Cannabis stocks like Canopy Growth (NASDAQ: CGC) and Tilray Brands (NASDAQ: TLRY) are obvious places for investors looking for growth. Due to their place in a fast-growing and multinational industry, both companies have an impressive array of opportunities to realize.

At least in theory. As it turns out, one of these players has a much better chance of wowing investors with strong returns than the other.

Canopy is shedding fat, but growth remains difficult.

Canopy’s near-term future looks a lot like its past. Over the past few years, the company has been caught up in the all too common quagmire of the marijuana industry. During the boom of the Canadian cannabis market after the country legalized recreational marijuana at the end of 2018, the company created multiple product lines and brands, capturing as much market share as possible through cultivation facilities and retail outlets. Then there were so many competitors engaged in the same activities that the market was flooded with inexpensive cannabis. This drove down prices and worsened Canopy’s profitability, and the company began a multi-year optimization process that continues to this day.

In late September 2022, Canopy sold all of its Canadian retail operations, shifting to a small-cap business model to focus on tapping into the then nascent U.S. market. The company consolidated its operations and cut costs wherever possible, even at the expense of leaving revenue on the table. In October 2023, the company began selling off some of its Canadian manufacturing facilities as its cash reserves began to deplete. By December 2023, the company sold off non-cannabis-related businesses, such as its BioSteel sports drink brand.

Now its quarterly revenue is down 56% over the past three years to $52 million. Worse, its 12-month operating margin is even lower than it was in the summer of 2021. Sure, management expects Canopy to report positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of fiscal 2024, which ends in March, but that’s a far cry from real bottom-line growth.

Tilray, like Canopy, has experienced a cannabis boom in Canada. But unlike Canopy, it switched to alcohol sales in Canada at a good time, allowing it to avoid the worst effects of the cannabis market decline. Alcohol sales are now a major component of its business, and the presence of craft beer brands in the U.S. appears to be generating consistent profits.

According to its second quarter 2024 earnings report released on January 9 (for the period ended November 30, 2023), the company is the fifth-largest craft brewery owner in the U.S., and the largest cannabis retailer in Canada by revenue. Its sales topped $194 million this quarter, up 34% year-over-year, with both marijuana and alcohol gaining momentum. So the company has no problem growing revenue.

The problem is that Tilray is still unprofitable, and its quarterly gross margin of 24% shows there’s still a lot of work to be done. But management says the business will be free cash flow positive by the end of May. Time will tell if it can consistently make money.

There is a clear winner here, but investing is (still) risky.

The lack of growth makes it hard to argue that Canopy Growth is a must-buy stock. In contrast, Tilray manages to grow its earnings at a moderate to rapid pace despite its lack of profitability, so it is a better choice from a growth perspective.

However, Tilray stock is known for being risky, and if it doesn’t meet its cash flow generation target, don’t be surprised if the stock lags for a while. I wouldn’t advise investors to pile into this stock, but if you do decide to buy, be patient and be prepared to hold your shares for a few years before you see a return.