What happened
Shares of cannabis growers jumped Monday after another U.S. state voted for legalization over the weekend. As of 11:45 a.m. EST, shares of several traded higher:
Aphria (APHA), up 6.7%;
Canopy Growth (CGC 13.12%), up 6.6%; and
Aurora Cannabis (ACB 7.80%), up 7.6%.
So what
Any news of progress on marijuana legalization typically drives shares of pot companies higher. On Saturday, Virginia became the 16th U.S. state, plus the District of Columbia, to approve marijuana legalization for adult recreational use. Gov. Ralph Northam still needs to sign the bill, but he supports legalization, which will allow for sales to begin in 2024.
Image source: Getty Images.
Now what
Canadian marijuana businesses aren't going to be directly affected by state legalization in the U.S. But the stocks are rising because investors see a path toward federal legalization as more states vote for it. Canadian pot growers need federal legalization to be able to enter the U.S. market, but Aphria and Canopy Growth have been actively preparing for the possibility.
Aphria acted on its strategy to make inroads in the U.S. last fall when it acquired U.S. craft brewer SweetWater Brewing Company for about $300 million. SweetWater is currently available in 27 states plus Washington, D.C., and Aphria said the plan was to have "a platform and infrastructure within the U.S. to enable it to access the U.S. market more quickly in the event of federal legalization."
Canopy Growth has a path into the U.S. market through beverage company Constellation Brands. Constellation added to its initial $4 billion investment in Canopy Growth with another almost $200 million invested through warrants last year.
Aurora Cannabis doesn't yet have any distribution framework set up for potential U.S. sales. But investors have been looking for something to help turn the troubled grower around. Shares are down almost 90% in the last three years, and the company has acknowledged it is working on a business transformation.
Marijuana stocks have attracted speculative interest from investors since Canada legalized recreational use more than two years ago. The potential of the U.S. market drives even more interest, even for the Canadian companies. Investors should realize that federal legalization will be required for the companies to perform business transactions across the border. But news of another state legislature voting to legalize pot use gives investors more hope that the companies will eventually have a huge new market in which to compete.
