Markets Jumped Thursday, and These Hard-Hit Stocks Might Finally Have Their Day in the Sun

The stock market continued its volatile week on Thursday, but investors were pleased to see major market benchmarks regain their losses from Wednesday. Most of the factors affecting market sentiment aren't going to change quickly, and with earnings season still a couple of weeks away, many traders are using technical measures and other short-term strategies to guide their decisions. Gains for the S&P 500 (^GSPC 0.02%), Dow Jones Industrial Average (^DJI -0.11%), and Nasdaq Composite (^IXIC 0.10%) were between 1% and 2%.

Data source: Yahoo! Finance.

The market sector that got the most attention from investors today was one that has been struggling for a very long time. Marijuana stocks  have gotten hit hard over the past year, but news from Washington could point to a long-awaited milestone that would transform the nature of the business.

Yes, cannabis can

The big moment for marijuana stocks came mid-afternoon, when reports confirmed earlier rumors that the U.S. House of Representatives would put a bill on the floor for a vote next week.

The legislation would decriminalize cannabis at the federal level. Even though the Department of Justice has largely been willing to allow states to regulate medical and recreational cannabis within their borders without much in the way of federal enforcement, the status of marijuana on the list of federally controlled substances has had other impacts that have limited the growth of the industry. For instance, it's been difficult for cannabis cultivators and retailers to get access to traditional financial services like banking because of concerns that financial institutions would be breaking the terms of their charters if they worked with businesses that were technically violating federal law.

Image source: Getty Images.

In addition, the proposed bill would impose taxes that would go toward funding community support programs for areas that have suffered disproportionate impacts from drug enforcement measures. It would also expunge criminal convictions retroactively for those charged with federal crimes related to marijuana possession.

Big moves for pot stocks -- but will they stick?

The news definitely helped beaten-down marijuana stocks perk up. By the end of the regular session, Tilray (TLRY) had jumped 22%, while Canopy Growth and Aurora Cannabis had both risen 11%. Smaller cannabis cultivators also saw big gains, helping to send the ETFMG Alternative Harvest ETF up 8% on the day.

The gains continued in after-hours trading. Alternative Harvest ETF picked up another 5%, while Tilray added another 16% gain, and Canopy rose another 11%. Aurora picked up 12% after hours as of 5:30 p.m. ET.

Despite the big rise in marijuana stocks, investors should remember that the industry has gone down this road once before. The House actually approved a bill similar to this one in the past, only to have it voted down in the Senate. There are also some questions about whether President Joe Biden would sign a bill into law even if it made it through both chambers of Congress.

Even with the gains, many marijuana stocks are still down 50% to 75% or more from where they traded just a year ago and even further below their all-time highs. That might have made them due for some relief on this news, but long-term investors still need to tread carefully in the space.