Canopy Growth Shares Face Market Correction After Regulatory Hype

The initial investor excitement surrounding the potential reclassification of cannabis in the United States has given way to a sobering market reaction. Canopy Growth's equity, which had surged approximately 90% since late November in anticipation of regulatory news, is now experiencing a significant pullback. This shift exemplifies the classic trading adage of "buy the rumor, sell the news," as shareholders aggressively take profits following the official announcement.

The stock declined an additional 3.8% during Friday's session, building on a nearly 12% drop recorded on Thursday. Despite this recent downturn, the shares maintain a net gain of roughly 50% compared to their level before the initial speculation began. The catalyst for the reversal was the signing of an executive order directing federal agencies to accelerate the review of marijuana's status.

Market analysts point to a gap between investor expectations and bureaucratic reality as the core reason for the sell-off. According to observers like Frederico Gomes of ATB Capital Markets, many market participants had speculated on immediate effects. However, the executive order merely instructs the Attorney General to finalize the process of moving cannabis from Schedule I (alongside substances like heroin) to Schedule III.

While such a rescheduling would eliminate the crippling tax burden imposed by IRS Section 280E and ease access to capital markets, experts project an implementation timeline of 12 to 18 months. Furthermore, the absence of specific provisions for cannabis banking disappointed investors who had hoped for quicker financial relief for the sector.

Should investors sell immediately? Or is it worth buying Canopy Growth?

Underlying Business Shows Operational Improvements

Amidst the regulatory volatility, Canopy Growth continues to navigate fundamental challenges while demonstrating some operational progress. The company's adjusted EBITDA loss narrowed to $3 million in its most recent quarter. Its balance sheet appears robust, with liquid assets of approximately $298 million exceeding debt obligations by $70 million.

The company is also reporting growth in its domestic Canadian market:
* Adult-use cannabis revenue increased by 30% year-over-year in the second quarter of fiscal 2026.
* Medical cannabis revenue grew by 17%.
* The planned acquisition of MTL Cannabis for about 179 million CAD is intended to further solidify its market position.

Wall Street maintains a cautious stance. The average analyst rating sits at "Hold," with a price target near $2.62. The broad sector decline, which also affected competitors like Tilray (-4.2%) and Aurora Cannabis (-3.4%), suggests capital may be rotating toward U.S. operators that could benefit more directly from domestic regulatory changes. The long-term execution of the reform now stands as the critical factor for the stock's future trajectory.