The marijuana arena is growing as more states approve the recreational use of cannabis. U.S. sales are expected to rise this year after reaching $12.5 million in 2019 compared with $10 million in 2018, says Aaron Grey, managing director of equity research for consumer and cannabis at Alliance Global Partners, a New York-based investment firm. "We look for 2020 to be another key year for growth driven by adult-use sales beginning in Illinois and Michigan, as well as strong trends in key medical markets such as Pennsylvania and Florida," he says. Arizona and New Jersey are the "most likely to legalize adult-use cannabis given the momentum of voter support and pending ballot initiatives," Grey says. Here are seven of the best marijuana stocks to consider.

Innovative Industrial Properties (ticker: IIPR)

Innovative Industrial Properties, a real estate investment trust that focuses on the regulated U.S. medical cannabis industry, conducts sale leasebacks and closed on deals with large U.S. cannabis operators including Green Thumb Industries (GTBIF) and Cresco Labs (CRLBF). The weighted-average remaining lease length is 15.4 years with an average current yield of 13.3% on the $617 million invested, says Michael Underhill, chief investment officer at Capital Innovations in Wisconsin. "A high-pedigree management team and strong business fundamentals helped IIPR raise $250 million in January despite the tight market," he says. "The stock's more than 25% year-to-date increase compares favorably to the -15% return of the North America Marijuana Index."

Curaleaf Holdings (CURLF)

Curaleaf operates in 12 states with 52 dispensaries, 14 cultivation sites and 14 processing sites. Curaleaf reported third quarter pro forma revenue of $129 million and adjusted EBITDA of $9 million. The company remains the only U.S. cannabis producer with exposure to the medical and recreational marijuana markets through cultivation, processing and dispensary operations, says Kristoffer Inton, director of basic materials equity research at Morningstar Research Services. "In all cannabis stocks we see massive opportunity as the industry is just in its infancy. We think the legal market has penetrated just roughly 10% of the full total addressable market," he says. "Unlike other startup industries, most of these customers already exist. They're just in the black market."

Cronos Group (CRON)

A Canadian cannabis producer, Cronos received a $1.8 billion investment from tobacco company Altria Group (MO). Cronos had a large cash balance of CA$1.47 billion at the end of the third quarter. The international medical market is dominated by Canadian producers because of the country's early legalization. Canadian companies were "first movers for expanded capacity and certification to export into legal markets" globally, but "low-cost production from other countries will emerge as a threat over time," Inton says in a research report. "We believe Canadian producers largely recognize this." He says Cronos and other producers have "opened or are opening production outside Canada for the international medical market."

Green Thumb Industries (GTBIF)

Green Thumb Industries, a U.S. cannabis producer operating in 12 states, is the marijuana company that has the potential for the fastest growth of any market, Inton says. Morningstar estimates 25% average annual growth for the U.S. recreational market and about 15% for the medical market through 2030. The company is profitable, unlike many of the other multistate operators, Grey says. The company has a large footprint and raised "enough capital to continue moving forward without fear of running out of money and has not overextended itself," says Rob Hunt, principal at San Diego-based Linnea. Green Thumb has the most "enviable footprint and best assets in the recreational use of cannabis," he says.

Flower One Holdings (FLOOF)

Flower One, a Toronto-based cannabis cultivator and processor in Nevada, launched its 55,000-square-foot cannabis extraction and production facility in September 2019 that is adjacent to its 400,000-square-foot greenhouse. During the third quarter 2019, the company reported working capital of US$38 million compared with a working capital deficit of $33 million the year before and cash of $5.6 million. The company is working with several California brands, and value to them is an "expedited market entry along with assisting in the licensing process, providing consistent product quality with a quick turnaround time," says Aaron Raub, senior equity analyst at Ambria Capital, a San Juan, Puerto Rico-based asset manager.

Greenlane Holdings (GNLN)

Greenlane, based in Boca Raton, Florida, sells cannabis accessories, CBD and liquid nicotine products at 11,000 retail locations, including licensed cannabis dispensaries. The management team and "exceptional logistics" are both advantages for Greenlane, Hunt says. Greenlane is expanding to Europe with the acquisition of Conscious Wholesale, a wholesaler and retailer, he says. The company reported third quarter net sales of $45 million, a 3% increase but a net loss of $9 million compared resulting from a higher cost of sales, investments in staff and equipment, and higher depreciation and amortization expense.

Acreage Holdings (ACRGF)

Acreage Holdings, a New York-based, vertically integrated, multistate cannabis operator, raised $180 million to strengthen its balance sheet in February, consisting of a $100 million credit facility, $50 million private loan transaction and $30 million of private placement of warrants. During the fourth quarter, the company reported revenue of $21 million, a miss from investment bank Seaport Global's $22.3 million forecast, says Brett Hundley, a senior analyst at Seaport Global. The company is planning to open 10 to 15 retail dispensaries in the second half of 2020. "We believe that Acreage has a particular competitive advantage in growing wholesale brands as it leverages its relationship with Canopy Growth (CGC)," he says.