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Why Pot Stocks Are Crushing It Today

What happened

Some of Canada's biggest licensed producers of cannabis are poised for a huge day on Wall Street today. In pre-market trading Monday morning, Aphria's (NASDAQ: APHA) shares perked up by a healthy 20.3%, Aurora Cannabis (NYSE: ACB) saw its stock gain 40%, and Canopy Growth (NYSE: CGC) tacked on a respectable 13.7%.

Although both Aurora and Canopy Growth are set to release their latest quarterly earnings reports ahead of the bell today, the real reason these stocks are perking up in early morning action is the growing belief among some investors that the U.S. may change its tune toward cannabis following the recent election. Vice President-elect Kamala Harris, after all, has stated in the past that she is an advocate for federal cannabis legalization. Top view of a flowering cannabis plant.

Image source: Getty Images.

So what

The big deal is that the U.S. cannabis market may be worth upwards of $100 billion -- when including derivative products such as cannabis-based cosmetics, creams, etc. That figure dwarfs the market opportunity presented by Canada and even the majority of other potential western markets in Europe.

With this background in mind, it's not surprising that investors are bidding up the shares of Aphria, Aurora, and Canopy today. These three Canadian pot companies, after all, would almost certainly benefit in a big way from a change in the legal status of cannabis within the United States.

Now what

Unfortunately, cannabis investors are probably in for yet another disappointment. President-elect Joseph Biden does not fully share his VP's outlook on the legal status of marijuana, and there's still a chance that Republicans -- whose leadership openly opposes cannabis legalization -- will maintain control of the Senate. Put simply, there's almost no chance that the U.S. federal government will end prohibition on marijuana under the forthcoming administration.

The bottom line is that Aphria, Aurora, and Canopy Growth may have trouble holding onto these enormous gains. Nothing has fundamentally changed in the wake of this election cycle. That doesn't mean that these pot stocks won't turn out to be decent long-term investing vehicles, but it's probably a bad idea to chase these risky growth plays today.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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