What happened

The news for cannabis stocks has been mixed this week, but the pendulum swung back in their favor Thursday. Shares of U.S. multi-state operator Curaleaf Holdings (OTC:CURLF) as well as Canadian growers Aurora Cannabis (NASDAQ:ACB) and Hexo (NASDAQ:HEXO) all moved higher. They gave back some ground toward the close of the session, however, but ended the trading day up by 1.6%, 6.6%, and 11.3%, respectively. 

So what

A potential new Republican-led bill in Congress to legalize -- and tax -- marijuana has been flying somewhat under the radar, but it has started to get more press this week. Last week, cannabis sector publication Marijuana Moment reported on the bill being introduced by U.S. Rep Nancy Mace (R-South Carolina). A draft of the proposed bill, called the States Reform Act, is making rounds. A final version is expected to be filed by the end of this month, according to the report.

U.S. flag surrounded by marijuana leaves.

Image source: Getty Images.

Now what

It's not unusual for stocks in this sector to move on speculation or any news that could potentially aid marijuana legalization efforts at the federal level. But a proposal led by Republicans is sure to turn more heads. The bill backed by Mace, a first-year congresswoman, would remove marijuana from Schedule I of the federal Controlled Substances Act list, while regulating it at the same time in order to collect tax revenue, without unduly burdening state markets. 

On Thursday, in a discussion on CNBC, Tim Seymour, founder of Seymour Asset Management and a frequent guest on the business news network, discussed the potential legislation, describing it as "huge news for the market that was not expecting de-scheduling or a federal outcome potentially before midterm elections, and something that clearly is in the price of cannabis stocks." 

The fresh publicity is likely what investors latched onto Thursday. Though there are plenty of hurdles that will need to be cleared before federal legalization occurs in the U.S., the proposal being floated in Washington was enough to drive Canadian and U.S. names in the sector higher.

Earlier this week, both Curaleaf and Aurora Cannabis reported quarterly financial updates. While Aurora's medical cannabis revenue grew 23% year over year, its consumer revenue plunged 44%. Curaleaf achieved record revenue in its third quarter, with 74% year-over-year growth and 2% sequential growth.

Hexo is in the midst of a transformation after several acquisitions, and has plans to shut down three production sites to consolidate and centralize its operations. Each of these companies will have to prove it can be successful over time, but a rising tide of positive news regarding the prospects for legalization will continue to lift all boats as the debate over cannabis in the U.S. plays out.

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