$OGI Why Marijuana Stocks Are Crushing It Today

A huge milestone toward legalizing marijuana in the U.S. is providing a big catalyst for Canadian marijuana stocks.

What happened

It’s developing into a banner day for Canadian marijuana stocks. Shares of Aurora Cannabis (NYSE:ACB) were soaring 19.3% higher as of 12:10 p.m. on Thursday. Canopy Growth‘s (NYSE:CGC) shares were jumping 19.8% higher. Cronos Group (NASDAQ:CRON) stock was up 14.7%. HEXO (NYSE:HEXO) (TSX:HEXO) and OrganiGram Holdings (NASDAQ:OGI) were vaulting 33.7% and 20.7% higher, respectively.

What caused all the buzz? Perhaps the most important milestone toward the legalization of marijuana in the U.S. so far was reached yesterday. The U.S. House of Representatives Judiciary Committee voted 24-10 on Wednesday to remove marijuana from the Controlled Substances Act, which would make cannabis legal throughout the U.S.

So what

Legalizing marijuana in the U.S. would open up the biggest cannabis market in the world to the top Canadian companies, which currently can’t maintain their listings on major U.S. stock exchanges if they sell cannabis in the U.S. All of the big Canadian players would scramble to enter the U.S. market if federal marijuana laws change.

Canopy Growth struck a deal earlier this year to acquire U.S. cannabis operator Acreage Holdings to be able to immediately jump into the U.S. market when federal laws prohibiting marijuana are revised. Canopy’s peers have also eyed how to expand into the U.S., with some focusing on the U.S. hemp market and Aurora spinning off an investment company to invest in U.S.-based cannabis businesses.

The vote by the House Judiciary Committee was just what investors needed to renew their enthusiasm in the cannabis industry. Most marijuana stocks have performed horribly so far this year in the wake of severe cannabis retail environment constraints in Canada that were negatively impacting sales growth.

However, it’s important that investors don’t get too excited about the milestone reached yesterday. There’s a long way to go before U.S. federal laws prohibiting marijuana could be revised. It’s still quite possible that the proposed bill that passed the House Judiciary Committee will stall along the way.

Now what

The next step for the proposed legislation aimed at legalizing marijuana in the U.S. is to go before the full House of Representatives for a vote. It’s expected that the bill will pass in the House. After that, it would go to the Senate, where there could be significant hurdles.

Senate Majority Leader Mitch McConnell (R.-Ky.) has been opposed to marijuana legalization in the past. If he decides that the Senate should’t vote on the House bill, he can prevent it from coming to the floor.

For now, investors would be wise to temper their enthusiasm about the prospects of the big Canadian cannabis producers entering the U.S. marijuana market in the near term. However, there are other reasons to be relatively optimistic about improving fortunes for these stocks, including the expansion of retail cannabis stores in Canada and the new cannabis derivative products market in the country.