Canada’s tax agency getting more aggressive with cannabis excise debts

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Image of the outside of the Canada Revenue Agency headquarters

The Canadian federal government’s revenue service is ramping up pressure on cannabis producers with outstanding excise debt, MJBizDaily has learned, adding more pressure on companies that already are struggling financially.

The Canada Revenue Agency (CRA) is said to be raising the possibility of garnishment, liens on plant property and equipment, and legal action.

Excise payment debts have soared in recent years, as cannabis producers suffer from a combination of industry-wide overproduction, which is driving down prices, and high taxes at various levels of government.

Cannabis producers pay the excise duties, which are levied on a variety of products.

Roughly two-thirds of cannabis businesses regulated by the federal government had an excise deficit owed to the CRA as of September 2022 – the halfway point for the federal government’s fiscal year ended March 31, 2023.

In total, 172 licensed producers had a deficit totaling nearly 100 million Canadian dollars ($72.4 million).

MJBizDaily reported earlier this week that, in the 2021-22 financial year, various levels of the Canadian government collected CA$1.5 billion in cannabis taxes and profits out of the industry’s CA$4 billion in consumer sales.

The total duty assessed on cannabis producers by the CRA swelled to CA$752.5 million in 2021-22, up 46% from the previous fiscal year, when the federal government pulled in CA$514 million.

Governmental action

As tax bills go unpaid, the CRA is ramping up pressure.

One letter that the agency sent to a licensed producer used the subject line: “Legal warning about your cannabis duty debt.”

The revenue service warned the business: “If you do not pay the full amount or respond to this letter within 14 days, we may enforce Cannabis Duty provisions of the Excise Act, 2001 without further notice.”

The company requested anonymity, fearing that any publicity could jeopardize talks with the CRA.

The cannabis duty provisions of the Excise Act cited by the CRA are considered serious.

According to the law, “If a corporation fails to pay any duty or interest as and when required under this Act, the directors of the corporation at the time it was required to pay the duty or interest are jointly and severally or solidarily liable, together with the corporation, to pay the duty or interest and any interest that is payable on the duty or interest under this Act.”

Possible fallout

“As I understand, CRA have asserted their right to garnish government payables, impose liens on plant property and equipment, and pursue legal action to compel payment by court order,” Dan Sutton, CEO of British Columbia-based cannabis producer Tantalus Labs, told MJBizDaily via email.

“These sanctions have been described to several LPs, although it is unclear if any have actually been levied to this point.”

Another cannabis executive who requested anonymity warned that a more aggressive CRA could push companies into insolvency.

“It just depends on how aggressive the CRA is going to be,” the executive said.

“If they revoke (a company’s) CRA license, then they can’t sell goods into the consumer market. For those who are really behind, it could put them on the edge of CCAA (Companies’ Creditors Arrangement Act – Canada’s insolvency law).”

George Smitherman, CEO of the industry group Cannabis Council of Canada, said the CRA is getting more aggressive in various ways.

“I think it’s an offshoot of the issues management problem that the Trudeau government faces with an excise tax that’s ill conceived,” he said.

“In a certain sense, at all levels in Ottawa, they recognize the dilemma they have, which is that a very large proportion of (cannabis) CRA license holders can’t keep up with their bills.”

“While we hope that recognition (of the excise debt problem) is going to lead to real action to fix the excise, rather than just the words we’ve heard so far, in the meantime we are faced with the gnarly face of collections,” he said.

“No one is profitable.”

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.