In an application scheduled for April 29, 2025, an Alberta Court will hear arguments on whether the directors of Freedom Cannabis will be held liable pursuant to section 5.1 of the CCAA.

In a Minister’s Brief on March 20, 2025, a representative with the Department of Justice of Canada was directed to preserve their ability to pursue directors’ liability assessments against the directors of Freedom Cannabis Inc. for a portion of the approximately $10 million Freedom owes the Minister under the Excise Act, 2001.

A director cannot be held liable for such assessments unless the Minister has first attempted to recover the claim against the debtor company. A court recently criticized and rejected an attempt by the Canada Revenue Agency to oppose the release of the directors of Delta 9 from similar liabilities due to the request being too late. 

This ruling led to the federal government voicing its opposition to the sales process and a request from Freedom Cannabis in February 2025 that would release the company’s directors from liability.

The application to address those concerns is currently scheduled for April 29, 2025, when the Court will hear arguments on this issue. The government expects that if the court does not release the directors from their liabilities, it will transfer Freedom’s liability under the Excise Act, 2001, to a corporate scapegoat named GarbageCo, and the government (Minister) will be prevented from certifying the liability of Freedom for its debts. 

The March 20 application, filed by the Attorney General of Canada, notes that it is unclear if the Minister could assess GarbageCo. for the Excise Act, 2001 debt, then certify that debt against GarbageCo. 

In part, the document states: “Although GarbageCo will not have any assets (and a writ would be returned wholly unsatisfied), GarbageCo has no directors, and none of the directors of Freedom were, are, or will be directors of GarbageCo.”

The Crown says it expects that Freedom’s CCAA process will “most likely” conclude in April 2025 with a reverse vesting order (RVO), “with Freedom emerging from the process with a judicially cleansed balance sheet and the transfer of the Minister’s claims and other creditors’ claims to a corporate scapegoat (“GarbageCo”).”

Although the steps laid out by the Minister will not determine the liability of the directors of Freedom, the Minister argues that the relief is necessary to protect the government’s rights under the statute.

On June 20, 2024, the CRA first issued a certificate pursuant to subsection 288 of the Excise Act, 2001 against Freedom Cannabis Inc. in respect of its liability to the Minister under that statute for the period between July 31, 2022 and June 30, 2023. The certificate was issued in the amount of $4,764,620.64 as the sum payable as of June 1, 2024.

On February 26, 2025, the Court of King’s Bench of Alberta granted an order approving, among other things, the SISP and a stalking horse share subscription agreement between Freedom Cannabis and 2644323 Alberta Ltd. (the Stalking Horse bidder). 

Interested parties wishing to bid in the SISP must submit an offer to the Monitor by 3.00 pm (MST) on Wednesday, April 9, 2025. 

The fifth report of Freedom’s monitor in the CCAA proceedings for Freedom Cannabis, posted on February 20, outlined the details of the stalking horse bid from a company connected to their largest creditor, JL Legacy Ltd. This bid was for a price estimated to be in the range of approximately $16.5 million to $20.5 million, with a closing date of June 30, 2025.

In October, Freedom said it needed more time to finalize the terms of its SISP and Stalking Horse Agreement to resolve issues with its landlord, including an outstanding debt. 

In an affidavit from February 24, a Canada Revenue Agency (CRA) representative stated that the agency maintains four accounts for Freedom Cannabis Inc., tracking the company’s liability to the Minister of National Revenue on different tax statutes.

With respect to Freedom’s cannabis duty account with the CRA, which tracks liability for duty pursuant to the Excise Act, 2001, as of February 21, 2025, the balance outstanding is $9,693,946.85. This includes more than half a million dollars in interest assessed. This liability accrued between August 2022 and August 2024.

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