What happened
Some of the most popular cannabis stocks with investors are moving higher today. After widely followed Canadian grower Aurora Cannabis (ACB -6.81%) reported its fiscal fourth-quarter financial results last week, the stock soared. Although progress continues in the U.S. on the topic of marijuana legalization, no company-specific news was released today. Regardless, Aurora stock was up 5.3% as of 11:15 a.m. EDT. And while off highs of the morning, shares of fellow Canadian cannabis companies Sundial Growers (SNDL -2.50%) and Hexo (HEXO) were also up 2% and 3.8%, respectively, at that time.
So what
Some of today's bounce in the stocks may be just a rebound from the past two days of stagnant or negative returns. But there are also some underlying positive signs for the companies' businesses. First, Aurora's quarterly financial report showed 9% growth year-over-year in its medical cannabis product. And after highlighting annual cost savings data, Aurora CEO Miguel Martin said in a statement, "we have a clear pathway to achieve adjusted EBITDA profitability." Also, progress continues to move forward toward legalization in the U.S., which would offer a huge new market for the Canadian companies.
Image source: Getty Images.
Now what
In the U.S., the federal restrictions that prevent banks from doing business with cannabis companies have a new path for change. The U.S. House of Representatives passed the SAFE Banking Act on Sept. 23, after the bill was included in the larger National Defense Authorization Act. The legislation would allow banking institutions to do business with legitimate cannabis-related companies in states where it is legal.
The legislation still has to be passed by the Senate, but as it works its way through, states themselves keep progressing to legalization. New York approved recreational use six months ago, and has created a new Cannabis Control Board that is scheduled to meet for the first time today. And Pennsylvania state Sen. Mike Regan, who according to central Pennsylvania news service PENNlive was formerly a U.S. Marshal and spent years fighting the war on drugs, now supports legalizing recreational marijuana.
It will still take time for the U.S. market to open to Canadian companies, with the ultimate goal of federal legalization potentially still years away. But money-losing companies like Aurora, Sundial Growers, and Hexo will stand to benefit greatly if that eventually occurs.
Sundial reported its gross cannabis revenue grew 8% sequentially in its recently reported second quarter above the first-quarter sales. The company has continued a dual strategy of operational and investment growth. Hexo has also been following an acquisitive model, including recently closing the deal for consumer-centric licensed cannabis producer 48North.
The cannabis sector will remain volatile for investors, so day-to-day moves shouldn't be considered overly consequential without company-specific news. But as investors watch the broader sector develop, and particularly with respect to U.S. legalization efforts, these names could move sharply as some have today.
