What happened

On Thursday morning, marijuana stocks were continuing on an upward surge that began Wednesday after potentially game-changing banking legislation in the U.S. took a big step forward in its journey through Congress.

Shares of Canadian pot companies Tilray (NASDAQ:TLRY), Canopy Growth (NASDAQ:CGC), and OrganiGram Holdings (NASDAQ:OGI) all jumped by at least 5% early Thursday. As of 11:30 a.m. EDT, their gains were as follows:

  • Tilray was 2.7% higher;
  • Canopy Growth was 2.5% higher;
  • OrganiGram was up 3.9%.

So what

Marijuana companies don't have an easy time doing business in the United States, even in states that have legalized cannabis. That's because federal restrictions prevent banks from doing business with cannabis companies. That forces those in the business to transact solely in cash. But the SAFE Banking Act is reform legislation that would prohibit federal banking regulators from penalizing banking institutions from doing business with legitimate cannabis-related companies. And that legislation took a notable step forward in Congress this week.

marijuana leaf over $100 bills.

Image source: Getty Images.

Now what

A voice vote in the House of Representatives earlier this week allowed the inclusion of the SAFE Banking Act into the broader National Defense Authorization Act. The cannabis banking reform legislation has passed the House before on its own, but hasn't thus far advanced to a vote in the Senate. Its inclusion in the National Defense Authorization Act would give it a better chance of passing both the House and Senate. 

Passage of the SAFE Banking Act isn't the equivalent of federal legalization, of course. But cannabis companies doing business in states that allow medical or recreational use will immediately benefit from it. The current situation requires them to spend more on security, for example, since they are operating as cash-only businesses. And there are numerous other logistical costs that they could avoid if they had normal access to the banking system. 

Canadian companies with existing business operations in the U.S. -- or aspirations to do business here following federal legalization of cannabis -- also stand to benefit. Tilray has been building a base of infrastructure in the U.S. that it plans to leverage once it becomes legal for it to do so. Its businesses include craft brewer SweetWater Brewing and Manitoba Harvest, a hemp, CBD, and wellness products company. CEO Irwin Simon has touted the U.S. operations as a key component for his plan to grow Tilray's annual revenues to $4 billion by the end of fiscal 2024. 

Canopy Growth earlier this year launched a line of CBD-infused beverages for the U.S. market. That was in addition to its partnership with beverage company Constellation Brands. If the SAFE Banking Act does pass Congress, it will be another step toward opening up a huge new market to Canadian pot growers, which is why investors are driving their shares higher.

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.