Tilray Brands (TLRY 1.62%) and Innovative Industrial Properties (IIPR 1.17%) may be two of the best bargains in cannabis right now.

Tilray's shares are down 34% this year, and it trades for a price-to-book value of only 0.62. Innovative's shares are down more than 53% this year, and it trades for a price-to-book value of 1.7. 

Though both companies operate in the cannabis industry, comparing the two isn't easy because they're so dissimilar. Tilray is a cannabis retailer that has branched out into alcohol sales, while Innovative is the primary real estate investment trust (REIT), the main landlord for the cannabis industry.

1. The case for Tilray

Tilray's biggest positive is the Canadian company's potential for growth, particularly if the U.S. opens to federal legalization of cannabis sales. 

Tilray could easily become a big player south of the Canadian border because it already has access to the U.S. market, which it has done by regularly acquiring alcoholic beverage companies over the past few years.

It purchased New York-based craft brewing company Montauk Brewing in November. Last year, the company bought Breckenridge Distillery in Colorado, which at 9,600 feet, is the world's highest distillery. In 2020, Tilray bought Georgia-based SweetWater Brewing. Tilray also has a strong channel into the U.S. market because of its acquisition in 2019 of Manitoba Harvest, the world's largest maker of hemp foods, which distributes its products to 16,000 retailers in Canada and the U.S. 

In the first quarter of fiscal 2023, the company's alcohol business was responsible for $20.7 million, or 13% of the company's quarterly revenue of $153.2 million. Alcohol sales were up 33% year over year, but the company's cannabis sales were $58.6 million, down 17% compared to the same period in 2022.

The point of all the acquisitions, besides diversifying the company's revenue streams, is that Tilray wants to leverage its distribution networks in the U.S. once marijuana sales do become legal at the federal level.

Tilray has had 14 consecutive quarters of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). The company's growing losses are concerning, though. In the first quarter of fiscal 2023 ended Aug. 31, the company reported a net loss of $65.8 million, compared to a loss of $34.6 million in the same quarter a year ago. 

2. The case for Innovative Industrial Properties 

Innovative's best strength is that it has a relatively large moat as the biggest REIT focusing on the cannabis industry. It buys the properties of cannabis growers and retailers, giving them cash for development. That's important because, with the drug still listed as a federal Schedule 1 controlled substance, most banks will not lend to cannabis companies.

Innovative collects rent on long-term triple-net leases that leave the expenses of maintaining the properties on the tenants.

The company's stock is down because of two concerns. Cannabis companies are struggling, and though the company has only had one major tenant default on its rent payments, there's the possibility that others could follow. The other likely reason for the company's share decline is that higher interest rates have made it more expensive for Innovative to expand.

However, looking at the company's third-quarter earnings, it's clear its business remains solid. It reported revenue of $70.9 million, up 32% year over year. Its adjusted funds from operations (AFFO), considered a more accurate picture of profitability for REITs than net income, was $60.1 million, up 33.5% over the same period a year ago. It also had $2.13 in AFFO per share, up from $1.71 in AFFO in the third quarter of 2021.

One primary advantage for investors regarding Innovative is the company's dividend, which it raised by 2.9% this quarter to $1.80, the second boost this year. Since the company began offering a dividend in 2017, it has increased it by 1,100%. At Innovative's current price, that works out to a yield of more than 6%.

The toughest question is what happens to Innovative's business model if federal reforms are passed, such as the SAFE Banking Act, that would allow U.S. banks to loan money to U.S. cannabis companies. Would Innovative's customer base then dry up?

Innovative doesn't think that will be the case. In its November investor presentation, the company mentioned federal decriminalization is more likely than full-scale legalization, and that would actually enlarge the customer base for cannabis. That would mean potential expansion for cannabis companies, and some companies would still use lease buybacks to raise capital, as banks might be slow to lend money to what is seen as a risky industry.

In either case, decriminalization isn't likely to happen in the current Senate as any such bill probably would require a 60-vote supermajority to pass.

The choice depends on the timing

In the current market for cannabis stocks, the negatives regarding Innovative appear to be more priced into the stock than for Tilray. Innovative is profitable and continues to expand, and any short-term problems it has aren't really hampering its business model significantly.

Tilray is certainly much riskier in the short term and probably the long term, but it has much more potential for growth than Innovative if you are looking 10-15 years down the road.