true for AFC Gamma -- when federal decriminalization of marijuana comes, the company will already have strong contacts in the industry who will turn to it for more financing to grow.