Canopy Growth was fined nearly half a million dollars by the CRA

Ontario-based cannabis company Canopy Growth faces a $500,000 fine from Canada’s Internal Revenue Service. The CRA claims the company started producing outdoor plants in 2020 without being licensed to do so. Canopy is appealing the $434,611 fine in federal court, arguing they have all the required paperwork in order.

To keep up with demand for legalization, the company formed a subsidiary in early 2019 and applied to Health Canada for an outdoor farm. Health Canada delayed its response and finally granted approval in June of the same year.

Growing cannabis flowers for the medical marijuana market will be on display at OrganiGram on April 14, 2016 in Moncton, NB. THE CANADIAN PRESS/Ron Ward

Nevertheless, Canopy started its “Outdoor Farm” project in the summer of 2019. Under Canadian cannabis laws, one must also apply for a separate cannabis license from the Canada Revenue Agency. The CRA approved Canopy’s license after 30 days.

A year later, the CRA sent Canopy a letter notifying them of the $434,611 fine. They claimed Canopy started growing outdoor cannabis before it received CRA approval.

The CRA fine

The CRA’s fine is based on its estimate of the market value of the 2019 outdoor crop. Canopy alleges the crop was destroyed and nothing from the outdoor farm was put on the market. Canopy also claims that Health Canada’s cannabis license authorized them to grow, and that the CRA license does not prevent them from growing for non-commercial purposes.

The CRA disagrees.

“Receiving and growing vegetative cannabis plants prior to obtaining a cannabis license under the (Excise Tax Act) constitutes a violation of the (Excise Tax Act),” reads an excerpt from a letter sent by the CRA and cited in court documents.

Canopy is appealing the fine.

At least one cannabis legal expert isn’t convinced his appeal will work. “If I had to choose which side of the argument to argue on, I would want to side with the federal government,” Trina Fraser told the National Post.

“You will have a hard time realizing that the phrase ‘cannabis license’ in this section (of the Excise Act) could possibly mean a cannabis license issued by Health Canada,” Fraser said.

“The CRA letter did not contain any conditions, limitations or restrictions with respect to the manufacture of cannabis products,” Canopy argued.

The complaint

In its appeal, Canopy is asking the federal court to either vacate the fine in full or reduce the amount. The company insists it has done nothing illegal.

Both the CRA and Canopy Growth declined to comment as the case is ongoing. However, Canopy has confirmed that the 2019 fine was paid in full to avoid further penalties for late payment.

Between 2019 and 2020, the CRA issued 22 cannabis fines totaling $1.3 million. The CRA would like to remind cannabis growers to await approval from Health Canada and the CRA before beginning cultivation.

The penalty comes at a bad time for Canopy Growth. The company reported a net loss of $115 million in the last quarter of 2021. This is partly due to declining cannabis sales across Canada and increasing competition in the industry.