Pot-club operator is happy to pay taxes
By Les Leyne, Times ColonistSeptember 18, 2012
Ted Smith is the happiest new taxpayer you can imagine. The longtime marijuana advocate was only too happy to go public recently with news that the Canada Revenue Agency has sent him a demand note for about $150,000 in back taxes.
That's based on just the last few months of operation of the long-running pot-buying club Smith runs for the benefit of people with various medical afflictions.
"In many ways this is a wonderful thing that's happened," he told reporters at a news conference. "Paying taxes - has been my dream since the beginning," he said.
Few recipients of demand notes from the tax collector talk like that. His enthusiasm obviously stems from the fact that paying taxes further legitimizes the club and is another step down the road toward decriminalizing marijuana.
And there's not much doubt that the finance arms of most governments would be as happy to tax Smith as he is to pay the taxes. Because the financial numbers he referred to - backed up by findings in an earlier court case - are startling.
The rundown little storefront on Johnson Street is doing a booming business. Smith estimated he's averaging $6,000 a day running it on what a judge earlier commented was a very casual basis.
If you wander around downtown looking at the retail landscape, you can count on one hand the number of small shops where they can boast that kind of cash flow. Smith told reporters the club brought in $250,000 in July.
Police have been sporadically busting the club's operations for years, but it doesn't seem to make much of a dent in the enterprise. A takedown of the club's bakery a few years ago resulted in the case where the glimpse of the financial picture was provided.
They knocked on an apartment door on View Street in 2009 and found a bachelor suite had been converted into a cannabis bakery. The baker worked directly for Smith and was paid between $10 and $13 an hour.
The eventual court decision by Justice Robert Johnston last spring noted: "Smith buys marijuana in pound quantities and pays employees, like the accused - to render between five and 10 per cent of the dried marijuana into other forms like cookies, oils, capsules and ointments. The bulk of the dried marijuana is packaged and sold through the store openly operated by the club in downtown Victoria."
The decision noted that Smith estimated the store - open seven days a week - generated revenue of $6,000 to $6,500 a day.
"Mr. Smith aims for a profit margin of between 20 per cent 25 per cent," said the decision.
Neither the club nor the store keep records and the society maintains only minimal records, said the judge.
So where the money goes is anyone's guess. Johnston's decision found that a non-profit society "is involved somehow," but "it appears that the club is a sole proprietorship wholly owned by Mr. Ted Smith."
Smith, who said he pulls down only about $24,000 a year from the store, said he will be rejigging the operation to turn it over to a society.
The key observation in the decision from last spring is that "neither the store nor the club collects or remits HST, nor does the business pay income taxes."
It looks as if the CRA can read court decisions just like everyone else. When the club's revenues came to light, it apparently sparked the demand for back taxes.
The bulk of the decision revolved around constitutional arguments over the difference between marijuana dried for smoking - the form stipulated under the current medical-marijuana regime - and pot processed into cookies and oils. The judge found the different treatment unconstitutional and gave the federal government a year to respond.
Whatever government lawyers make of cookies versus joints, it's clear the finance ministry has dollar signs in its eyes.
Imagine the provincial finance ministry, which just disclosed a billion-dollar hole in the books because of a natural-gas slump, learning of a multimillion-dollar business that is eager to start paying taxes.
It's just a taste of what's to come, eventually. Watch the municipal convention next week for another development, when the Union of B.C.
Municipalities debates decriminalization. A resolution from Metchosin urges decriminalization, and research on the regulation and taxation of pot, and it's apparently going to be duly considered.
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