What happened

Shares of U.S. multi-state cannabis companies Green Thumb Industries, (GTBIF 1.58%), Curaleaf Holdings (CURLF 2.70%), and Cresco Labs (CRLBF 1.51%) were soaring today, up 8.7%, 4.6%, and 10.1%, respectively, as of 2:02 p.m. ET.

The rise in U.S. cannabis stocks likely had to do with Senate Majority Leader Chuck Schumer making positive comments about the possibilities of passing the SAFE banking reforms in the lame duck session of Congress, along with expungements for some marijuana-related criminal convictions.

So what

On Sunday during the New York Senate candidate debate, Schumer said senators were "getting very close" to passing the SAFE Banking legislation that had been passed by the House of Representatives earlier this summer.

Cannabis investors have been routinely disappointed by this Congress's failure to pass any meaningful cannabis legislation over the past two years, which would benefit cannabis companies' bottom lines while also potentially making them eligible to trade on U.S. stock exchanges. As of now, U.S.-based multi-state operators are only traded over the counter.

The House had already passed the SAFE Banking Act, which would indemnify financial institutions from penalty while working with state-legal cannabis businesses, but Senate Democrats under Schumer had attempted to get a more sweeping legalization package through the chamber.

That was always a long shot, given the inability to garner 60 votes in a divided Senate, as most Republican Senators would find it difficult to vote for outright legalization. Since the prospect of legalization is now quite dim, it appears senators are now looking to join with Republicans in passing the stripped-down SAFE Banking reforms in the lame duck session of Congress.

"We may be able to get something done rather soon. I'm working with a bunch of Republican senators, a bunch of Democratic senators, to get something passed," Schumer said in yesterday's debate.

Now what

Passing SAFE Banking would help Green Thumb, Curaleaf, and Cresco, as they all would benefit from being able to take more card payments in lieu of cash, which is more dangerous and cumbersome to handle. The legislation would likely also allow U.S. cannabis companies to pay less for banking services and likely qualify for lower interest rates on their debt.

However, unless the government de-schedules marijuana as a Schedule I drug under the Controlled Substances Act -- the same level as heroin and LSD and even higher than fentanyl and methamphetamine -- it will be difficult for these stocks to turn a profit. That's because section 280e of the tax code penalizes "drug traffickers" of Schedule I drugs excessively, disallowing most normal business deductions. The result is that these cannabis companies are basically taxed on their gross margins, not their lower operating margins. That's an enormous tax burden almost impossible to outrun, even if one's operating margins are relatively high.

Unfortunately, SAFE Banking wouldn't de-schedule cannabis; however, all hope is not lost. On Oct. 6, President Joe Biden directed the secretary of health and human services and the attorney general to review how cannabis is scheduled under federal law. That doesn't mean the executive branch can unilaterally de-schedule cannabis, but if both the Food and Drug Administration and the Drug Enforcement Administration agree that a change is warranted after their reviews, it could lead to movement on the issue.

Basically, while today is a nice bounce for these beaten-down stocks, it may prove fleeting until something more concrete is announced. If SAFE Banking is passed, it should help these companies, but likely won't be a game changer. Only de-scheduling would really do that.