Canopy Growth's 54% Surge: Is the Marijuana Reclassification a Legitimate Buy Signal?

The recent 54% surge in Canopy Growth (CGC) shares has ignited debate among investors about whether the stock is a viable long-term play. This spike follows speculation that President Donald Trump will reclassify marijuana from Schedule I to Schedule III under the Controlled Substances Act, a move that could reshape the cannabis industry's regulatory and financial landscape. While the potential reclassification offers tantalizing opportunities, investors must weigh these against Canopy Growth's ongoing financial challenges and competitive pressures.

Trump's Schedule III Reclassification: A Game Changer?

According to research, President Trump's anticipated executive order to reclassify marijuana as a Schedule III substance would align it with substances like anabolic steroids and ketamine, acknowledging its accepted medical use while reducing federal oversight. This shift, if enacted, would eliminate the 280E tax provision, which currently bars cannabis businesses from deducting ordinary business expenses. For companies like Canopy Growth, this could translate to dramatic tax savings. For example, a dispensary with $10 million in revenue and $3 million in operating expenses could save up to $630,000 annually in taxes.

The reclassification would also ease access to banking services, which remain restricted for cannabis businesses under federal law. This could reduce reliance on costly private lenders and enable more efficient capital allocation. However, the final authority for rescheduling lies with the Attorney General and the DEA, and Trump has yet to finalize the decision.

Canopy Growth has taken steps to position itself for a post-reclassification era. In late 2025, the company acquired MTL Cannabis, a move expected to expand its cultivation capacity and strengthen its supply of high-quality flower for European medical markets. This acquisition aligns with broader industry trends, as companies prepare for potential regulatory shifts and increased demand for medical cannabis. The deal is projected to yield $10 million in annualized synergies within 18 months.

Despite these strategic moves, Canopy Growth's financial health remains a concern. Its Q4 2025 earnings report highlighted a net loss and a negative operating margin, though the company noted cost reductions and a narrowing adjusted EBITDA loss. The anticipated reclassification could mitigate these challenges by reducing operational hurdles and enabling more favorable tax treatment.

Analyst Perspectives: Optimism vs. Caution

The market's enthusiasm for the reclassification has driven Canopy Growth's stock higher, but analysts remain divided. While some highlight the potential for improved profitability and expanded market access, others caution against overestimating the company's ability to capitalize on these changes.

For instance, analysts have downgraded revenue forecasts for 2026, expecting Canopy Growth to report CA$283.8 million in revenue-well below previous estimates-and continued losses, albeit reduced by 45% to CA$0.68 per share. The average price target has also fallen 20% to CA$2.64, reflecting concerns about the company's financial health and market positioning.

Competitive Landscape and U.S. Market Challenges

Canopy Growth faces stiff competition from U.S.-based multi-state operators (MSOs) like Tilray and Aurora Cannabis, which are better positioned to benefit from U.S.-centric tax and banking reforms. These firms have also seen significant stock gains, with Tilray surging 44% and Aurora Cannabis rising 24% in response to reclassification speculation. While Canopy Growth's Canadian operations provide a stable foundation, its U.S. market presence remains limited, potentially capping its upside in a post-reclassification environment.

Conclusion: A High-Risk, High-Reward Proposition

The potential reclassification of marijuana to Schedule III represents a transformative opportunity for the cannabis industry, particularly for companies like Canopy Growth. However, investors must balance this optimism with the company's historical financial struggles and competitive disadvantages. The removal of 280E and improved access to banking could unlock significant value, but Canopy Growth's ability to execute on these opportunities will depend on its operational efficiency and strategic adaptability.

For now, the stock appears to be a speculative play rather than a conservative investment. Investors with a high risk tolerance and a long-term horizon may find the reclassification-driven rally compelling, but those seeking stability should proceed with caution.