Yes, Democrats are no doubt still celebrating the Joe Biden victory in last week's election, but the marijuana sector may be Tuesday's biggest winner.

Arizona, Montana, New Jersey and South Dakota all passed measures which clear the way for legalized recreational marijuana use, bringing the grand total to 15 states that allow such use.

We know that the marijuana industry has the potential to grow huge. Medical marijuana use has become a bit more mainstream than recreational marijuana, but both are clearly gaining more widespread acceptance. Big markets, such as New York, could be among the next in line to put legalization on the ballot.

The ETFMG Alternative Harvest ETF (MJ), or the Marijuana ETF, is a fund I cover regularly here. The last time I posted a research note, I discussed using MJ as a dividend income option, since securities lending allowed it to deliver a steady 6-7% yield. The developments over the past week clearly make it a growth play.

Marijuana stocks saw huge returns in their early days as investors bet on their growth potential over the next decade and longer. Valuations and share prices have come crashing back down to earth as acceptance has been slow, but many companies, such as Tilray (TLRY), still remain wildly overvalued.

Last week's events, however, changed the narrative.

The overwhelming support for legalized recreational cannabis use has growth investors piling in. A Biden presidency also figures to bullish for further legalized cannabis legislation making the sector look like a good growth bet once again.

sc-1048

Cannabis stocks have sure reacted positively with Aurora Cannabis (ACB) the biggest winner. It got an earnings-related boost, but the biggest gains come as a result of the legal environment. The Marijuana ETF is up more than 27% over the past three days, but the big four names have mostly done much better.

If you're considering buying, I'd be careful about being overbought here. We can see that the sector has trailed off during the early hours on Monday's trading after the initial spike. Many of these companies still have questionable financials, so I'd be weary of getting too overenthusiastic based on the recent spike.

Still, the macro environment for marijuana is much better today than at this point last week. Risk/reward needs to be the focus here as share prices look fairly richly valued after the current rally.