Marijuana stocks have found new momentum ahead of the holidays. Thanks to the incoming Biden Administration, it looks like cannabis is finally ready to have its big moment in the United States. As veteran marijuana stock traders know, the Canadian recreational market simply hasn’t been large enough to support the ambitions of all the cannabis companies. However, the U.S. coming online will be a complete game-changer.

That’s why recent events are so exciting. The House of Representatives is set to approve federal level marijuana legalization. It seems that the Senate will block the bill, so — for now — this is as much a gesture as anything. However, with the Senate potentially swinging to the Democrats in January the path for legalization could become clearer. Legalization, or even more modest actions, such as the Safe Banking Act, could make the cannabis business far more lucrative.

There’s another potentially momentous opportunity here. Currently, U.S. marijuana companies face onerous taxation due to a provision called 280E. This is a piece of Internal Revenue Service (IRS) tax code. It stems back to a 1981 court case and ended up setting precedent that individuals and companies cannot deduct business expenses if they engage in prohibited business activity. While this was clearly targeted at hard drug dealers, it has now caused marijuana companies to pay crippling tax since cannabis is still illegal federally. Legalization would end the 280E tax problem and allow cannabis companies to deduct their normal expenses. This would greatly boost profits for the U.S. marijuana industry.

With all that in mind, the place to focus within the cannabis sector right now are clearly the names that do substantial business in the United States. Meanwhile, use more discretion with the primarily Canadian operators. Here’s what you need to know about these seven leading marijuana stocks:

• Curaleaf (OTCMKTS:CURLF)
• Green Thumb Industries (OTCMKTS:GTBIF)
• Trulieve (OTCMKTS:TCNNF)
• Canopy Growth (NASDAQ:CGC)
• Sundial Growers (NASDAQ:SNDL)
• Schultze Special Purpose Acquisition (NASDAQ:SAMA)
• Tilray (NASDAQ:TLRY)

Curaleaf (CURLF)

Curaleaf appears to be one of the biggest winners of the evolving marijuana market. Unlike many of the legacy operators that have gotten bogged down in unprofitable Canadian operations, Curaleaf has been running around breakeven for awhile now. This is true, in fact, of several of the leading U.S. operators. South of the border, the cannabis market is not nearly as saturated, and new states and municipalities are coming online frequently. This has given firms such as Curaleaf a tailwind.

In the most recent quarter, for example, Curaleaf reported a loss of $9 million, but that was entirely due to its high tax burden. Excluding tax, actual operations produced a nearly $10 million profit. That’s a great figure in the generally profit-challenged marijuana industry. And if legalization does happen, that tax bill should be taken care of.

Adding to that, Curaleaf hasn’t had to give up on growth to achieve those gains. Its revenues grew 55% sequentially in the most recent quarter. Combine that with an already money-earning core business and Curaleaf is set up for success as more states legalize consumption in coming months and years. Curaleaf already has a presence in 23 states which is a simply incredible network. In the event that federal legalization does succeed in the near-term, CURLF stock should soar.

Green Thumb Industries (GTBIF)

Green Thumb is another of the newer crop of marijuana stocks that are outperforming the old leaders. By focusing on individual U.S. states, Green Thumb has managed to carve out much more lucrative niches than the overly competitive Canadian market. For example, New Jersey legalized cannabis during the 2020 election, which should pay off in spades for Green Thumb, which already has a license there.

Even with legalization just picking up steam now in the Northeast, Green Thumb is already profitable. It earned 4 cents per share last quarter. That’s not a tremendous sum by any means, but compared to its Canadian counterparties, merely achieving positive earnings is a cause for celebration.

Green Thumb’s balance sheet is also laudable; the company has more cash than debt. You already have profits, a strong treasury position and lots of exposure to markets that should be coming online in the not-too-distant future, such as New York. All in all, Green Thumb has an enviable competitive position and could reward its shareholders nicely in coming years.

Trulieve Cannabis (TCNNF)

Trulieve is another U.S. cannabis firm enjoying rapid and profitable growth. All of last year, for example, the company produced $252 million in revenue. By this summer, it was up to $121 million per quarter in revenues, suggesting that it is roughly on pace to double revenues for the year.

