What happened
Shares of Canopy Growth (CGC -23.12%) were jumping 18.7% higher as of 11:39 a.m. ET on Tuesday after soaring as much as 25% earlier in the day. The Canadian cannabis producer didn't make any announcements, so why did its shares take off? There are probably three factors that explain today's gain.
First, Senate Majority Leader Chuck Schumer, the New York Democrat, released a letter on Sunday that said cannabis banking legislation will be on the agenda for the Senate this summer. Any easing of restrictions on the cannabis industry would be good news for Canopy Growth, which has a U.S. holding company called Canopy USA.
Second, the potential for more positive news for Canopy Growth could have caused some short-sellers to scramble to cover their positions. As of June 15, nearly 9% of the stock float was sold short. That percentage could have risen since then, especially with Eight Capital analyst Ty Collin slapping a $0 price target on the beleaguered marijuana stock last week.
Third, the overall stock market is enjoying solid gains today. The adage that a rising tide lifts all boats could have added to the pressure on short-sellers.
So what
All of that and $5 will buy you a cup of coffee -- maybe. It's wise for investors to avoid making too much out of a big one-day gain on news that doesn't reflect a significant tangible change to a company's business prospects.
Sure, Canopy Growth might benefit if the U.S. Senate passes marijuana banking reform. But the commitment by Schumer to put a bill on the Senate agenda is a far cry from actually winning enough votes to pass it.
Now what
Canopy Growth continues to lose money hand over fist. Earlier this year, it disclosed accounting issues with booking revenue for its BioSteel business. The main thing to watch is whether or not its management team can turn things around for the company.
