Update #2: This applies only when the resource is set to "Anyone in the domain." When the resource is changed to "Anyone with the link" (ie, public access) it embeds in Canvas.
My guess is that when Canvas reaches into Drive to get the item, Google sees that request as outside the domain. Publishing the item on the Internet allows it to be embedded successfully.
Note also, that this is only present in the Canvas Student iOS app and through Canvas in Safari on iOS. Opening the course through Chrome allows the material to be embedded because of more comprehensive security settings that Safari on iOS ignores. So, publishing without access restrictions really only fixes access through the app or Safari.
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