B.C. judge allows cannabis 'fire sale' to stave off CRA destruction threat

A British Columbia Supreme Court judge has approved the bulk 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 ahead with a hasty sale of its remaining inventory of cannabis flower after the CRA planned to destroy the product at its facility in Maple Ridge, B.C. 

The agency had earlier declined to renew the company's excise tax licence due to financial difficulties, which saw Tantalus shed the bulk of its employees at the end of June due to looming insolvency. 

Without the licence, the company would've been unable to sell its remaining inventory and potentially recover more for creditors, including its main lender and the CRA itself. 

As the date of its licence expiry approached, the company had to go to court for approval of the sale of its remaining inventory on what bankruptcy trustee Ernst & Young called a "fire sale basis."

Court documents say the company has more than $14 million in debt, mostly to lender Sungrown Mortgage Corp. and the CRA, and the company was forced to enter insolvency and sell off its remaining inventory under threat of destruction. 

Justice Shelley Fitzpatrick allowed the sale to move forward, but said in her ruling that the circumstances were "unusual" since Tantalus had only filed its insolvency notice less than two weeks before landing in court. 

Fitzpatrick's ruling said the "fire sale" circumstances were unfortunate, arising "somewhat inexplicably from the position of CRA, and CRA’s threat to enter Tantalus’ premises and destroy the inventory and/or its value."

In its report on Tantalus tied to the insolvency, Ernst & Young said an "orderly" sale of the company's remaining product could fetch around $2 million, while a fire sale would net about $300,000. 

Had the CRA renewed the company's licence, an orderly sale would've benefited the agency itself "as a result of the increased tax revenues rather than the reduced proceeds anticipated to be received in a forced liquidation or fire sale scenario," Ernst & Young's report said.

Tantalus CEO Dan Sutton said Wednesday that many cannabis companies are struggling under the weight of regulatory and tax burdens placed on the industry. 

Sutton said he couldn't reveal too much since the insolvency process is still ongoing, but called the CRA's actions "peculiar" because it would've benefited as a creditor had it granted 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 requirements on top of payroll tax and GST payments in the Canadian cannabis industry."

The CRA, he said, seems to have changed its tune at the beginning of the year and has stepped up efforts to recoup back taxes owed "with a more aggressive tone than it has historically."

Sutton said the ordeal has been "disappointing for everyone," including the city 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 are suffering under this grossly miscalculated excise tax, will become a lesson to the federal government to amend these regulations," he said. "It doesn't seem to be a business that, or rather, a regulatory environment that validates small business participation at this time. (It's) super troubling."

The CRA did not immediately respond to requests for comment.