By Mrinalika Roy and Christy Santhosh

April 23 (Reuters) - Shares of cannabis firms reversed early gains on Thursday as investors took a closer look at the limited scope of the U.S. government's move to reclassify the FDA-approved and state-licensed marijuana as a less-dangerous drug.

Cronos Group, Aurora Cannabis, Canopy Growth, Tilray Brands slumped between 6% and 10% in afternoon trading.

Shares of these companies had surged after Acting Attorney General Todd Blanche in an X post said the Department of Justice was "immediately rescheduling FDA-approved marijuana and state-licensed marijuana from Schedule I to Schedule III." The department is also initiating an expedited hearing to consider the broader rescheduling of marijuana.

But industry participants said the move stops short of a sweeping reclassification.

The order applies specifically to FDA-approved cannabis drugs and products operating under state medical marijuana frameworks, rather than the broader market, creating uneven benefits across the sector, FundCanna CEO Adam Stettner said.

Medical operators could see clearer federal alignment and potential tax relief, he said, while companies focused on adult-use markets remain subject to existing restrictions, including limited access to capital and regulatory fragmentation.

Policy advocates also cautioned that the shift, while significant, does little to resolve longstanding structural issues.

The rescheduling would mark an acknowledgment of cannabis medical use "is a step in the right direction, (but) not a solution", Betty Aldworth, chair of the Marijuana Policy Project, said, noting it does not address conflicts between the federal and state law or broader legal and financial barriers facing the industry.

Still, overall the sector applauded the decision.

"Rescheduling has the potential to accelerate clinical research, broaden access and elevate the quality, consistency, and safety standards that establish medical cannabis as a legitimate pillar of modern healthcare," Tilray CEO Irwin Simon said in a statement.

Cannabis firms will also no longer be subject to Section 280E, a provision of the U.S. federal tax that prevents businesses dealing in Schedule I- and II-controlled substances from claiming tax credits and deductions for business expenses.

The decision could also ease access to funding as federal restrictions have long kept most banks and institutional investors on the sidelines, forcing cannabis producers to rely on costly loans or alternative lenders.