Cannabis investors were encouraged by President Biden's announcement on October 6 that he would pardon federal marijuana possession convictions. Aside from state legalization, the marijuana sector hasn't made much progress toward federal legalization. The president also suggested a review be initiated to remove cannabis from the Schedule 1 drug list. 

Though this doesn't hint at legalization, it is certainly a positive movement toward decriminalization. Cannabis legalization in the U.S. could be inevitable, maybe in a decade or so. Savvy investors know when that happens, pot stocks will be expensive. So why not take advantage of the bargain price now? Here are two stocks I believe are the best buy ahead of legalization.

A person holding a marijuana leaf.

Image source: Getty Images.

1. Green Thumb Industries

Cannabis stocks have been seeing bad days since the second half of 2021. But Illinois-based multistate player Green Thumb Industries (GTBIF -1.57%) shares have climbed 46% in the last three months. Much of the credit may be attributed to the company's ability to generate positive GAAP (generally accepted accounting principles) net income for eight consecutive quarters in a highly competitive industry. Its revenue has nearly quadrupled from $216 million in 2019 to $894 million in 2021.

Note that this growth is from a limited legal market. Green Thumb is poised to be a top contender once the U.S. federally legalizes cannabis. The company has increased its store count from 39 stores in 2019 to 77 dispensaries in 15 states as of June 30 this year.

GTBIF Chart

GTBIF data by YCharts.

Green Thumb has signed a leasing agreement with Circle K, a worldwide convenience store chain with around 600 Florida locations. Starting next year, the deal will allow Green Thumb to establish 10 "Rise Express" outlets at Circle K locations around the state. It currently has seven Rise stores across the state.

Florida has yet to legalize recreational cannabis. This appears to be a good strategy to establish a footprint in the state where peer Trulieve Cannabis already dominates with 123 stores. Green Thumb saw its revenue jump 19% year over year to $497 million in the first half of 2022.

We will know more about Green Thumb's strategies for this year when it releases its third-quarter results on November 2. 

2. Tilray

While its Canadian peers are struggling to be profitable, Tilray Brands' (TLRY -1.73%) recent quarter marked its 14th consecutive quarter of positive adjusted EBITDA which came in at $13.5 million. However, the demand-supply imbalance continues to be a revenue hurdle for Canadian cannabis firms. Tilray's revenue fell 9% to $153 million in the first quarter of fiscal 2023. The net loss widened to $66 million from $34 million in the previous year's quarter. 

Despite a struggling quarter, management is hopeful to hit its $70 to $80 million adjusted EBITDA target and also be free-cash-flow-positive this fiscal year (ending May 31, 2023). Tilray may have an upper hand in the U.S. cannabis market following legalization. It has strong market partners such as SweetWater Brewing, Breckenridge Distillery, and Manitoba Harvest, all of which are EBITDA-profitable. Tilray intends to generate $4 billion in annual sales by the end of fiscal 2024. 

CEO Irwin Simon sees the U.S. cannabis industry as a "$100 billion opportunity," which might help the firm meet this ambitious goal. Tilray may need to focus on the Canadian and European markets for the time being to be ready to expand into the U.S. market.

The fastest-growing industry

According to Allied Market Research, the cannabis industry is rapidly evolving, estimated to be worth $149 billion by 2031. Both Tilray and Green Thumb have proven their worth as strong companies even without legalization. 

Federal legalization (if and when it happens) will take these companies sky high, making the stock expensive. Both Tilray and Green Thumb are cheap now with a price-to-sales ratio below 3. Both stocks are down 60% to 70% from their 52-week high. It is not too late for investors to grab these two growth stocks and hold them for the long haul.