What happened

Shares of several cannabis stocks soared today on news that Democrat and Republican representatives introduced a bill in the U.S. House of Representatives that would allow hemp-derived cannabidiol (CBD) products to be marketed as dietary supplements. Charlotte's Web Holdings (OTC:CWBHF) was the biggest winner, with shares jumping 16.2% as of 2:57 p.m. EST on Wednesday. Shares of Aurora Cannabis (NASDAQ:ACB) were up 11.7%, while HEXO (NASDAQ:HEXO) and Sundial Growers (NASDAQ:SNDL) rose 13.2% and 11.7%, respectively.

So what

Investors have been concerned about the prospects for CBD sales growth since the U.S. Food and Drug Administration (FDA) issued a consumer update in November warning about the potential risks of CBD. This warning seemed to indicate that the FDA planned to take a hard stance against CBD food products. The consumer update was especially troubling for Charlotte's Web, the leader in the U.S. hemp CBD market.

Cannabis plant with CBD chemical structure

Image source: Getty Images.

But now, Democratic Congressman Collin Peterson of Minnesota, who is chairman of the House Agriculture Committee, hopes to bypass the FDA altogether. Peterson, along with initial co-sponsors from both major political parties, filed a bill on Monday that would amend the Federal Food, Drug and Cosmetic Act to include CBD in the list of allowed dietary supplements.

Why did Aurora Cannabis, HEXO, and Sundial Growers enjoy bigger bounces than other Canadian marijuana stocks? It wasn't because they necessarily have more to gain than Canopy Growth (NASDAQ:CGC) and other rivals. However, Aurora, HEXO, and Sundial shares have been hammered more than their peers. Good news likely caused investors to pour more money into these beaten-down stocks as short-sellers headed for the sidelines.

Now what

The introduction of new legislation doesn't mean the bill will necessarily be passed. However, there's bipartisan support for allowing CBD food supplements. The new bill probably has a decent chance of passing in the U.S. House of Representatives and will likely receive strong support from Senate Majority Leader Mitch McConnell, whose home state of Kentucky has a thriving hemp farming market.

The FDA could take a long time -- even years -- to finalize regulations for hemp-based CBD food supplements. With Congress now seeking to streamline a path to market for these products, the stocks of companies with clear ties to the U.S. CBD industry could gain significant momentum over the next few months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.