Cannabis stocks are well off past peaks. But that doesn’t mean it’s a dead – or dying – industry. In fact, quite the contrary. It’s clear that, eventually, full-scale marijuana legalization is inevitable. Already, lawmakers and legislatures are calling for that scenario on the heels of ongoing scheduling reform. But if you’re banking on cannabis legalization to reinvigorate a weed-based portfolio, think again.

Small companies, particularly those fighting for equity in public markets and charged with generating shareholder value, have the cards stacked against them. First, margins are abysmally tight on the products. High-tech growing costs, marketing, packaging and endless taxation make squeezing profit from products difficult.  Second, cannabis companies face stiff competition from both ends of the spectrum. When legalization happens, big-name companies like beer and tobacco (and even pharmaceuticals) will likely push small competitors downward. At the same time (since cannabis is a weed, after all), at-home enthusiasts are likely to grow their own, rather than pay steep pricing at the local dispensary.

But cannabis stocks aren’t a losing proposition. Instead of betting the farm on a handful of producers, distributors or dispensaries, look to cannabis stocks covering a wider spectrum of direct and peripheral sectors. These seven stocks have the current strength to wait for full legalization while offering diversified access to cannabis’ big picture. 

Tilray Brands (TLRY)

Tilray Brands (NASDAQ:TLRY) is, first and foremost, a cannabis company, which seemingly violates my diversification thesis. But, in reality, Tilray affirms my main point. This cannabis company is increasingly diversifying its operational strategy, and it’s paying off now – with greater upside imminent. Since it began spreading its wings, Tilray’s revenue popped 15% year-over-year and came one step closer to profitability. But Tilray’s run is just beginning.   

In August, Tilray solidified its presence in the craft brewing sector by acquiring eight brands from Anheuser-Busch (NYSE:BUD). This strategy pushed the cannabis company to the status of the fifth-largest US craft brewer. Craft beer is a hot commodity, and product sales surged at a rate eight times higher than the industry average in 2021.

While this expansion opens up new avenues for revenue, the true advantage for Tilray lies in its logistical triumph. By buying these brands, Tilray also opens access to well-established distribution networks and robust marketing capabilities, all of which will complement its core cannabis operations. Underlining its potential, Tilray’s CEO remarked, “Upon legalization (in the U.S.) one day, we will infuse these drinks with THC, with CBD, but we’ll have the distribution, and we’ll have the brands when and if legalization does happen.” 

Ultimately, Tilray serves as an archetype of tomorrow’s cannabis company: small and nimble enough to adapt to changing markets and regulatory framework while large enough and willing to expand horizons (alongside revenue streams). 

Constellation Brands (STZ)

Like Tilray, Constellation Brands (NYSE:STZ) is involved in the beer industry. However, unlike Tilray, this is STZ’s primary focus. Constellation Brands is a Fortune 500 company. STZ generates nearly $10 billion in global product sales, with a significant customer base in the United States. Despite a beer-based operational model, Constellation Brands also holds a substantial stake in the cannabis company Canopy Growth (NASDAQ:CGC). That partnership is aligned with a similar strategic vision as Tilray.

Constellation Brands is currently adopting a hands-off approach to its $4 billion investment. Still, it’s apparent that its management is likely awaiting a shift in the legal landscape. Constellation owns a sizable 35% of the cannabis company, establishing a substantial presence in the cannabis sector. In response, CGC is diligently building its financial position to be better poised for the potential reclassification and legalization developments.

Constellation Brands may not follow the beaten path, but legalization efforts demand a lengthy timeline. In the meantime, investors seeking a more conservative entry into this sector can leverage Constellation’s established market position and robust stock performance.

Valley National Bancorp (VLY)

One of the most challenging operational hurdles cannabis companies face is financial management. Due to the ongoing federal illegality of cannabis, traditional and well-established banking institutions tend to steer clear of offering financial services to these companies. However, Valley National Bancorp (NASDAQ:VLY) is breaking away from this trend and fully embracing cannabis banking.

Valley National has dedicated an entire branch of its banking services to cater to the needs of cannabis-related businesses, appropriately named “Cannabis Banking.” This dedicated branch is designed to support various players within the cannabis industry, including dispensaries, cultivators and even businesses involved in hemp, which typically operate predominantly in cash. Relying on cash transactions can be risky, inviting the potential for theft and unwanted scrutiny from the IRS. By providing a legitimate financial platform for cannabis companies to operate within the boundaries of the law, Valley National offers an invaluable service.

