What happened

Canadian marijuana stocks soared on Monday as investors reacted to the prospects that the U.S. election results in November could improve the prospects for the cannabis industry. But what the market gives, the market can take away.

Shares of Aurora Cannabis (ACB -2.71%) were falling 9.3% lower as of 11:09 a.m. EDT on Tuesday. Canopy Growth (CGC -2.95%) stock was down 5.5%, while shares of Tilray (TLRY) declined 4.3%. These declines wiped out much of the gains generated by the stocks on Monday.

So what

Volatility isn't surprising for pot stocks. That's especially true for the major Canadian stocks, with all of the top cannabis producers still not profitable on a consistent basis. As we've seen today, such volatility occurs even when there aren't new developments for the individual stocks.

Hand holding white bag with green cannabis leaf printed on it

Image source: Getty Images.

Investors are better off ignoring the day-to-day price swings. It's more important to focus on the long-term growth prospects for each company.

The prospects of marijuana legalization in the U.S., even if it's only for medical cannabis, in a potential Biden administration would likely improve the prospects for Aurora, Canopy, and Tilray. But the three companies aren't on an equal footing when it comes to being able to capitalize on an opportunity to expand into the U.S. market.

Canopy Growth has a much larger cash stockpile than either Aurora or Tilray, thanks to the equity investments made by Constellation Brands. The company also is already positioned to jump into the U.S. cannabis market if federal laws change with its option to acquire U.S.-based cannabis operator Acreage Holdings.

The potential for the relaxation of federal cannabis laws in the U.S. could be the biggest catalyst for these three pot stocks in the near future. However, the primary focus right now for Aurora, Canopy, and Tilray is the Canadian cannabis market. The COVID-19 pandemic has created some challenges, especially in the Canadian retail market. However, the country's Cannabis 2.0 derivatives market also has opened up new growth opportunities for each of the companies.

Now what

There are three key developments for investors to watch over the next few months with these stocks. Perhaps the most important one is the U.S. election on Nov. 3. The outcome of the U.S. presidential and Senate elections holds the potential to change the fortunes of Aurora, Canopy, and Tilray.

Each company also should report quarterly results in the near future. Canopy and Tilray provided their last updates on Aug. 10, so they're due to announce their next quarterly results next month. Aurora reported its latest results on Sept. 22, so it will likely be at least a month behind Canopy and Tilray.

The third thing to watch is the impact of the ongoing COVID-19 pandemic. Should lockdowns be reinstated in Canada, all of the top cannabis producers in the country could suffer.