Robert Lloyd Schellenberg, who was originally sentenced to 15 years in prison and a 150,000 yuan ($22,000) forfeiture, could now potentially face the death penalty under China's zero-tolerance drug laws.
His retrial in the northeast city of Dalian comes against the backdrop of the Chinese government's anger over the arrest in Canada of a top executive of telecom giant Huawei last month.
Chinese authorities have since detained two Canadian nationals -- a former diplomat and a business consultant -- on suspicion of endangering national security.
Schellenberg, who was reportedly detained in northeast Liaoning province in 2014, is accused of playing an important role in drug smuggling and of potentially being involved in international organised drug trafficking activities.
He was sentenced to 15 years in prison in November. His appeal backfired as a high court in Liaoning ruled in December that the sentence was too lenient given the severity of his crimes.
There has been little public information from the courts about Schellenberg's case, rights groups say, making it difficult to keep track of it.
"It's clear that Chinese courts are not independent, and by systematic design, courts can be influenced by Communist Party officials," William Nee, China researcher at Amnesty International, told AFP.
Court retrials are rare, said Donald Clarke, a professor at George Washington University specialising in Chinese law, and even rarer are retrials calling for a harsher sentence.
"It is obvious... that Schellenberg's fate will have little to do with his actual guilt or innocence," Clarke added.
"If the Chinese government has an innocent explanation for all the unusual features of this case, I hope it will provide it," he added, "otherwise, I don't know how to understand this case other than as a simple threat."
The Canadian foreign ministry has said it is following the case "very closely" and has provided Schellenberg consular assistance since his arrest.
Beijing has taken the unusual step of inviting selected foreign media to observe the retrial.
Beijing and Ottawa have been locked in a diplomatic tussle since the December 1 arrest of Huawei executive Meng Wanzhou in Vancouver at the request of the United States, where she is accused of fraud related to Iranian sanctions violations.
In what is believed to be a retaliation to Meng's arrest, Chinese authorities detained former diplomat Michael Kovrig, who currently works for a foreign think tank, and businessman Michael Spavor days later.
Beijing has repeatedly denied any diplomatic pressure behind Schellenberg's case.
"You can ask these (critics) which laws the relevant Chinese judicial organs and departments have violated by (ordering a retrial)," foreign ministry spokesman Lu Kang said at a regular press briefing on Friday.
"If no laws have been broken, I hope that these people can stop recklessly suspecting others of politicising legal issues just because they have done so."
China has executed other foreigners for drug-related crimes.
In 2014, a Japanese national sentenced in Dalian was put to death for drug offences, according to Tokyo diplomats and media reports.
A Filipina drug trafficker was executed in 2013, according to the Philippine foreign department, ignoring Manila's request to spare her life.
"Amnesty International is very concerned that Robert Schellenberg may be sentenced to death, particularly as drug-related offences do not meet the threshold of the 'most serious crimes', to which the use of the death penalty must be restricted under international law," Nee said.