Courts Still Unsure Whether To Apply GST To Medical Cannabis Growers

The issue of whether to hold medical marijuana to the same tax standard of prescription drugs is currently being played out in the courts.

The legal issue first arose last year with Gerry Hedges, a cannabis grower that produced and sold his product to a B.C. compassion club.

Hedges went to court to be reassessed for not collecting GST on the cannabis he had sold to dispensaries. Hedges, whose Gabriola island operation in B.C. was raided by police in 2010, argued that his product, a strain named Po-chi after his dog, was not subject to the GST because it fell into the category of “zero-rates supplies,” which includes prescription medications.

In the 2014 case, Gerry Hedges v The Queen, the Tax Court of Canada ruled that GST does apply to medical marijuana sales.

Tax Court Justice Campbell Miller reached the decision based on his interpretation that medical cannabis was more similar to easily accessible substances like Tylenol or Advil than prescribed medications.

“Po-chi, I find, is more akin to an over-the-counter drug than a drug acquired by prescription: one has little or no government control, versus significant government control,” Miller said.

In spite of this ruling, Miller conceded that rules around medical cannabis need to be made much more clear.

“There is understandable confusion in the industry on this point,” said Miller. “I cannot… say with a great deal of enthusiasm that I have clarified the legislation itself: there remains gaps and inconsistencies.”

The Canadian Revenue Agency also concurs with the Tax Court that the GST should be applied to medical cannabis, the case has been appealed federally though. 

In September, the CRA announced that medical marijuana patients operating under the government’s system could claim the “amount paid to Health Canada or a designated producer for a person authorized to possess or use the drug for medical purposes” on their taxes.

Owner of several Weeds Glass and Gifts dispensary locations Don Briere said he pays GST on all cannabis sold at his operations – but not PST, as the province exempts medications from the tax.

“I alone have paid over $200,000 in GST on marijuana,” Briere said. “Hundreds of thousands of dollars over the course of time, and we’ll continue to add to that.”

Hedges began growing marijuana in an effort to treat the pain caused by a congenital hip condition, and had five other club members also testify to show how much pain relief they received from using his strain of cannabis.

According to Judge Miller, “As one member put it, it allowed her to get past the pain and live a normal life.”

Hedges’s operation made between $86,000 and $114,000 in sales between 2007-2009. The CRA claimed that Hedges owed $14,968 in uncollected taxes plus interest and penalties.

One of Canada’s foremost experts on GST and HST, attorney David Sherman, disagreed with the interpretation of the Tax Court and the CRA.

“In my view… no GST or HST applies to the sale of medical marijuana. However, this is a technical question of legal interpretation, and the September 2014 decision of the Tax Court of Canada in Gerry Hedges v The Queen could be ruled correct,” wrote Sherman.

Hedges made an appeal with the Federal Court of Appeal which was heard on Nov. 18, but a final decision will not be made until early next year. So, until then, the legal issue will remain in a grey area, but the decision that the court will issue should help growers trying navigate their way through the same regulatory framework in the future.