Canopy Growth Corporation (CGC) shares extended their rally after the House Judiciary Committee voted to decriminalize marijuana on a federal level. The Marijuana Opportunity Reinvestment and Expungement Act would decriminalize marijuana, expunge prior marijuana convictions, and establish a 5% sales tax on marijuana products to help former marijuana felons.

At the same time, Bank of America analyst Christopher Carey upgraded Canopy Growth stock to Buy with a C$24 price target. The analyst notes that the stock fell nearly 40% since his downgrade two months ago and believes that the bad news has been priced into Canopy shares. He further believes that estimates have become achievable or "even beatable" as inventories became leaner.

The move comes after the stock has fallen about 70% from its highs due to slower-than-expected sales in Canada. Many investors were forced to revisit their lofty valuations for the sector following the drop-off in sales, but the subsequent decline in price may have created some opportunities.

Chart showing the share price performance of Canopy Growth Corporation (CGC)

From a technical standpoint, Canopy Growth stock extended its rally toward the 50-day moving average at $21.46, but it remains below the upper end of its price channel dating back to October. The relative strength index (RSI) moved back toward neutral territory with a reading of 53.84, but the moving average convergence divergence (MACD) experienced the start of a bullish crossover that could signal greater upside ahead.

Traders should watch for a breakout from upper trendline resistance and/or the 50-day moving average toward prior highs of around $28.00 over the coming sessions. If the stock breaks lower, traders could see a move to retest lows near $12.00 before another rally, although that scenario appears less likely to occur given the recent fundamental and technical strength.

The author holds no position in the stock(s) mentioned except through passively managed index funds.