A federal legalization bill is being discussed by a House panel, causing cannabis stocks to gain popularity.

• The recent surge in pot stocks can be attributed to the investor confidence in the prospect of federal cannabis legalization.
• The Alternative Harvest ETF has experienced a more than 10% increase in value during March and is currently on track for its strongest month since February 2021.
• On Wednesday, the House Rules Committee will conduct a hearing on the MORE Act, which aims to legalize cannabis at the federal level.

The recent surge in pot stocks can be attributed to the investor confidence in the prospect of federal cannabis legalization.

The exchange-traded fund has experienced a significant increase in March, with a gain of more than 10%, and is currently on track for its best month since February 2021. Despite being flat year to date, the fund has seen a 50% decline over the past 12 months. The recent surge in marijuana shares is reminiscent of the early last year's upward trend, fueled by similar reform expectations.

The MORE Act, which decriminalizes cannabis at the federal level and creates provisions for banking and consumer packaged goods sales, will be heard by the House Rules Committee on Wednesday. The bill is expected to be voted on by the full House on Friday.

Rep. Ed Perlmutter, D-Colo., expressed optimism about the MORE Act passing the House, but the bill's future in the Senate remains uncertain due to its razor-thin Democratic control.

Perlmutter, a Rules panel member and MORE Act co-sponsor, has long supported legalizing cannabis. He is also a sponsor of the Secure and Fair Enforcement Banking Act, a cannabis reform bill that aims to provide multistate operators access to banking and financial services. In 2012, Colorado and Washington became the first states to legalize the recreational use of marijuana.

Perlmutter stated, "We are confident that something will happen this year, as it is much easier for banks, financial institutions, insurance companies, credit unions, and real estate companies to do business with cannabis businesses. This would enable the industry to progress."

The MORE Act passed the Democratic-controlled House in December 2020 with a vote of 228-164, but it was not taken up by the then-Republican majority Senate.

Jaret Seiberg, a Cowen analyst, considers Wednesday's House vote on cannabis legalization as symbolic and predicts that Democrats would require at least 10 Republican votes in the Senate to surmount a filibuster and enact a cannabis bill. Nevertheless, he believes the House discussion could be beneficial as midterm elections approach in November.

Seiberg stated in a note last week that there is a high probability that Republicans will control the House next year. This upcoming debate will provide insight into how many Republicans support legalization, even if they oppose the MORE Act. If the House becomes Republican but the Senate remains Democratic, it would mean there will be a path for cannabis legislation next year.

The Cannabis Administration and Opportunity Act (CAOA) is among several marijuana bills being sponsored by Sen. Chuck Schumer, D-N.Y., Sen. Cory Booker, D-N.J., and Sen. Ron Wyden, D-Ore., on the Senate side.

David Klein, CEO of Canopy, stated that federal legalization would significantly impact the company's perception among investors. In 2019, Canopy acquired Acreage for $3.4 billion and currently sells Martha Stewart's CBD line in the U.S. Additionally, the company made a $298 million acquisition of the U.S. cannabis edible brand Wana in October 2021.

Although Canopy shares have experienced a 13% increase in the past month, they have fallen nearly 8% year to date and are down 74% in the past 12 months.

Bringing businesses like Wana and Acreage into our profit and loss would enable us to run them as a consolidated enterprise, which would excite our investors. Additionally, it would demonstrate our established, mature, and growing U.S. multistate presence, as Klein stated to CNBC.

Canopy, the spirits and beer giant, owns a 36% stake in the cannabis industry. Stifel analyst Andrew Carter predicts that higher margin drinkable cannabis will experience accelerated growth in 2022. According to Headset, drinkable cannabis currently accounts for only 1% of the U.S. market.

Klein stated that the company has always been optimistic about the drinks category. He explained that new consumers entering the market tend to enter through edibles and drinks. Klein believes that as more people enter the category, the newcomers will over-index in edibles and drinks.

The CAOA bill is expected to be introduced in the Senate by late April, as per a note from Bank of America on Tuesday.

While industry analysts anticipate a challenging road ahead for all cannabis reform bills on Capitol Hill, they believe that progress towards legalization will continue to fuel interest in cannabis stocks.