Cannabis stocks are on pace for their first back-to-back quarterly gains in four years, and investors are optimistic the rally has legs as states like New York move to fast-track legalization.

Bloomberg Intelligence’s Global Cannabis Competitive Peers Index has gained 33% so far this year, adding to its 45% surge in the fourth quarter of 2020. That consecutive increase is the first and also the biggest since 2017, before recreational marijuana use was legalized in Canada.

Tilray Inc.’s stock leads the index this quarter, gaining over 170%, while Organigram Holdings Inc. surged over 170% during the same period, aided by a $175 million investment from British American Tobacco Plc. Aphria Inc. has jumped 157%.

The group got a boost from Reddit traders last month, with retail investors piling into U.S.-listed shares of companies like Tilray and Sundial Growers Inc. Sales for the sector were up 13% in the fourth quarter of 2020, according to data compiled from the Innovation Labs Cannabis Index, and quarterly sales are expected to keep rising this year.

Prospects for federal legislation such as the Secure and Fair Enforcement (SAFE) Banking Act, which would allow U.S. banks to work with state-legal cannabis companies, is driving some of the momentum in equities. But state-by-state legalization is the key factor right now, according to Charles Taerk, Chief Executive Officer of Faircourt Asset Management, which acts as an adviser to the cannabis-focused Ninepoint Alternative Health Fund.

“If you really take a look at the state-by-state growth, the total addressable market in the U.S. is growing while we’re waiting for legislation at the federal level,” Taerk said. New York-based Columbia Care Inc. is one of his current top picks.

The U.S. market will likely become a more than $95 billion opportunity longer-term, according to Green Acre Capital, a private cannabis investment fund. State-by-state legalization has allowed multistate operators (MSOs) to establish strong footprints ahead of a federal nod, which would open the “floodgates” for market entrants, said Tyler Stuart, a managing partner at the fund. MSOs should begin to outperform Canadian counterparts that haven’t been able to expand into the U.S. for legal reasons, Stuart said.

Adding to the flurry of states that have legalized recreational and/or medical use, New York is on tap. The state would impose special pot taxes and prepare to license dispensaries under an agreement reached Wednesday by Governor Andrew Cuomo and legislative leaders.

Federal legalization could eventually prove to be a “sell the news” event, but currently “the risks are all to the upside,” Stuart added.

Whatever happens, the sector is likely to remain volatile. The BI cannabis index plunged nearly 90% from mid-September 2018, shortly before Canada’s legal pot debut, until its March 2020 low. The gauge has nearly tripled since then.

“There is no doubt it is a volatile sector from a trading standpoint, but fundamentally the outlook is robust,” Neal Gilmer, Haywood Securities’ head of research in Toronto, told clients in a note. “The global cannabis sector remains in the early innings of its evolution.”

With assistance from Matt Turner.

This article was provided by Bloomberg News.