What happened

Several pot stocks soared on Monday as the state of New York moved closer to legalizing recreational marijuana. Tilray (TLRY) was the biggest mover, with shares jumping 12% as of 3:24 p.m. EDT. Aurora Cannabis (ACB 0.62%) shares were up 5.1%. Canopy Growth (CGC -0.30%) and Hexo (HEXO) weren't too far behind, with the stocks rising 4.1% and 4.5%, respectively.

The momentum wasn't limited only to Canadian marijuana stocks. Shares of U.S.-based CBD pioneer Charlotte's Web Holdings (CWBHF -2.91%) moved 2.1% higher after jumping as much as 5.5% earlier in the day.

Street sign with a cannabis leaf next to the words: "New York."

Image source: Getty Images.

So what

New York Gov. Andrew Cuomo stated in a press conference that he and Assembly Majority Leader Crystal Peoples-Stokes talked throughout the weekend about legalizing recreational marijuana. He noted that they are "very close" to reaching an agreement. 

However, Canadian cannabis producers such as Aurora, Canopy Growth, Hexo, and Tilray won't be able to sell products in New York even if the state legalizes adult-use marijuana in the near future. These companies can't retain their listings on major U.S. stock exchanges or market cannabis products in the U.S. as long as marijuana remains illegal at the federal level.

Charlotte's Web wouldn't be a direct beneficiary from the legalization of recreational pot in New York, either. The company's CBD products are derived from hemp, which is already legal throughout the U.S.

So why did these cannabis stocks rise? Investors are no doubt hoping that U.S. cannabis reform will pass that would clear the way for Canadian cannabis producers to enter the U.S. market. Canopy Growth would arguably be in the best position in the group to expand into the U.S. because of its option to acquire Acreage Holdings and its option to acquire a significant stake in TerrAscend.

As for Charlotte's Web, probably the most likely reason for its move higher is that a rising tide lifts all boats. The increasing prospect that New York will legalize recreational marijuana is causing nearly every cannabis stock to move higher because it would greatly expand the addressable U.S. market.

Now what

Reporter Zack Fink with NY1 News tweeted on Monday that his sources expect that a final version of legislation to legalize recreational pot will be ready "in the next day or so." He predicted that this would then set the stage for a vote in both chambers of the New York state legislature next week.