Will U.S. or Canadian companies dominate the burgeoning legal marijuana business? The four biggest weed companies in the world, including two with valuations in the neighborhood of $10 billion, operate in Canada. But among the top 10, half are now in the U.S.

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A key question has emerged as investors pour billions of dollars into the marijuana industry: Will it be U.S. or Canadian companies that win the race for cannabis supremacy?

Businesses in Canada licensed to grow and sell weed have a head start, thanks to their national government’s legalization of pot for adult use in October. They’re well funded and are touting their ability to export medical marijuana to countries around the globe that are relaxing restrictions.

Still, Canada’s population is smaller than California’s, and the U.S. market for legal marijuana is already larger than its northern neighbor, with estimates saying it could eventually be more than 10 times the size. As the thinking goes, America is where brands and fortunes are made, and there’s no reason to think that cannabis will be any different, despite the current federal prohibition.

“We’re going to have a great cannabis industry here, but the people who, for whatever foolish reason, thought that Canada was going to dominate the world of cannabis, they need to disabuse themselves of that notion because it was never founded on any reality,” said Afzal Hasan, president of Ottawa-based Origin House.

[Related: Canada’s artisanal pot growers face rising corporate tide]

As it stands, the four biggest weed companies in the world, including two with valuations in the neighborhood of $10 billion, operate in Canada. But among the top 10, half are now operating in the U.S. after a surge in American companies that are listed publicly in Canada.

Here’s a look at the investment thesis for Canada vs. the U.S.

Canada:

There are 133 licensed producers, or LPs, in Canada that have received green lights from the government to cultivate and sell pot in the medical and recreational markets. The most prominent are Canopy Growth, Tilray, Aurora Cannabis and Aphria, which had a combined market capitalization of almost $30 billion before a recent tumble sparked by short-seller questions about Aphria. A key advantage has been easy access to money as Canadian capital markets dominate financing and stock listings in the industry. (Tilray, which is controlled by Seattle-based Privateer Holdings, went public on Nasdaq but does not do business in the U.S.)

Employees at the Canopy Growth facility in Smith Falls, Ontario, inspect and sort marijuana buds for packaging. The country’s emerging legal producers have a chance to seize opportunities in other countries that could make them worldwide leaders, according to Canopy Growth’s Chief Executive Officer, Bruce Linton.  (Chris Roussakis / Bloomberg)
Employees at the Canopy Growth facility in Smith Falls, Ontario, inspect and sort marijuana buds for packaging. The country’s emerging legal producers have a chance to seize opportunities in other countries that could make them worldwide leaders, according to Canopy Growth’s Chief Executive Officer, Bruce Linton. (Chris Roussakis / Bloomberg)

While Canada is the first major economy to legalize weed, it has a small population of less than 37 million that’s about a tenth the size of the U.S. population. Recognizing the limits of selling pot there, larger licensed producers are turning to international markets to drive growth. Many are barred from operating in the U.S. because they’re listed on the Toronto Stock Exchange, which has threatened to delist companies that violate U.S. federal law.

Instead, they’re turning to countries like Germany, Australia, Colombia and Israel to establish regional beachheads from which to sell medical marijuana. This option isn’t open to U.S. players, which can’t move cannabis across state lines, much less export it internationally.

“Using Canada as a lily pad from which to leap to the rest of the world can lead to a lot of success,” said Sean McNulty, co-founder and adviser at Canopy Rivers, the venture-capital arm of Canopy Growth. “There will be a handful of companies that emerge from Canada that are global champions.”

The risk for Canadian pot producers is that they become nothing more than farmers, producing a low-margin commodity while their American cousins reap the financial benefits — including higher profit margins — of selling recognized brands. The laws in Canada prevent most marketing and branding, a hurdle for companies trying to connect with consumers.

“If you look at Corn Flakes, you don’t know where the corn comes from, you don’t know the name of the farmer,” said Rob Cheney, chief executive officer of C21 Investments, a U.S.-focused cannabis company.

An employee sorts bags of marijuana for shipment at the Canopy Growth facility in Smith Falls, Ontario, Canada. (Chris Roussakis / Bloomberg)
An employee sorts bags of marijuana for shipment at the Canopy Growth facility in Smith Falls, Ontario, Canada. (Chris Roussakis / Bloomberg)

Origin’s Hasan sums it up like this: “We’re not as aggressive and competitive and capitalistic as the folks down south of the border.”

U.S.:

The most valuable pot companies operating in the U.S. are what’s known as “multistate operators” — companies that have acquired licenses to grow, distribute and sell weed in the various states around the U.S. that have legalized some form of pot. This includes Acreage Holdings and Curaleaf Holdings, which raised more than $700 million combined in recent weeks through private placements as they went public in Canada.

More than 30 states now allow medical marijuana and Michigan became the 10th to approve recreational use in November. With public support for legalization in the U.S. greater than 60 percent, there is growing optimism that restrictions will continue to be relaxed. That means more of the world’s largest consumer economy will have access to legal pot — a mammoth incentive for investors.

“You have a huge potential market that is moving quickly toward legalization,” said Andrew Kessner, an analyst at William O’Neil. Still, the U.S. stocks are currently “far less liquid,” which can be a problem for large investors.

The federal prohibition on weed has largely kept institutional investors on the sidelines. But as more states ease restrictions, capital is flowing to U.S. companies. A key turning point came in April, when Sen. Cory Gardner, R-Colo., said President Donald Trump didn’t intend to go after pot businesses operating legally in states that had eased restrictions. That led to a surge in hedge funds getting involved in the industry, according to George Allen, president of Acreage.

Some states require that companies selling pot also grow and distribute it, and particularly on the East Coast there have only been a limited numbers of licenses handed out. That could all change if marijuana gets a federal nod, but for the moment it’s a big part of the appeal of investing in companies like Curaleaf.

The company aims to become the largest cannabis retailer in the U.S., according to Chief Executive Officer Joe Lusardi. He argues that pot, even if it’s federally legal, will likely be sold in specialty shops, rather than grocery stores or on Amazon.com — meaning a retail presence will be important in the industry.

Curaleaf, like its competitors, is also developing house brands that will be used to market edibles, vape pens, weed and other products, many of which aren’t yet legal in Canada. He’s frustrated that the company’s stock gets lumped in with Canadian competitors.

“I don’t think we should be correlated with the Canadian stocks at all,” he said. “In many cases they’re just growers.”

Bloomberg’s Doug Alexander and Jonathan Roeder contributed.

[Related: A look at where companies stand on marijuana business]

An employee tends to marijuana plants at the Aurora Cannabis facility in Edmonton, Alberta, one of Canada’s largest marijuana companies. (Jason Franson / Bloomberg)
An employee tends to marijuana plants at the Aurora Cannabis facility in Edmonton, Alberta, one of Canada’s largest marijuana companies. (Jason Franson / Bloomberg)