Schellenberg played an "important role" in drug smuggling and was potentially involved in worldwide organised drug trafficking activities, said the court, and passed his case back to the lower Dalian court for a retrial without specifying a date.
Canada's government said this week it had been following the case for several years and providing consular assistance, but could provide no other details, citing privacy concerns.
A Chinese court said Saturday that a 15-year jail sentence for a Canadian national charged with drug smuggling was too "lenient" and remanded his case for a retrial.
China detained Michael Kovrig and Michael Spavor separately after Canada arrested Sabrina Meng Wanzhou, CFO for the Chinese technology company Huawei, in Vancouver on December 1, for possible extradition to the US.
Since her arrest, multiple Canadian citizens have been detained in China, even as both governments refused to link the cases.
At the appeal hearing, prosecutors said the sentence was too light and improper, arguing Schellenberg was very likely to have been part of a worldwide drugs smuggling operation and had played a major role in smuggling the drugs.
China severely punishes those caught smuggling or trafficking drugs, including foreigners.
Her arrest was announced shortly after the detention of two other Canadian nationals - former diplomat Michael Kovrig, employed by think tank International Crisis Group, and Michael Spavor, a consultant on North Korea.
According to previous reporting from Global News, McIver received an administrative penalty for illegal employment, Foreign Ministry spokeswoman Hua Chunying said at a daily news briefing.
Teacher Sarah McIver, from Alberta, was held for "unlawfully working in China".
She is wanted in the United States on allegations she lied to American banks as part of an effort to get around sanctions on Iran.
The official website of the court released a statement on Wednesday saying the court will accept the appeal of the defendant Schellenberg at 2pm local time Saturday. Meng has said she is innocent.