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Cannabis stocks rally on Georgia Senate race results

Cannabis stocks are rallying as investors await the final results from Georgia's Senate runoff races. Yahoo Finance's Zack Guzman and Akiko Fujita discuss.

Video Transcript

AKIKO FUJITA: The cannabis space getting a big bump today on the expectation of some kind of federal regulation shaping out here, largely because, if Jon Ossoff does pull off that win, you've got the Vice President-elect as the tiebreaker, and she has been very supportive of some of that legislation.

ZACK GUZMAN: Yeah. It's really interesting. Because Akiko, we've been talking about the trends in the cannabis space. And I got two here to spotlight. You can look at MSOS, which is the ETF that tracks the US multistate operators, and the MJ ETF, which largely tracks the Canadian giants there.

And you can see, when you compare them, I mean, we're talking about the opportunity here, and right now you see MJ would be the biggest gainer on the day, more so than those US multistate operators. And I think that could be because obviously a lot of these Canadian players are locked out. You think about Canopy's deal to acquire Acreage, a US multistate operator. That only goes through if you see federal laws around marijuana changed. And really, that's what's kind of expected here. The US companies would have had more time to grow, extend state by state. But if all of a sudden you flip the switch and say, look, we're going to legalize at a federal level, that suddenly opens the door for some of these Canadian players to start making their inroads. It accelerates that conversation quite a bit.

But overall, I mean, even before this happened-- and you and I were talking about the idea that Democrats were perhaps getting undercounted in the probability that they could take the Senate. I mean, you go back a couple weeks and talk about cannabis companies here, Curaleaf, some of the other multistate operators, Trulieve, Cresco Labs, that had been trading at record highs. And you would say, well, why do you want to buy these stocks at record highs?

And the idea is just because the runway is so much larger, even as you have states legalizing, some of the tax implications that could come through through the Safe Banking Act, the MORE Act that we saw the House pass, I mean, that's going to reduce the tax bills that are pretty insane for some of these cannabis companies. Because they're dealing with a business that has to be based on cash. They can't access banks. So some of these laws that could come through, even if it's not the more progressive changes that people want to see when we're talking about expunging criminal records for prior cannabis offenses, that's included in the MORE Act, but even if you just get the Safe Banking Act, which is a more moderate proposal to maybe change the financial rules around these companies, that could be some big changes when you think about tax implications and some of the other question marks around the sector.

And so I think even though we're seeing this one day pop, there's still a lot of question marks around what could get passed and what couldn't get passed that still leaves quite a bit of upside for investors who have been locked out or maybe not thought about cannabis opportunities. But very interesting to see this all play out, which, again, centers around the potential surprise around Democratic control in the Senate.

AKIKO FUJITA: Yeah, although if you see the type of games that we've seen in cannabis stocks today, it does feel like in some ways investors may be jumping the gun a bit. Because, to your point, you've still got a very, very narrow majority, if we're talking about a sweep in Georgia and Democrats do regain control, because we're still talking about a 50/50 split. And let's remember, the Democrats actually lost some of the seats in the House too. So it'll be interesting to see how those negotiations play out.

We've also heard from a lot of guests that's been talking about banks and energy certainly going to see some gains here on the back of expectations of additional stimulus. And then, of course, infrastructure. If you look at some of the stocks that are moving, the Dow's top movers, we're seeing Caterpillar pop in a big way, up 7%. Goldman Sachs, as well as JPMorgan, Chase, and Amex among those big movers.