What happened

Four days ago, California's state Senate set aside Assembly bill AB 1000; the bill, had it been enacted, would have blocked Cadiz, Inc.'s (NASDAQ:CDZI) Cadiz Water Project, designed to conserve groundwater in the state. Today, investors got their first chance to react to the news, and bid up Cadiz stock 33% (as of 2:35 p.m. EDT) in response.

So what

Cadiz hailed the move, saying that by killing the bill, California will allow the conservation project to move forward and "safely and sustainably conserve groundwater presently lost to evaporation and add a new, reliable water supply in Southern California," solving the region's perennial drought problem.

This conservation project was the primary focus of Cadiz's latest 10-Q filing with the Securities and Exchange Commission, in which the company explained the project aims:

[C]apture and conserve millions of acre-feet of native groundwater currently being lost to evaporation from the aquifer system beneath our 34,000-acre property in the Cadiz and Fenner valleys of eastern San Bernardino County ... and deliver it to water providers throughout Southern California ... A second phase of the Water Project would offer storage of up to one million acre-feet of imported water in the aquifer system.

Reservoir at Hoover Dam

Lacking sufficient native water supplies, California currently has to draw water from as far away as Hoover Dam's Lake Mead. Image source: Author.

Now what

Cadiz went on to say in its 10-Q that "the ultimate implementation of this Water Project will provide a significant source of future cash flow" to the company. Given that Cadiz has never once generated positive cash flow in the past 27 years, that prospect alone is enough to explain why the stock is surging today.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.