A British Columbia Supreme Court judge has approved the wholesale sale of more than 1,200 kilograms of cannabis by a company after the Canada Revenue Agency threatened to destroy it.
In a ruling released online this week, the court allowed Tantalus Labs Ltd. to move forward with a hasty sale of remaining inventory of cannabis flowers after CRA planned to destroy the product at its facility in Maple Ridge, B. C.
The agency had previously refused to renew the company’s excise tax license due to financial difficulties, which saw Tantalus lay off most of its employees at the end of June due to impending bankruptcy.
Without the license, the company would not have been able to sell its remaining inventory and potentially recover more to creditors, including its main lender and the CRA itself.
As the expiration date of its license approached, the company had to go to court for approval of the sale of its remaining inventory on what bankruptcy trustee Ernst &Amp; Young called a “fire sale basis”.”
The court documents say the company has more than $ 14 million in debt, mostly to lender Sungrosipn Mortgage Corp. and the CRA, and the company was forced into bankruptcy and sold its remaining inventory under the threat of destruction.
Judge Shelley Fitzpatrick allowed the sale to go ahead, but said in her ruling that the circumstances were “unusual” as Tantalus had only filed its bankruptcy notice less than two weeks before it was due to sit in court.
Fitzpatrick’s ruling said the circumstances of the “fire sale” were unfortunate, rising “once inexplicably from the CRA’s position, and the CRA’s threat to enter Tantalus’ premises and destroy its inventory and/or value.”
In its bankruptcy-related Tantalus report, Ernst & Amp; Young said an “orderly” sale of the company’s remaining product could reach about $ 2 million, while a fire sale would earn about $ 300,000.
If the CRA were to renew the company’s license, an orderly sale would have benefited the agency itself “as a result of increased tax revenue instead of reduced revenue projected to be obtained in a scenario of forced liquidation or fire sale,” Ernst &Amp; Young’s report said.
Tantalus CEO Dan Sutton said on Wednesday that many cannabis companies are struggling under the weight of regulatory and tax burdens placed on the industry.
Sutton said he could not reveal much as the bankruptcy process is still ongoing, but called the CRA’s actions “special” because it would have benefited as a creditor if it had given Tantalus more time.
“The judge was similarly confused,” he said.
Sutton and many others have long complained about what he calls the “extreme and burdensome excise tax demands on payroll taxes and GST payments on the Canadian cannabis industry.”
The CRA, he said, appears to have changed its tune at the beginning of the year and stepped up efforts to recover forced back taxes “with a more aggressive tone than it has historically.”
Sutton said the experience has been” frustrating for everyone,” including the town of Maple Ridge, where Tantalus employed nearly 80 people and hoped to create more jobs in the long term.
“I hope that lessons like Tantalus and many other companies, especially small businesses that suffer under this wrongly calculated excise tax, will become a lesson for the federal government to change these regulations,” he said. “There seems to be a business that, or rather, a regulatory environment that certifies small business participation at this time. (It’s) super disturbing.”
CRA did not immediately respond to requests for comment.
This report by Canadian Press was first published on July 27, 2023.
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