Unprecedented political tailwinds have sent cannabis stocks soaring as Democrats prepare to take unified control of the government for the first time since 2011. Although the future is undoubtedly bright for cannabis, some stocks have much less to gain from coming legislative changes than others, according to Cowen managing director and senior analyst Vivien Azer.

"Since the election, and, in particular, after the Georgia runoffs, it's the Canadian names that trade on the U.S. exchanges that have actually outperformed. And we honestly don't think that's warranted at all," Azer told Cheddar. "We think you would need federal legalization for the Canadians to really access the U.S. marketplace. And we don't expect that."

Canadian cannabis giants including Canopy Growth, Cronos Group, Tilray, and Aphria have all surged double, sometimes even triple, digits since Democratic senators won both seats in the Georgia runoff elections on January 5. Since then, Canopy Growth and Cronos Group climbed around 21 percent and 44 percent, respectively. Tilray and Aphria, also boosted by the announcement of their recent deal, are up 96 percent and 63 percent, respectively.

Modest by contrast are the gains of shares of U.S. multistate operators, which stand to gain from federal decriminalization and new adult-use markets opening across the country. Curaleaf, Cresco Labs, and Green Thumb Industries jumped about 12 percent, 27 percent, and 13 percent, respectively, since the market close on Jan. 4. 

"You're already starting to see a little bit of that irrational exuberance in the Canadian names, which retail investors are clearly using as a proxy to express a constructive view on cannabis after the Georgia runoff," Azer said.

When House Democrats passed the equity-focused decriminalization bill, the MORE Act, in December, they sent a very strong message to the incoming Biden administration that they will prioritize cannabis reform in the coming session. Add to that Biden's commitment to decriminalize cannabis, and the future for the industry is very bright. Still, Azer doesn't expect the progressive Marijuana Opportunity Reinvestment and Expungement (MORE) Act to gain enough support among moderate Democrats to pass the Senate. Much more likely in the short term are banking reforms like those in the Secure and Fair Enforcement (SAFE) Banking Act, which has much more significant bipartisan support. 

Curaleaf CEO Boris Jordan is among those bullish that banking reforms could also contain provisions that allow U.S. companies to uplist to major exchanges, according to Grizzle. If and when that day finally comes, Cowen expects U.S. companies to surge as much as 50 percent, generating some $9 billion in enterprise value. 

"It's really a function of multiples rerating as the U.S. operators move from secondary exchanges in Canada to either the NYSE or Nasdaq," she said.

Due to the federally illegal nature of their industries, U.S. cannabis companies cannot list on exchanges like Nasdaq or the New York Stock Exchange. Many are listed over the counter in the U.S. or on alternative exchanges in Canada like the NEO Exchange or Canadian Securities Exchange instead, making them much more difficult to access, particularly by institutional investors.

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