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Cannabis Stocks Soar as Bill to Legalize Marijuana Approved

By Joe Tenebruso - Nov 21, 2019 at 2:20PM

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The landmark legislation could pave the way for weed to become legal at the federal level.

Cannabis investors received some exciting news this week.

The U.S. House Judiciary Committee -- which is charged with overseeing the administration of justice within federal courts and law enforcement agencies -- approved a bill on Wednesday that decriminalizes marijuana at the federal level. If approved by the House of Representatives and Senate, the bill could pave the way for full-scale legalization of marijuana in the United States. 

An American-style flag with a cannabis leaf replacing the stars

The United States may have taken a major step toward the legalization of marijuana this week. Image source: Getty Images.

The Marijuana Opportunity Reinvestment and Expungement Act of 2019, or MORE Act, passed 24-10. The legislation is expected to be approved by the Democrat-controlled House of Representatives. However, gaining approval from the Republican-controlled Senate is likely to be more difficult.

Senate Majority Leader Mitch McConnell has long opposed marijuana legalization. Other Republicans share similar views. "I don't think a majority of the Republicans will support this bill," Rep. Ken Buck of Colorado said on Wednesday. 

Still, industry watchers see the House Judiciary Committee's approval of the bill as a major step toward legalization. If approved by Congress, the legislation would allow individual states to enact their own policies for marijuana. It would also direct federal courts to expunge convictions for marijuana offenses and institute a 5% tax on marijuana products that would fund substance abuse treatment and job training. 

Thirty-three states have already legalized medical marijuana, while 11 states have legalized cannabis for recreational purposes. With two-thirds of Americans supporting marijuana legalization, according to a recent survey by Pew Research Center, more states are likely to work toward legalizing the drug in the coming years. Legalization at the federal level would likely accelerate this process.

Marijuana stocks rebound sharply

The news couldn't have come at a better time for marijuana companies. Cannabis stocks have been pummeled in recent months, as regulatory scandals, licensing delays, black market competition, and a host of other challenges have weighed on the nascent industry.

Prior to Wednesday, industry leaders Aurora Cannabis ( ACB -6.39% ) and Canopy Growth ( CGC -7.19% ) had shed more than 50% and 40% of their value, respectively, since the start of the year. Fellow cannabis stocks Cronos Group ( CRON -7.06% ) and Aphria ( APHA ) fell approximately 35% and 25% during that same time, while Tilray ( TLRY ) crashed more than 70%.

APHA Chart

APHA data by YCharts

However, all of these marijuana stocks have surged over the past two days. The House Judiciary Committee's passing of the MORE Act no doubt helped to fuel the gains.

APHA Price Chart

APHA Price data by YCharts

Some analysts believe the good times can continue for cannabis investors. As just one example, Bank of America upgraded Canopy Growth's stock from neutral to buy on Wednesday, citing new retail store openings and accelerating cannabis orders by provincial governments as potential growth catalysts.

Those improving industry dynamics should also benefit Aurora Cannabis, Cronos Group, Tilray, and Aphria, to varying degrees. As such, it's possible that the rally in these cannabis stocks could be just getting started.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$9.94 (-7.19%) $0.77
Aurora Cannabis Stock Quote
Aurora Cannabis
$6.01 (-6.39%) $0.41
Cronos Group Stock Quote
Cronos Group
$4.21 (-7.06%) $0.32
Tilray Stock Quote
Aphria Stock Quote

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