The 23-year-old was placed on waivers by Montreal on Monday in order to be assigned to the Hamilton Bulldogs of the American Hockey League. Palushaj had been cleared by doctors to return from a left shoulder injury.
The speedy winger had one goal and four assists in 38 games for the Canadiens last season. He had seven goals and three assists in 21 games for Hamilton before his injury this season.
The five-foot-11 187-pound Palushaj thanked the Canadiens on Twitter and said he was "very happy and excited" to join the Avalanche.
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