A sea change is taking place for cannabis companies, one that will have an enormous benefit for the industry.

In April, the Department of Justice (DOJ) rescheduled medical marijuana from a Schedule I drug, similar to heroin or LSD, to a Schedule III substance, such as anabolic steroids for prescribed medical use and some commonly prescribed medicines, such as codeine mixed with acetaminophen.

The change means that medical marijuana will no longer be illegal at the federal level, and that change means that cannabis companies that sell medical marijuana will now be able to take standard business deductions, which they couldn’t do previously under 280E of the Internal Revenue tax code.

The second shoe to drop regarding reclassification comes June 29, when hearings begin to determine if adult-use marijuana should also be rescheduled as a Schedule II substance. That would open up even more tax reductions for cannabis companies that also have adult-use sales.

Even the reclassification isn’t a done deal yet. The attorneys general of three states — Indiana, Louisiana, and Nebraska — filed a federal court petition in Washington, D.C. on May 22, claiming the DOJ’s order violates federal administrative law and international drug-control treaties.

The final outcome remains uncertain, particularly regarding how unpaid past Section 280E tax liabilities — currently carried as liabilities rather than debt — will be resolved. Additionally, there is still no definitive progress on the SAFER Banking Act or the potential for stock exchange uplisting.

While shares of two of the largest multi-state operators, Trulieve (TCNNF +17.52%) and Curaleaf (CURLF +5.40%) have soared more than 90% and 70%, respectively, over the past three months, there are other cannabis stocks that are better buys right now and are less risky, with better debt positions: Green Thumb Industries (GTBIF +0.74%) and Tilray Brands (TLRY 4.82%).

Why I like Green Thumb Industries

Green Thumb has a similarly large scale as Trulieve and Curaleaf, with 110 RISE dispensaries across 14 markets, but a better track record of financial discipline. The company has turned a profit in six of the past seven quarters, something neither Trulieve nor Curaleaf can claim.

Green Thumb Industries

Today’s Change

(0.74%) $0.06

Current Price

$8.20

In the first quarter, Green Thumb reported revenue of $300.2 million, an increase of 7.4% year over year, and earnings per share of $0.07, an increase of 75% from the same quarter a year ago. The company has $289.9 million in total debt, but $344.5 million in cash and cash equivalents.

The company has done a good job of building up its brands, which helps insulate it from the price compression affecting the industry. The company’s brands include RYTHM, Dogwalkers, Incredibles, Beboe, &Shine, Doctor Solomon’s, and Good Green.

Why I like Tilray Brands

Tilray, based in Canada, has an international presence, with operations in Canada, Europe, and the U.S. beverage market. Changes in U.S. regulations would allow Tilray to expand in the U.S., and a more favorable tax environment here could boost its revenue and earnings.

Tilray Brands

Today’s Change

(-4.82%) $-0.25

Current Price

$4.94

Tilray already has a toehold in the U.S. Following strategic acquisitions — including an expansive portfolio of craft beer brands from Anheuser-Busch and its acquisition of BrewDog — Tilray has shielded itself from pure cannabis volatility. This infrastructure gives it an instant, legally compliant distribution network into U.S. retail and bars, which can be easily leveraged for THC- and CBD-infused beverages when federal laws shift, as well as give it a base to eventually operate cannabis sales in the U.S. The company already said it is looking into a pilot Center for Medicare and Medicaid Innovation program that would let it supply hemp-derived medical cannabis to patients through specific healthcare groups and cancer clinics.

The company is coming off a record third quarter, in which revenue grew 11% year over year to $206.7 million, including 73% growth in international sales.

Tilray also trimmed its total debt by 6% to $549 million. Management reconfirmed positive full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $62 million to $72 million, representing growth of 13% to 31%, proving that its underlying operations are scaling effectively.

Tilray is a hidden gem

The stock, because it doesn’t yet sell cannabis in the U.S., is being overlooked compared to other large cannabis retailers. However, due to its growth in international sales and its marketing experience in the U.S. through its beverage sales, it has the wherewithal to pounce on new opportunities in the U.S.

The stock is priced right, with a price-to-sales ratio of 0.541, lower than Trulieve, Curaleaf, and Green Thumb Industries.

Green Thumb may still be the safer bet because it has a longer history of profitability, but Tilray offers several overlooked advantages and greater growth potential.