Hope for legalization fuels cannabis stocks

The stars could line up for cannabis stocks soaring on hopes of a Republican-led legalization initiative, according to Tim Seymour.

The portfolio manager of Amplify Seymour Cannabis ETF (CNBS) and CNBC staff said on CNBC's "ETF Edge" on Wednesday that a possible bill by South Carolina MP, Nancy Mace, to repeal federal classification and regulation illegal substance "could be a turning point for the cannabis industry".

Removing cannabis from List I of the Controlled Substances Act would make it legal in the United States.

"Despite its strong growth and bottom-up momentum, [cannabis] is still a macro story for investors," said Seymour.

It's huge news for a market that didn't expect a licensing deal or federal outcome possibly ahead of the midterm elections, and something that is clearly reflected in the price of cannabis stocks, "he said.

Both U.S. and Canadian cannabis stocks have skyrocketed since Marijuana Moment first announced the existence of the law, with many names including Seymour's CNBS ETF offsetting most of their recent losses.

"They have effectively reset, a sanity check, because as optimistic as the rationale for investing in cannabis is, it has been a very difficult run over the past nine months," said Seymour. "That announcement immediately catapulted the industry significantly higher and maybe reset a lot of those charts.

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

"Sequential growth in the third quarter for many cannabis companies will not be as high as last year, but rather 20-40% growth at a time when the industry is frankly becoming much more demanding," he said.

"These are companies that are finally ... getting so much more sophisticated," he said, highlighting the "operational excellence that comes at a time when ratings still see cannabis as a growth sector very close to the lower end of the sectors, that show enormous growth. "

Between the earnings season, hopes for legalization, possible merger and acquisition activity, and the rolled back ratings, cannabis stocks could continue their climb, he said.

CNBS climbed more than 3% on Thursday. So far this year it has risen by almost 7.5%.