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Cannabis Stocks Take Off on Legalization Hopes. One Investor Sees Potential for More Upside

Chris Roussakis | Bloomberg | Getty Images

The stars may be aligning for cannabis stocks as they tear higher on hopes around a reported Republican-led legalization effort, Tim Seymour said.

The Amplify Seymour Cannabis ETF (CNBS) portfolio manager and CNBC contributor told CNBC's "ETF Edge" on Wednesday that a possible bill drafted by South Carolina House Rep. Nancy Mace to deschedule and regulate the federally illegal substance "could be a game changer for the cannabis industry."

The removal of cannabis from Schedule I of the Controlled Substances Act would make it legal in the U.S.

"Despite all of the strong growth and bottom-up dynamics, [cannabis] really still is very much a macro story for investors," Seymour said.

"[It's] huge news for a market that was not expecting descheduling or a federal outcome potentially before midterm elections and something that clearly is in the price of cannabis stocks," he said.

Both U.S. and Canadian cannabis stocks have skyrocketed since Marijuana Moment first reported on the bill's existence, with many names including Seymour's CNBS ETF erasing most of their recent downdrafts.

"You've effectively put in a reset, a sanity check, because as bullish as the backdrop is for investing in cannabis, it's been a very difficult run for the last nine months," Seymour said. "This announcement immediately took a spring-loaded industry significantly higher and maybe reset a lot of those charts."

Big industry players including Trulieve and TerrAscend could also impress with their upcoming earnings reports, said Seymour, also founder and chief investment officer at Seymour Asset Management.

"Sequential third-quarter growth for a lot of the cannabis companies will not be what it was year over year, but 20%-40% growth at a time when the industry is frankly just becoming a lot more sophisticated," he said.

"These are companies that are finally getting ... that much more refined," he said, highlighting the "operational excellence coming at a time when the valuations still put cannabis as a growth sector very much near the bottom of sectors that are showing enormous growth."

Between earnings season, legalization hopes, possible merger and acquisition activity heating up, and valuations reset, cannabis stocks could continue their ascent, he said.

CNBS climbed more than 3% on Thursday. It is up nearly 7.5% year to date.

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