On top of that, it’s highly profitable growth. Trulieve is producing a 50% adjusted EBITDA margin and would be strongly profitable on a net income basis as well, excluding the tax issue discussed above. In any case, that’s a huge difference from the other marijuana operators that have struggled to even reach adjusted EBITDA breakeven levels.

Additionally, Trulieve smartly raised capital recently greatly improving its balance sheet. Previously, Trulieve had had to rely on nearly 10% interest rate debt to fund growth plans. With cash in hand, it should be able to manage its expansion plans more smoothly as more states come online in coming quarters. TCNNF stock has rallied sharply all year, and with good reason. It’s not just a federal legalization play, there’s a great core business here regardless of the politics.

Canopy Growth (CGC)

Unlike the U.S.-focused companies we just discussed, Canopy has not been able to reach sustainable profitability yet. In fact, the company is still running significant losses. And now, with the recent run in the price of CGC stock, it’s selling at a crazy valuation as well despite the underlying business’ struggles.

Analysts see the company bringing in around $600 million of revenue next year and $900 million or so the year after that. For that, investors are paying a more than $10 billion market capitalization — or more than 15x next year’s sales. Analysts expect the company to lose 79 cents a share next year and 61 cents in 2022. Only, hopefully, in 2023 will Canopy get to break-even.

Yet, investors are paying this inflated 15x price/sales ratio for Canopy more due to its size and brand than anything else. Canopy may have been the first big marijuana company. But unless it manages to turn things around, it looks as though the American cannabis firms will overtake it soon.

Sundial Growers (SNDL)

Sundial Growers has had an impressive recovery in recent days, as its shares surged from 20 cents to as high as 90 cents. However, SNDL stock is still down from a high of more than $3/share earlier this year. Sundial’s rocky ride is understandable in light of the company’s massive losses; last quarter, for example, it lost substantially more money than it produced in revenues. That’s never a good look.

There is some reason for the recent optimism. The company cleaned house, swapping out much of the prior management team. It has also pivoted from the bulk cannabis market to branded products, which should have much higher profit margins. Sundial also raised capital sufficiently to get the company through 2021.

So the company still has a fighting chance. However, the current short-term trading looks like wild speculation, rather than much tied to fundamentals. Longer-term investors should probably wait for the stock to settle down a bit before taking any action.

Schultze Special Purpose Acquisition (SAMA)

If you’re looking to get in on the ground floor of a new cannabis stock, it’s worth considering Schultze. Schultze is one of the year’s many special purpose acquisition companies (SPACs) that have gone public. And soon, it appears, it will be merging with Clever Leaves, which is a multi-national cannabis producer. It appears the deal is set to close on Dec. 18, as long as shareholders vote in favor of a merger, thus it’s just a couple weeks away from going live.

What’s the story for Clever Leaves? It has built up a large land package in Colombia, along with 18 greenhouses there for growing cannabis. Colombia has long been a leader in the cut flowers export industry for things such as weddings and special events. Clever intends to utilize that already in-place infrastructure to grow and export cannabis to major markets.

Being next to the equator, Colombia has 12 hours of steady sunlight for cultivation year-round. Additionally, you can grow cannabis there at elevations of 8,000+ feet, which stops most pest activity, making it easier to grow plants organically. Furthermore, Colombia has much lower labor and regulatory costs than other prime growing markets like Canada and the U.S., thus Clever should have substantially lower costs of production.

So far, SAMA stock — which will become Clever Leaves once the deal closes — has only traded up from $10 to $11. Given the exuberance for SPACs this year, this company could be at the right place at the right time with the merger closing right as the marijuana sector is already surging.

Tilray (TLRY)

Tilray is something of the opposite of Schultze. Unlike Schultze, Tilray is a well-known company that has a long history with traders. The stock infamously spiked to $300/share at one point, briefly giving folks a giant windfall on paper at least. But shares soon crashed as the company’s fundamentals never caught up to the initial optimism. And now, unfortunately, the company is arguably living more on its past excitement than its current prospects.

As I recently documented, the single best argument for owning TLRY stock is that it’s vulnerable to a short squeeze. That’s because short sellers are extremely confident that Tilray is set to continue plunging in coming months. Generally, you know you’re looking at a troubled company when short sellers remain convinced they are right even after a stock takes a terrible fall.

Tilray just missed earnings again and there’s no evidence that a turnaround is happening in the near-term. As such, there are easier trades within the marijuana stock sector.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.