Shares of Canopy Growth entered the new trading week with notable volatility following a significant pullback. This movement comes after a historic regulatory announcement from Washington, which initially fueled a substantial rally. The core issue revolves around a potential tax relief for the industry, though short-term trading has been dominated by profit-taking.
- Stock declined 12.4% on Friday to $1.48
- Preceding rally of approximately 90% since late November
- Process initiated to reclassify cannabis from Schedule I to Schedule III
- Removal of 280E tax rules could significantly enhance profitability
- Analysts acknowledge structural tailwinds but note timing uncertainty
Immediate Correction Follows Policy Milestone
The recent price action was triggered by confirmation that U.S. President Donald Trump signed an executive order on Thursday to reschedule marijuana under federal law. The move would shift cannabis from Schedule I to Schedule III within the Controlled Substances Act. While this represents a clear long-term structural advantage for the sector, the immediate market reaction on Friday was negative.
Canopy Growth’s equity had surged roughly 90% in anticipation of this news from the end of November onward. Upon the official confirmation, pronounced profit-taking emerged. Trading on Friday opened with extreme volatility, with consistent selling pressure throughout the session. The closing price of $1.48 was near the daily low of $1.46.
Competitors also experienced this “sell the news” dynamic. Tilray Brands ended the week down 7.4%. The leveraged cannabis ETF MSOX corrected by 50.6% after gaining over 54% in prior sessions.
Tax Rule Change as Primary Financial Catalyst
The central financial implication of the rescheduling is the anticipated elimination of the IRC Section 280E tax rule. Currently, U.S. cannabis companies cannot deduct standard business expenses, a major drag on profitability.
For Canopy Growth, which reported a narrowed adjusted EBITDA loss of just CAD 3.0 million for Q2 fiscal 2026 (ended September 30, 2025), this change could accelerate the path to positive cash flow. The structural earnings potential would be markedly improved through deductible operating costs.
Financial Performance and Strategic Moves
Alongside the regulatory development, Canopy continues to advance its asset-light strategy to strengthen its balance sheet. Recent reports indicate the acquisition of MTL Cannabis is progressing, with the deal volume estimated between $125 million and $179 million. The goal is enhanced positioning in the Canadian market and an expanded product portfolio.
The company’s Q2 fiscal 2026 revenue reached approximately $67 million. On a trailing twelve-month (TTM) basis, revenue totals $278.61 million. Distinguishing between quarterly and TTM figures is important, as earlier comparisons sometimes conflated these metrics. Despite ongoing net losses, the focus remains on improved revenue mix and cost discipline as central pillars of the planned turnaround.
Should investors sell immediately? Or is it worth buying Canopy Growth?
Market researchers generally view the long-term impact of rescheduling positively. Roth MKM reaffirmed its buy rating, assessing the U.S. government’s step as a fundamental structural improvement for the sector, even if implementation may span several months.
Trading Patterns and Balance Sheet Position
Friday’s decline fits a familiar pattern within the cannabis sector: optimistic expectations around regulatory milestones often fuel strong rallies, which then correct significantly after the actual event. The 12.4% drop contrasts with an upward move of 13–14% in the ten preceding days.
Attention now shifts to the timeline between the executive order and full implementation. Critics, including the Manhattan Institute, note that while the measure will improve corporate finances via tax relief, it does not resolve broader societal policy questions. For Canopy, the focus moves from speculation to execution—specifically, how quickly the tax effects translate into reduced losses and better margins.
Financially, the company currently holds a liquidity position of about CAD 298 million. It also recently repaid $50 million in term loans to reduce interest expenses.
Market Outlook and Technical Levels
As trading begins this week, technical analysts are closely watching the $1.46 level, Friday’s intraday low. A break below this point could signal a continuation of the consolidation phase, while stabilization above it might be interpreted as a potential entry opportunity following the correction.
Further catalysts may emerge from the political and legal processes accompanying the executive order. Potential legal challenges or delays in the administrative procedure for final rescheduling could dampen expectations. With no immediate quarterly report due—the next update will likely cover the Christmas quarter—price movements are expected to depend largely on sector sentiment and the performance of relevant ETFs.
Wall Street consensus currently centers on a “hold” rating, with an average price target suggesting further upside potential, provided the regulatory tailwinds materialize into measurable earnings improvements during 2026.
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