http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/73295/index.do
Hedges v. The Queen (September 9, 2014 – 2014 TCC 270) is an erudite and fairly esoteric decision which in the end concludes that the sale of medical marihuana is not zero-rated for the purposes of the
Excise Tax Act and therefore subject to GST/HST:
[1] Mr. Hedges grew marihuana and sold it to the British Columbia Compassion Club Society (“BCCCS”) who in turn supplied it to its members. Mr. Hedges did not collect or remit Goods and Services Tax (“GST”) on his sales of the marihuana, agreed to be $110,732 in 2007, $114,016 in 2008, and $86,698 in 2009. Mr. Hedges was reassessed $14,968.43 (including interest and penalties) for not doing so. The issue in this Appeal is whether the marihuana sold by Mr. Hedges to the BCCCS was a zero-rated supply pursuant to Schedule VI‑I‑2(d) of the
Excise Tax Act (the “
Act”). It reads:
Schedule VI – Zero-Rated Supplies
2. A supply of any of the following drugs or substances:
d) a drug that contains a substance included in the schedule to the Narcotic Control Regulations, other than a drug or mixture of drugs that may be sold to a consumer without a prescription pursuant to the
Controlled Drugs Substances Act or regulations made under that Act.
For supplies made after February 26, 2008 this provision was amended slightly to read:
d) a drug that contains a substances included in the schedule to the Narcotic Control Regulations other than a drug or mixture of drugs that may, pursuant to the
Controlled Drugs and Substances Act or regulations made under that Act, be sold to a consumer with neither a prescription nor an exemption by the Minister of Health in respect of the sale.
[2] There is no dispute with respect to the amounts of the GST assessments.
[3] Evidence in the trial focused on the issue of whether Mr. Hedges’ marihuana, which he labelled Po-Chi (after his dog) was a drug. This requires some clarification, as no doubt the person on the street would be perplexed to hear that marihuana is not a drug. The Respondent acknowledges that under the federal
Food and Drugs Act (“
FDA”) definition of marihuana, it may well be considered a drug. Yet, argues the Respondent, it is not a drug for purposes of the Act, given the interplay between the regulatory regime governing drugs and medical marihuana. …
It should be noted that the marihuana in question was to be purchased by the ultimate consumer by means of an Authorization to Possess (“ATP”) issued pursuant the Marihuana Medical Access Regulations (“MMARs”). The nub of the issue before the court was how ATPs and the MMARs interacted with the definition of zero-rated supplies.
The decision contains a detailed analysis of the facts and the relevant legislation but ultimately concludes that ATPs are neither prescriptions nor exemptions from the Minister of Health, with the result that the medical marihuana in question was not zero-rated:
[97] As is often the case, where statutes or regulations that arise subsequent to other pertinent legislation are to be interpreted in the context of that earlier legislation, there can be an awkwardness to the interpretation. That is what I am faced with. While I have found the term “drug” in the opening part of Schedule VI‑I‑2(d) of the Act can only be interpreted to include dried marihuana, this conclusion, given the ongoing evolution of marihuana-related legislation, renders the exclusionary clause (ie. beginning with “other than” in Schedule VI‑I‑2(d) of the Act) somewhat oblique in its application to dried marihuana.
[98] Appellant’s counsel have raised strong and thought provoking arguments for an interpretation resulting in dried marihuana being zero-rated but, with respect, they have lost sight of the forest for the trees. This was most apparent to me in their argument that the exclusion in Schedule VI‑I‑2(d) of the Act was an exclusion of over-the-counter drugs. 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.
[99] The legislation has twisted itself out of shape by requiring the sale to a consumer pursuant to the
Controlled Drugs and Substances Act regulations, being the MMARs, without prescription or exemption. It contemplates only lawfully managed drugs. And if a lawfully managed drug can be acquired without prescription (which I have determined dried marihuana can be by ATP) then it is not zero‑rated. And if it is not zero-rated, then dried marihuana that is not subject to the Controlled Drugs and Substances Act regulations cannot be zero-rated. It would be a nonsensical result otherwise. As I have intimated earlier in these Reasons, this area of legislation needs work. If the Government intends that all sales of dried marihuana are to be zero-rated, say so clearly. If the Government intends that all sales of dried marihuana are to be subject to GST, say so clearly. If the Government intends to have dried marihuana as a prescribed drug and only dried marihuana obtained by a prescription is to be zero-rated, say so clearly.
[100] There is understandable confusion in the industry on this point. My conclusion is clear – dried marihuana sold by Mr. Hedges is not zero-rated. I cannot say, however, with a great deal of enthusiasm, that I have clarified the legislation itself: there remain gaps and inconsistencies. Regrettably, that is the nature of this legislative beast.
As a result the appeal was dismissed and the parties were given until October 31, 2014 to make written submissions as to costs.