Ladenburg Thalmann initiated coverage of the cannabis sector on Wednesday, assigning buy ratings to market leader Canopy Growth Corp. CGC, -0.70% WEED, -0.36% and Aurora Cannabis Inc. ACB, -2.88% ACB, -1.88% , and a neutral rating to Tilray Inc. TLRY, +0.84% Analyst Glenn Mattson said he favors Canadian companies who are focused on long-term value creation and gaining market share, along with those with clear plans to enter the U.S. market, which is expected to become the world's biggest, if and when federal laws allow it. "In the U.S. we look for companies that are building a presence in states with large populations but a limited licensing outlook," Mattson wrote in a series of notes to clients. The analyst views Canopy as a compelling investment opportunity, and said he expects it to retain its leading position in Canada--and beyond. "We believe that Canopy can replicate that effort in other markets as those markets move toward legalization," Mattson wrote. "Canopy has the most aggressive approach to capturing the U.S. market (estimated to be the world's largest potentially) through its potential acquisition of Acreage Holdings (ACRGF: $14.50, Buy)," he said. Aurora is "one of the most aggressive capacity expansion plays" in the cannabis sector, with its aim to become the low-cost provider of premium product. "While some firms are being cautious about expansion with the possibility that the Canadian market may see oversupply, Aurora is taking the view that the market for cannabis will be global and it can export to areas like Europe if the Canadian market sees saturation," he wrote. Turning to Tilray, Mattson said that company is supplying medical cannabis to patients in 15 countries and praised its brand strategy and clinical trials. But the plan of distribution of its big shareholder Privateer will create an overhang on the stock that Mattson expects will weigh for some time. "It remains to be seen what kind of traction TLRY will have with CBD in the U.S. and until then we don't believe an established organic foods company should trade at the same multiple as a high-growth cannabis company," he wrote. The ETFMG Alternative Harvest ETF has gained 21% in 2019 to date, while the S&P 500 SPX, +1.59% has gained 20%.