Appeal Loss Means Tax Must be Paid on Medical Cannabis

A decision last week from the Federal Court of Appeal made it clear that medical cannabis providers must pay tax.

The court held a previous decision from Justice Campbell J. Miller in 2014 that looked at the case of Gerry Hedges, a cannabis grower for the British Columbia Compassion Club Society who was assessed as owing close to $15,000 in unpaid taxes for the sale of his product.

The compassion club and the courts began a lengthy legal battle over whether medical cannabis should be exempt from taxation similar to other prescription drugs.

BC Compassion Club Society founder Hilary Black said the case boiled down to medical cannabis being a necessity that should be taxed as such.

“Our trial court judge agreed with our facts of finding, agreed with all of our witnesses, our experts but in the end said ‘the legislation needs to be clarified,’ and ruled against us, so we appealed it and we really thought we were going to win the appeal,” said Black.

Black said instead of paying GST from the beginning of operation, the club received legal advice that patients and growers shouldn’t be paying tax on a medical necessity.

“We architected the tax case in a way that it wouldn’t just apply to the grower at hand and our compassion club, it would apply to all growers and distributors and users of medical cannabis,” said Black.

The case has cost an estimated $250,000, and, while some of that money came from donations from other organization, the majority was funded by the compassion club, who Black said is funded by the donations of patients.

Licensed cannabis producer Bedrocan Canada president Marc Wayne said his organization helped fund the court case and was disappointed the appeal wasn’t more favourable to the medical marijuana industry. Bedrocan is now spearheading a letter writing campaign to the federal government around taxation of medical cannabis.

“We want to keep it front and centre on the mind of the finance department that one way to distinguish between medical users and recreational users is to be able to offer zero rate of tax on medical cannabis,” said Wayne.

With the decision made, Black said she expects the Canadian Revenue Agency will be taking a close look at dispensaries and growers across the country.

Chartered accountant and president of Jade Maple Chris Horlacher said the result is another example of the tax system placing procedure above results.

“The BCCCS will pay the HST to Mr. Hedges, who will remit it to the government. The money will then be returned to the BCCCS when it files for its input tax credits. Other than the timing of cash flows and paperwork nothing has really changed because of the ruling,” said Horlacher

Horlacher said he found the government’s treatment of cannabis operations conflicting, while they insist they pay taxes, while at the same time condemn dispensaries and their suppliers as illegal.

With the appeal lost, Black said the BC Compassion Club has no plans to take the case further.

“We’re not going to try and get leave and go to the Supreme Court because it’s way too expensive, the compassion club has been saving for this fight for 18 years,” she said. “It’s a devastating loss and I’m really surprised and I’ve really lost faith in the system.”