As the cannabis industry continues to expand and mature, Valley National will likely remain a prominent player in the banking sector due to its first-mover advantage. Even as traditional banking institutions gradually enter the arena, major cannabis companies will likely maintain their loyalty to and reliance on Valley National’s specialized cannabis banking services.

Scotts Miracle-Gro (SMG)

Scotts Miracle-Gro (NYSE:SMG) may not directly engage in the sale or distribution of cannabis, but cannabis’s future could have a substantial impact on this agricultural company. SMG owns Hawthorne Gardening. Hawthorne offers a variety of legal hydroponic equipment and tools for cannabis cultivation, primarily catering to large-scale growers. A change in cannabis scheduling offers an upside for the entire cannabis industry. But SMG is strategically positioned to benefit from the industry’s growth, regardless of which specific companies emerge as leaders.

At the same time, as legalization reduces legal barriers for the general public, there is the possibility of a surge in at-home cannabis cultivation. Just think of home brewing’s popularity in recent years, and you see the latent DIY consumer potential SMG can capitalize on since the subsidiary offers a one-stop shop for all necessary equipment to facilitate the hobby. Additionally, Scotts’ extensive presence in hardware and gardening stores nationwide means it can swiftly make its products available on store shelves. This accessibility could position Scotts as the preferred equipment provider for both businesses and individuals interested in expanding or building grow operations.

Chicago Atlantic Real Estate Finance (REFI)

Chicago Atlantic Real Estate Finance (NASDAQ:REFI) is an ideal pick to diversify your portfolio beyond cannabis exposure. REFI is a mortgage REIT. REITs, in general, are doing terribly this year. The entire REIT sector is down more than 5% since January. But much of that downward momentum, driven by interest rate hikes, comes from equity REIT sectors. Mortgage REITs, by comparison, are actually up  5.3%. Based on this, REFI is a solid stock pick to diversify your portfolio, offering a whopping 13.40% forward dividend yield. 

But REFI also offers unique exposure to the cannabis industry. REFI offers private credit opportunities to licensed cannabis operators, which cements its position in the financial sector, similar to VLY. Many commercial cannabis enterprises struggle with traditional financing and mortgage opportunities due to federal legalization concerns. REFI cuts through the red tape. REFI offers attractive loans to the burgeoning industry without the hassle of dealing with legacy lenders. Of course, legacy lenders might jump on board in the future. Still, private lenders like REFI offer greater flexibility (and preferred terms), which sets it apart from those institutions. Ultimately, REFI is a top stock pick for today’s high-interest-rate environment. Private lending is gaining popularity, and REFI offers ideal exposure to the cannabis industry. 

WM Technology (MAPS)

WM Technology (NASDAQ:MAPS) stock faces tough times. But this cannabis tech stock offers substantial upside as one of the few (if not only) software providers linking consumers and cannabis dispensaries. The company owns and operates Weed Maps, an app-based option for consumers to source and buy cannabis from dispensaries in legal areas. That value proposition alone has legs, although it remains hamstrung by limited legalization nationally. 

Still, WM Technology is effectively a penny stock, meaning it’s priced right for investors willing to gamble on substantial upside in the long term. Despite the stock’s poor recent performance, it recently beat analysts’ estimates substantially. The earnings beat reinforces cannabis’ popularity as a consumer product despite economic struggles and serves the at-home set used to ordering food, groceries and more online. Experts project the broad cannabis market to grow by nearly 25% annually through 2030, and software services like Weed Maps are a key part of that growth trajectory. 

Village Farms International (VFF)

Village Farms International (NASDAQ:VFF) is another penny stock, but one offering diversified exposure to the cannabis sector. VFF is an agricultural greenhouse company growing tomatoes, cucumbers and more in state-of-the-art facilities through its primary subsidiary. This focus on clean energy and sustainable agriculture alone makes VFF a compelling stock pick to capture global green enthusiasm and emphasis.  

But VFF also owns and operates Pure Sunfarms, which makes and distributes a slew of cannabis-based products, including edibles. Diversified revenue streams, alongside innovative approaches to farming, make VFF one of the top cannabis stock picks today. Though the company’s share price is struggling, recent earnings beats point to improved prospects. Last year, VFF posted a per-share loss of $0.07 per share but improved profitability substantially in its most recent report (posting just a $0.01 loss per share). Revenue climbed, too, beating estimates by almost 10%. These financials point to VFF’s increasing popularity across market segments while assuring investors that it can adapt to changing economic conditions. 

On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.