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Why Canopy and Sundial Dropped Today, but Curaleaf Popped

By Rich Smith – Nov 15, 2021 at 2:15PM

Key Points

  • A proposed Republican-sponsored bill to decriminalize marijuana has been formally submitted in the House.
  • The new bill, authored by U.S. Rep. Nancy Mace, would tax marijuana federally at only 3%.
  • Some investors who bet big on marijuana stocks last week are cashing out Monday.

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It's looking like a "buy the rumor, sell the news" day in Cannabis-land.

What happened

When is good news bad news? Apparently, when you're a marijuana investor, and the prospects for marijuana legalization suddenly get a lot brighter -- in other words, it's a day like Monday.

As of noon Monday, EST, shares of Canopy Growth (CGC 1.16%) were down 3% and Sundial Growers (SNDL -0.43%) was doing the opposite of growing -- down 4.8% -- in response to confirmation that the long-rumored Republican House bill to legalize marijuana has arrived.

In contrast, shares of Curaleaf Holdings (CURLF 3.12%) were headed higher, up 5.4% -- which just goes to show how unpredictable marijuana stocks can be.

Rising stock chart is labeled Cannabis Inc with dollar signs and marijuana leaves decorating

Image source: Getty Images.

So what

So here's the news in a nutshell: Remember how last week we were talking about U.S. Rep. Nancy Mace (R-South Carolina), and how she was putting together a bill to legalize marijuana that might be able to garner some Republican backing -- which could potentially help unstick the broader Democratic bills that aim to do that too?

Well, this rumor is becoming reality. As has reported, Mace is formally introducing her bill to the House Monday -- and she has nearly a half-dozen Republicans on board as co-sponsors already.

This news gets even better: The States Reform Act would not only end the federal prohibition on marijuana sales, but commit to not adding federal regulations that would interfere with existing state laws regulating the marijuana industry. And, while the bill would levy a federal tax on marijuana sales, that tax rate has been cut to 3% -- below the 3.75% rate initially rumored, and significantly lower than the tax rates in the marijuana legalization bills proposed by Democrats.

Now what

So what's not to like about any of that? Why are traders selling Canopy Growth and Sundial Growe lower? And why is Curaleaf defying the trend and rising?

Well, in a nutshell, this is a "buy the rumor, sell the news" situation. Last week, when Mace's bill had yet to be introduced, Canopy Growth stock enjoyed a one-week run-up of 29.5%, and Sundial stock surged by 43%. After racking up gains like that, you can hardly blame cannabis investors for wanting to cash in some chips now that the rumors have proved true.

In contrast, if you add up all the gains Curaleaf notched last week, they totaled less than 5%. Granted, there were good reasons for Curaleaf's unimpressive share price performance. But it's a new week, and it seems investors in the Wakefield, Mass.-based cannabis operator are making up for lost time, bidding up Curaleaf shares while traders in other cannabis companies are cashing out and counting their winnings.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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