What happened
Cannabis stocks are reversing course this morning after a multiday rally. As of 10:32 a.m. ET, shares of Canada's Aurora Cannabis (ACB 12.87%) were lower by 6%, Canopy Growth (CGC 20.65%) was down 8.32%, and Sundial Growers' (SNDL) stock was in the red by 2.89%.
What's rocking the boat this morning? Canada's top cannabis stocks were rallying over the past few days ahead of the rumored introduction of the long-awaited Cannabis Administration and Opportunity Act (CAOA) in the Senate. According to an article by Marijuana Moment, Democratic Sens. Chuck Schumer, Ron Wyden, and Cory Booker officially filed the bill earlier today.
Image source: Getty Images.
So what
Why are investors selling on this potentially game-changing news? The long and short of it is that CAOA doesn't have much of a chance at actually passing in the Senate during the current session. Republicans haven't voiced much support for the bill, and even some key Democratic senators have openly expressed their opposition toward legalizing weed at the federal level.
What's important to understand is that CAOA essentially requires 60 votes to pass in the Senate. That's a steep political hurdle that seems far too high to climb right now.
Moreover, leading up to the bill's formal introduction today, it's highly likely that short-sellers were backing off from their rather large positions in Aurora, Canopy Growth, and Sundial Growers. After all, these names were undoubtedly prime targets for speculators and day traders looking for a quick momentum play.
Now that the news has officially dropped, however, the momentum crowd appears to be moving on, while short-sellers are probably moving back into these cannabis stocks. Aurora, Canopy Growth, and Sundial Growers, after all, have all been suffering from a domestic market saturated with well over 800 licensed cannabis producers, sellers, and processors.
Now what
On the bright side, it is undoubtedly a positive development that the Senate has officially taken up this landmark piece of cannabis legislation. The U.S. marijuana market is expected to grow into a $100 billion space one day, which would be a boon for struggling cultivators like Aurora, Canopy Growth, and Sundial Growers.
Unfortunately, cannabis investors are probably going to have to wait a while longer before prohibition officially ends in the United States. In other words, you may not want to buy shares of these Canadian pot stocks unless you are willing to hold for the long term.
