Cannabis stocks are surging as investors cheer the ongoing regulatory optimism in the US and Germany continued. The AdvisorShares Pure US Cannabis ETF (MSOS) has jumped by more than 64% in the past 12 months and by 36% this year, outperforming the blue-chip S&P 500 index.

Individual cannabis stocks have also jumped by double digits this year. Trulieve Cannabis stock has soared by over 124% this year while Curaleaf has jumped by 25%. Other top cannabis stocks like Canopy Growth, Tilray Brands, and Cresco Labs have all jumped this year.

Canopy Growth vs Cresco Labs vs Tilray Brands

Canopy Growth vs Cresco Labs vs Tilray Brands

The main reason for this surge is ongoing optimism on regulations. Germany has already passed laws allowing people to carry a small amount of cannabis for recreational use. This is a big deal since more European countries will likely pass similar bills, opening a market with over 500 million people.

Meanwhile, in the United States, there are signs that the Drug Enforcement Administration (DEA) will change the schedule of marijuana to a less dangerous category. This will likely happen since Democrats have been more open to legalizing cannabis in the US.

Meanwhile, Senator Schumer, the head of the Senate is pushing for the cannabis banking bill, which will make it easier for banks to provide financial services to cannabis companies. This will be a big change since many banks are afraid of providing these services because of regulatory challenges. 

Still, it is worth noting that cannabis stocks have a history of surging when there are regulatory news and then fade after a short while. For example, the MSOS ETF jumped by more than 107% from its lowest point in August to its highest level in September. It then plunged and erased these gains as this optimism faded. 

MSOS also jumped by 67% from its lowest level in September 2022 to December 2022 and then crashed hard afterward. Therefore, there is a likelihood that these stocks will erase some of these gains in the coming months.

The other risk is that chances of passing a federal bill on cannabis in the US are almost zero. Democrats will need a few Republicans to cross over and vote for the bill, a highly unlikely situation. In the House, they will need to convince the Speaker to put the bill on the floor. 

Further, there is the risk about the profitability of these companies. Most of them are still cash burning companies that have never turned a profit.

By Crispus Kanyaru

With a keen eye for market trends and a knack for translating complex financial concepts into engaging narratives, Crispus has established himself as a trusted voice in the world of finance. His work has graced the pages of esteemed publications like Benzinga, Forbes, Invezz, and Banklesstimes, reaching a diverse audience eager to navigate the ever-evolving financial landscape. Crispus's journey began with a deep curiosity about the forces shaping the global economy. This natural inquisitiveness led them to pursue a degree in finance and CPIA, equipping them with a solid foundation in financial theory and analysis. But Crispus knew that knowledge alone wasn't enough. He craved to bridge the gap between dry data and real-world experiences, to make finance accessible and relatable to everyone.

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