Ontario-based cannabis company Canopy Growth is dealing with a $500K fine from the Canada Revenue Agency. The CRA claims the company began its outdoor plant production in 2020 without having the proper licence to do so. Canopy is appealing the $434,611 fine in federal court, arguing they had all the proper paperwork in order.
To keep up with demand post-legalization, the company set up a corporate subsidiary in early 2019 and applied to Health Canada for an outdoor farm. Health Canada delayed their response and finally gave approval in June of that year.
Nevertheless, Canopy launched its “Outdoor Farm” project in the summer of 2019. Under Canada’s cannabis laws, one must also apply for a separate cannabis licence with the Canada Revenue Agency. The CRA approved Canopy’s licence after 30 days.
One year later, the CRA sent Canopy a letter informing them of the $434,611 fine. They claimed Canopy began cultivating outdoor cannabis before receiving CRA approval.
The CRA Fine
The CRA’s fine is based on their estimation of the market value of the 2019 outdoor crop. Canopy claims the crops were destroyed and nothing from the outdoor farm was brought to market. Canopy is also claiming that the Health Canada cannabis licence authorized them to grow and that the CRA licence does not prevent them from cultivating for non-market use.
The CRA disagrees.
“The receipt and cultivation of vegetative cannabis plants prior to obtaining a cannabis licence under the (Excise Act) is a contravention of the (Excise Act),” reads an excerpt of a letter sent by CRA and quoted in court documents.
Canopy is appealing the fine.
At least one cannabis legal expert isn’t convinced their appeal will work. “If I had to pick which side of the argument to argue on, I would be wanting to be on the federal government side of this one,” Trina Fraser told the National Post.
“They’re going to have a hard time establishing that, when you see the phrase ‘cannabis licence’ in that section (of the Excise Act), that it could possibly mean a cannabis licence issued by Health Canada,” Fraser said.
“The CRA Letter contained no conditions, limitations, or restrictions, with respect to the production of cannabis products,” Canopy argued.
In its appeal, Canopy is asking the Federal Court to either cancel the fine entirely or lower its amount. The company insists it did nothing illegal.
Both the CRA and Canopy Growth declined to comment as the case is still ongoing. However, Canopy has confirmed the 2019 fine was paid in full to avoid further penalties with late payment.
Between 2019 and 2020, the CRA has issued 22 cannabis-related fines totalling $1.3 million. The CRA wants to remind cannabis producers that one must wait for both Health Canada and the CRA’s approval before beginning cultivation.
The fine comes at a bad time for Canopy Growth. The company reported a $115 million net loss in the last quarter of 2021. Falling cannabis sales across Canada are partly to blame, as well as increased competition in the industry.