New Jersey Governor Phil Murphy speaks after taking the oath of office in Trenton, New Jersey, January 16, 2018. Lucas Jackson | Reuters

Shares of major cannabis companies rallied Tuesday after New Jersey politicians outlined plans to legalize the adult use of recreational marijuana in the state. Several New Jersey legislators joined Democratic Governor Phil Murphy in announcing Tuesday a bill that would allow adult-use marijuana in the Garden State. The legislation would also allow municipalities that are home to a cultivator or manufacturer to collect the revenue from a 2 percent tax on the product within their jurisdiction. "Legalizing adult-use marijuana is a monumental step to reducing disparities in our criminal justice system," Murphy said in a press release. "After months of hard work and thoughtful negotiations, I'm thrilled to announce an agreement with my partners in the Legislature on the broad outlines of adult-use marijuana legislation."

If the bill is passed and signed into law, the New Jersey adult-use marijuana market would be governed by a Cannabis Regulatory Commission, composed of five members appointed by the governor. The commission will be tasked with promoting regulations to govern the industry and will oversee applications for licensing. Growing cannabis also would be subject to an excise tax of $42 per ounce and municipalities that are home to a cultivator or manufacturer will receive the revenue from a 2 percent tax. Cities and townships home to a retailer would receive the revenue from a 3 percent tax on products sold. Many of the largest cannabis companies in the world rallied Tuesday following the announcement from the Democratic governor, including a number of Canadian growers. Cronos Group rallied 4.5 percent, Canopy Growth gained 3.7 percent, Tilray added 3.4 percent and Aurora rose 2.6 percent. Nine of the top 10 holdings of the $1.1 billion ETFMG Alternative Harvest ETF — a fund that tracks the equity performance of many companies that legally cultivate cannabis — gained in midday trading Tuesday.

Kevin Murphy, CEO of Acreage Holdings. Adam Jeffery | CNBC