Cannabis Stocks Are Surging Ahead Of House Vote On Marijuana Legalization Next Week

Topline

Shares of cannabis companies jumped on Friday, capping off a week of monumental gains after the House of Representatives said it will soon vote on a bill to decriminalize marijuana—and although passage in the Senate is unlikely, optimistic investors see potential upside ahead for some of these stocks.

Sundial and Tilray are up about 50% but the gains may just be temporary.

Patricia De Melo Moreira/AFP/Getty Images

Key Facts

Cannabis stocks surged on Friday with Congress set to consider legalizing marijuana on a federal level, once again: Shares of Tilray Brands jumped nearly 23%, while Aurora Cannabis, Sundial Growers and Canopy Growth rose by around 10%.

Friday’s gains capped off a strong week of gains for many of these stocks, which have largely underperformed the rest of the market in recent years: Sundial is up 56% since Monday, Tilray 52%, Aurora 25%, Canopy Growth 21% and Cronos Group 16%.

Reports first emerged on Thursday in an industry publication that the House of Representatives will vote on a bill to decriminalize cannabis next week, called the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act).

This will be the second time that the Congress has voted on legalization; a similar bill passed the House in 2020 but stalled in the Senate, and Wall Street analysts warn that a similar outcome could occur this time around.

While many experts remain skeptical of Congress passing comprehensive marijuana reform, some are still hoping that the industry will be allowed access to U.S. banks, which are still essentially barred from dealing with cannabis-related businesses.

Earlier in the week, cannabis stocks had also gotten a boost from several major acquisitions within the industry: Cresco Labs is set to acquire Columbia Care for $2 billion, while Aurora announced it was buying TerraFarma in a roughly $38 billion cash-and-stock deal.

Crucial Quote:

“We expect the MORE Act to clear the House once again, but we view it primarily as a messaging bill as it has no viable path to passage through the Senate,” said BTIG strategist Isaac Boltansky in a recent note to clients.

Surprising Fact:

Short sellers with big bets against Tilray Brands, Sundial Growers, Canopy Growth and Aurora Cannabis lost some $260 million this week, according to data from S3 Partners.

Key Background:

Cannabis stocks have taken a beating over the past year, well off their highs like many other speculative areas of the market today. The sector has overall been on somewhat of a downward trend in recent years, as investors remain laser-focused on any headlines about potential federal legalization. Shares of Tilray and Canopy Growth are down roughly 70% in the last twelve months, while Aurora and Cronos are down more than 50% and Sundial more than 30%.

What To Watch For:

Even if full passage through Congress is “not likely” to come to fruition, this kind of news will generate buzz around these stocks and can lead to short-term bounces, Canaccord Genuity analyst Matt Bottomley told CNBC on Friday, adding that valuations in the sector are now at “very attractive levels.”