One of the owners of a cannabis company facing a quarter-million-dollar fine from Health Canada says he feels the company has been unfairly targeted.

Gene Bernaudo, the CEO of Ghost Drops—a company that recently filed legal action against the federal cannabis regulator—says they are challenging a $500,000 fine (later reduced to $250,000) because he feels they are being made an example of.

The industry has become bolder in the last few years in terms of pushing the boundaries when it comes to packaging and marketing, says Bernaudo, and he believes Health Canada needed to issue such a hefty fine to frighten the rest of the industry into compliance. 

“I think they needed to make an example of someone. And they needed to make an example of a brand that is out there, that is well known. And I believe the goal is to show the rest of the industry, who have now started to cross that line, that Health Canada is watching.”

Bernaudo tells StratCann that Ghost Drops has been facing “ongoing” scrutiny on different regulatory issues from Health Canada since early 2022, relating to their brand and marketing. 

This scrutiny has included issues with packaging and labelling such as a pink jar they released, to different marketing efforts the company has undertaken, like a charity event they held in Toronto, a golfing event, and culminating in their participation in a Halloween-themed event in Ontario in 2024 where Health Canada inspectors showed up at the event, confronting employees operating a branded booth.

He explains that the federal regulator then later scored the company based on these different compliance issues, arriving at the two $250,000 fines in early 2025, one for both he and another director at Ghost Drops. Health Canada later reduced that to a $250,000 fine. 

Bernaudo says he and his partner are challenging this ruling by taking Health Canada to court because they feel the regulations themselves are overly restrictive and that the enforcement of those regulations is inconsistent, leading to an uneven playing field. He says that he was informed that Ghost Drops were 30% of the marketing complaints the regulator received, which he says could often be from competitors rather than the concerned public. 

“They are not really enforcing the rules in a way that is fair and equitable for the industry.”

Pointing to similar marketing approaches by other producers, brands, and retailers, Bernaudo asks why Ghost drops faced enforcement while it appears many of those companies have not. It’s complaint-driven, he says, and Health Canada should take into account where those complaints are coming from, which may often be from competitors. 

He also says he’s not objecting to all rules, and acknowledges there is a need to keep cannabis and cannabis branding away from the eyes of young people. However, he does want rules that allow companies like Ghost Drops to have a way to more directly connect with consumers. 

Without that, he argues, producers have very little option but to pay retailers for shelf space, something he says Ghost Drops has refused to do.

“I think the biggest thing in the industry, and what all these companies have a very difficult time achieving, is developing a direct relationship with the consumer.

“We do want to be a brand that is noticeable to consumers. It’s already difficult to compete with the packaging the way it is. You’re relying on the budtender to sell your product, and unless you’re paying a manager or a store owner, nobody’s pushing your product. 

“There’s really no other way to get a consumer to understand or have any knowledge about the products you are putting in the market, what you‘re doing as a brand. 

“All these other industries have an open window to do exactly what they want. But our hands are tied behind our back.”

The Halloween-themed event that Bernaudo says Health Canada inspectors attended, which ultimately resulted in the large fine, was called the Haunting of Hexwood, held on November 3, 2023, in Pickering, Ontario. 

Ghost Drops believes it did not engage in any rule-violation activities and, while the event was open to the public, it had several cannabis companies attending with promotional displays in an age-gated area. He also says that the event was billed as a 19-plus event by the event organizers, and only changed later, after Ghost Drops had already set up an activation space. 

A Senior Media Relations Advisor for Health Canada told StratCann that in March 2024, Health Canada issued two notices of violation for non-compliant promotion and sponsorship by Ghost Drops at an all-ages event at which youth were present, for a total penalty amount of $500,000. They note this fine was later reduced to $250,000.

“The company requested a review of the notices of violation, as is permitted under the Cannabis Act. The review, which was completed in March 2025, determined the Company did commit the violations but reduced the total penalty amount to $250,000,” noted the media relations advisor.

“Health Canada is aware of the recent application for judicial review filed by Ghost Drops and will be responding in due course. As the matter is current before the court, Health Canada has no further comment at this time.”

The Haunting of Hexwood website still lists Ghost Drops as a sponsor.

The federal Cannabis Act contains several enforcement tools that the regulator can consider when determining the appropriate actions to prevent or address non-compliance. These tools range from calls and/or letters, all the way up to suspension or cancellation of a federal licence, the issuance of a ministerial order, or even the issuance of administrative monetary penalties (AMP) (up to $1 million).

Information on the approach to AMPs under the Cannabis Act was published in September 2019 and can be found here. Penalties are determined based on various factors such as: the licence holder’s history of compliance or non-compliance with the provisions of the Act or regulations, the nature and scope of the violation, whether the person made reasonable efforts to mitigate or reverse the effects of the violation, and whether the person derived any competitive or economic benefit from the violation.

Based on the individual circumstances of the alleged violation, each determining factor is then calculated using a score, and a cumulative score is determined.

Many in the cannabis industry have long protested what they say are double standards with Health Canada’s strict marketing regulations for cannabis. Unlike other products, including alcohol, cannabis companies are largely restricted from marketing and promoting products outside of age-gated settings.

According to the most recent information available from Health Canada, as of October 2024, the health agency had issued just two Notice of Violations (NOV) associated with potential violations of promotion prohibitions since October 17, 2018. 

Between October 17, 2018 and March 31, 2024, Health Canada assessed 1,541 cases of potential non-compliance related to promotions. This resulted in 648 actions taken, the vast majority of which were compliance emails, letters, or compliance promotion emails or calls.

Between April 1, 2023 and March 31, 2024, Health Canada assessed 243 cases of potential non-compliance related to promotions. This resulted in 134 actions with regulated parties, which may include one or more of the following: warning letters, compliance emails or letters.

Despite all of this activity, as of the end of March 2024, the federal agency has only issued two Notice of Violations (NOV) associated with potential violations of promotion prohibitions since October 17, 2018. 

Health Canada also says that they conducted five inspections at promotional events from April 1, 2018, to March 31, 2019: two in Toronto, one in Oro-Medonte, Ontario, one in Victoria, BC, and one in Regina. 

The federal Cannabis Act includes several enforcement tools that can be considered when deciding on the appropriate enforcement actions to prevent or address non-compliance. While these tools do include options, from calls and/or letters to suspension or cancellation of a federal licence, the issuance of a ministerial order, or the issuance of administrative monetary penalties (AMP) of up to $1 million, the federal government tends to take a soft-touch approach, focusing more on first informing licence holders of their potential violations of federal rules before escalating to more significant penalties. 

Health Canada uses information from both internal and external sources to help identify any possible risks to public health and public safety. However, a spokesperson for the agency told StratCann in the past that they do not collect data that shows how they became aware of any potential issues.

Featured image via Ghost Drops. Image credit: Max Kirsh

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