Cannabis Stocks in a Post-Schedule 3 Era: Canopy Growth and Aurora Cannabis in a Changing Regulatory Landscape

The rescheduling of cannabis from Schedule I to Schedule III under the Controlled Substances Act in December 2025 marks a pivotal shift for the U.S. cannabis industry. While this reclassification does not fully legalize marijuana, it removes significant regulatory barriers, including the IRS's Section 280E tax restrictions, which previously denied cannabis businesses deductions for ordinary expenses like payroll and rent. For companies like Canopy Growth and Aurora Cannabis, this development offers a lifeline to improve cash flow and profitability, but it also raises critical questions about their long-term viability amid persistent operational challenges and regulatory uncertainties.

Regulatory Progress: A Catalyst for Industry Transformation

President Trump's executive order to expedite rescheduling has already triggered a surge in investor optimism. The move aligns with a 2023 recommendation from the Department of Health and Human Services (HHS) that recognized cannabis's accepted medical use and lower abuse potential compared to Schedule I substances. This reclassification is expected to streamline research, facilitate FDA-approved trials, and ease access to banking services for legal operators. However, the absence of federal legalization for recreational use and unresolved interstate commerce restrictions mean that companies must still navigate a fragmented regulatory landscape.

For Canopy Growth, the removal of 280E penalties could generate annual savings of $50–70 million, enabling reinvestment in U.S. market expansion and pharmaceutical-grade product development. Aurora Cannabis, meanwhile, has leveraged its leaner operational structure and debt-free balance sheet to focus on high-margin medical cannabis exports, particularly in Europe and Australia according to its latest results. Both companies are positioning themselves to capitalize on the new regulatory environment, but their success will depend on their ability to adapt to evolving compliance requirements and competitive pressures.

Operational Challenges: Debt, Competition, and Regulatory Hurdles

Despite regulatory progress, Canopy Growth and Aurora Cannabis face significant operational headwinds. Canopy's financial performance in 2025 has been mixed: while it achieved profitability in Canadian medical sales and reduced total debt by $293 million, its global revenue declined by 15% over three years, and it reported a negative profit margin of 147%. The company's recent acquisition of MTL Cannabis for C$125 million aims to bolster its market presence, but it must contend with intense competition from firms like Vireo Growth, which expanded its footprint through the Eaze acquisition.

Aurora Cannabis, on the other hand, has made strides in reducing debt and achieving free cash flow positivity, with a 141.9 million in cash reserves. Its strategic pivot to medical cannabis has yielded strong results, including a 15% year-over-year increase in global medical revenue to $70.5 million. However, Aurora's U.S. market entry remains cautious, as it awaits clarity on federal regulations to avoid risks to its NASDAQ listing. The company's international expansion also faces hurdles, including inconsistent regulatory standards and competition from established players like Tilray according to industry analysis.

Strategic Adaptations: Navigating a Fragmented Market

Both companies are adopting strategies to mitigate risks in a post-Schedule III landscape. Canopy Growth is prioritizing FDA-approved trials and leveraging its global distribution network to access international markets. Aurora Cannabis has focused on EU-GMP-certified facilities in Canada and Denmark to meet stringent international compliance standards according to industry reports. These moves highlight their recognition of the need for regulatory agility in a sector still grappling with fragmented state laws and federal ambiguity as noted in industry analysis.

However, banking challenges persist. While rescheduling may improve access to financial services, major banks remain hesitant to work with cannabis companies due to residual federal risks. This limits capital availability and constrains growth opportunities, particularly for smaller operators. For Canopy and Aurora, securing institutional investment will require demonstrating consistent profitability and operational discipline-a challenge given their recent financial struggles.

Investor Implications: Balancing Optimism and Caution

The rescheduling of cannabis to Schedule III has already driven stock price gains for companies like Canopy Growth and Aurora Cannabis, with European markets showing particular enthusiasm. Analysts project a 25% upside in stock value for firms that can effectively leverage the new regulatory framework. However, these gains must be weighed against ongoing uncertainties.

For instance, the absence of federal legalization means that interstate commerce remains prohibited, and state-level regulatory conflicts persist. Additionally, the rescheduling does not address public health concerns, such as the need for standardized product labeling and research into long-term effects on adolescents. Investors must also consider the risk of legal challenges to the rescheduling process, which could delay implementation.

Conclusion: A Path Forward in a Transformed Industry

The rescheduling of cannabis to Schedule III represents a historic milestone, but it is not a panacea. For Canopy Growth and Aurora Cannabis, the path to long-term viability hinges on their ability to navigate regulatory complexities, manage debt, and differentiate themselves in a competitive market. While the removal of 280E penalties and improved access to research funding are positive developments, the absence of federal legalization and banking clarity means that challenges remain.

Investors should monitor these companies' progress in reducing costs, expanding into high-margin markets, and securing institutional partnerships. Those that demonstrate resilience in the face of regulatory and operational headwinds-while capitalizing on the opportunities created by the rescheduling-may emerge as leaders in a rapidly evolving industry.