The global cannabis market is no doubt an exciting one, and there are many companies auditioning for your investment dollars. Cannabis stocks range from penny stocks to multi-billion-dollar global companies, so there’s quite a lot to choose from when thinking about how to play the space.

market capitalization, and has Constellation Brands (NYSE: STZ), the owner of beer brands such as Corona and Modelo, as its largest strategic investor. Constellation invested $4 billion in Canopy last August for a 38% stake, along with warrants that give it the option to potentially purchase a controlling stake in the company.” data-reactid=”12″>Two companies on opposite ends of the cannabis spectrum are Canopy Growth Company (NYSE: CGC) and Medical Marijuana, Inc. (NASDAQOTH: MJNA). Canopy, based in Canada, is the largest cannabis company in the world by market capitalization, and has Constellation Brands (NYSE: STZ), the owner of beer brands such as Corona and Modelo, as its largest strategic investor. Constellation invested $4 billion in Canopy last August for a 38% stake, along with warrants that give it the option to potentially purchase a controlling stake in the company.

small stock that trades over-the-counter in the United States at a market capitalization of just $200 million. Unlike Canopy, which focuses on medical and recreational marijuana sales in non-U.S. countries where cannabis has been legalized, Medical Marijuana decided to focus on the cannabidiol (CBD) market in the U.S. Though THC products, which contain the psychoactive agent in cannabis, remain federally illegal, the 2018 Farm Bill, passed in December, legalized the cultivation of hemp in order to produce CBD without THC, the psychoactive agent in cannabis. Medical Marijuana did have about $20 million in sales last quarter, which means there is a real potential business there.” data-reactid=”13″>Meanwhile, Medical Marijuana is a very small stock that trades over-the-counter in the United States at a market capitalization of just $200 million. Unlike Canopy, which focuses on medical and recreational marijuana sales in non-U.S. countries where cannabis has been legalized, Medical Marijuana decided to focus on the cannabidiol (CBD) market in the U.S. Though THC products, which contain the psychoactive agent in cannabis, remain federally illegal, the 2018 Farm Bill, passed in December, legalized the cultivation of hemp in order to produce CBD without THC, the psychoactive agent in cannabis. Medical Marijuana did have about $20 million in sales last quarter, which means there is a real potential business there.

Hands drip yellow-green CBD oil onto a small cannabis plant.

Canopy vs. Medical Marijuana. Image source: Getty Images.

Comparing operating results

Canopy currently generates much more revenue than Medical Marijuana, but it’s not as much as you might think. Last quarter Canopy made just over CA$106 million in revenue, more than 400% growth over the prior-year quarter, while Medical Marijuana made just over $20 million in revenue, nearly double the amount in the prior-year quarter.

GAAP). Of course, that’s largely attributed to an unrealized gain on minority investments in subsidiaries. But even without that extraordinary gain, net income would still have been about $1.5 million.” data-reactid=”29″>In fact, when one looks at profitability, Medical Marijuana looks much better. Last quarter Medical Marijuana actually posted positive net income of $9.5 million according to generally accepted accounting principles (GAAP). Of course, that’s largely attributed to an unrealized gain on minority investments in subsidiaries. But even without that extraordinary gain, net income would still have been about $1.5 million.

continued its spending spree, buying Germany’s C3 Cannabinoid Compound Company, the UK’s This Works Products, a CBD company, then paying $300 million for the right to purchase Acreage Holdings (NASDAQOTH: ACRGF) for $3.4 billion should the U.S. legalize cannabis at the federal level.” data-reactid=”30″>Compare that with Canopy, which posted a staggering CA$335 million net loss just last quarter, and a loss of CA$670 million for the year. The losses were due to Canopy’s heavy spending on expansion in Canada and 15 countries around the world. Even after the end of the last quarter Canopy continued its spending spree, buying Germany’s C3 Cannabinoid Compound Company, the UK’s This Works Products, a CBD company, then paying $300 million for the right to purchase Acreage Holdings (NASDAQOTH: ACRGF) for $3.4 billion should the U.S. legalize cannabis at the federal level.

Canopy has been flush with cash from its Constellation investment last year, which may explain why the company has been spending so aggressively recently.

Problems with management

essentially fired by the board of directors, which now contains four directors from (or selected by) Constellation. My colleague Sean Williams thinks Linton’s firing is due to the escalating losses at Canopy (and thus Constellation), and I think there’s merit to that. In any case, co-CEO Mark Zekulin will stay in his role for the time being, but Zekulin is just an interim solution as the company searches for new leadership. With escalating losses and turnover at the top, things look precarious for Canopy.” data-reactid=”37″>Both companies, however, have some potentially large red flags regarding their respective management teams. Canopy co-CEO Bruce Linton stepped down following the company’s recent earnings report, but in an interview with CNBC, Linton conveyed that he was essentially fired by the board of directors, which now contains four directors from (or selected by) Constellation. My colleague Sean Williams thinks Linton’s firing is due to the escalating losses at Canopy (and thus Constellation), and I think there’s merit to that. In any case, co-CEO Mark Zekulin will stay in his role for the time being, but Zekulin is just an interim solution as the company searches for new leadership. With escalating losses and turnover at the top, things look precarious for Canopy.

(NASDAQOTH: AXIM), a cannabinoid drug developer. That investment had to be written down substantially in 2018, leading to over $130 million in paper losses.

insider self-dealing that investors should fear.” data-reactid=”41″>There may not be anything wrong with such a tangled web of loans between the company, its subsidiaries, and its executives, but this kind of complex situation opens the door to all kinds of insider self-dealing that investors should fear.

letter to shareholders in which he outlined hopes for getting the company’s financials audited and GAAP-compliant so that the company could become listed on the Nasdaq by 2020. Basically, Medical Marijuana is so small and closely held that it doesn’t have all of the necessary financial reporting procedures in place for prime-time as of yet.” data-reactid=”42″>Titus also recently had to write a letter to shareholders in which he outlined hopes for getting the company’s financials audited and GAAP-compliant so that the company could become listed on the Nasdaq by 2020. Basically, Medical Marijuana is so small and closely held that it doesn’t have all of the necessary financial reporting procedures in place for prime-time as of yet.

My verdict

Still, the lack of accounting compliance and potential governance issues makes Medical Marijuana a no-go for me, leaving Canopy (under Constellation’s guidance) the better alternative for now.

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  • Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.” data-reactid=”51″>Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.