What happened

Marijuana stocks soared on Tuesday, as the transition from the Trump administration to the Biden administration officially began. By the closing of trading, shares of Aphria (NASDAQ:APHA), Canopy Growth (NASDAQ:CGC), Cronos Group (NASDAQ:CRON), HEXO Corp (NASDAQ:HEXO), and Tilray (NASDAQ:TLRY) were up 8%, 9%, 9%, 11%, and 17%, respectively. 

So what 

Biden has promised to decriminalize marijuana. Decriminalization at the federal level would be a welcome relief for cannabis companies for several reasons. For one, it could make it easier for them to obtain traditional banking services, which many banks have been hesitant to provide. For another, decriminalization could help to sway lawmakers and voters in more states to support marijuana legalization initiatives.

A person is holding a cannabis leaf in front of a U.S. flag.

Cannabis stocks popped on Tuesday on hopes that the U.S. will embrace marijuana reform. Image source: Getty Images.

The trend toward legalization at the state level is already well underway. Five more states -- New Jersey, Arizona, Montana, Mississippi, and South Dakota -- recently took steps toward legalizing either medical or adult use marijuana. With the coronavirus pandemic taking a heavy toll on many states' budgets, others are likely to approve cannabis sales in the coming years.

Now what

Aphria, Canopy Growth, Cronos Group, HEXO, and Tilray all stand to benefit from the marijuana industry's expansion. The U.S. has long been viewed as the most promising cannabis market, with the potential for annual sales of as much as $100 billion within the next decade, according to investment bank Stifel.  Investors believe a Biden presidency is more likely to help bring about this lucrative scenario, and they're bidding up marijuana stocks in kind.

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.