Canadians selling medical marijuana outside the licensed mail-order system must still watch out for the taxman, according to a Federal Court of Appeal ruling that reasserts Ottawa's right to collect sales taxes on any and all pot that is sold.

In a unanimous decision released Monday, judges dismissed an appeal by Gabriola Island grower Gerry Hedges to stop the clawback of almost $15,000 in GST for marijuana he sold over several years to the Vancouver-based B.C. Compassion Club Society, Canada's oldest dispensary.

Alistair Campbell, Mr. Hedges's tax lawyer, said the case centred around whether marijuana should be treated like a prescription drug. Mr. Campbell argued in court that cannabis should be exempt from federal sales tax because members of the dispensary must go through a process akin to getting a prescription, unlike over-the-counter drugs that are subject to GST, such as extra-strength Tylenol.

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The judges ruled that only drugs that are sold legally can be exempted from GST. However, they also agreed with previous rulings that legislation surrounding the taxation of medical marijuana has led to "uncertainty and confusion" and "needs work."

Under the current medical-marijuana framework, patients buying pot from Health Canada's mail-order system must pay HST or GST on these products and then claim these levies as medical expenses. Some high-profile owners of illegal pot dispensaries have said they charge GST on all sales and remit those funds to the government, but it is unknown the extent to which this is common practice in the sector.

"Unless there's legislative change, what it means is that end users of marijuana for medical purposes will be paying GST," Mr. Campbell said. "The question for Parliament and public policy [experts] is whether that is a proper approach to taxing the medication in view of the evolution of the law in this field."

Mr. Campbell said the Department of Finance could easily exempt all medical marijuana from sales taxes to make it more affordable for patients, adding "the GST Act is replete with those types of distinctions." Staff with the department and the CRA were unable to provide comment on the ruling Tuesday.

Hilary Black, founder of the dispensary that Mr. Hedges supplied, said Bedrocan – the licensed commercial grower she now works for – is starting an online petition asking federal Finance Minister Bill Morneau to exempt all medical cannabis purchased under Health Canada's system from sales taxes.

Ms. Black, who still acts as an adviser to the B.C. Compassion Club Society, said this issue provides an opportunity for Canada's industrial-scale growers and illegal dispensaries – often at loggerheads over competition for the same patients – to "create a unified front around an issue that is important for all of us."

"It's totally unjust and unethical and unfair for medical cannabis to be taxed like an over-the-counter medicine because it is a medical necessity," said Ms. Black, whose company is a subsidiary of Canada's largest legal cannabis producer, Canopy Growth Corp.

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"And the spirit of our tax law is that medical necessities do not have sales taxes on them."

Ms. Black said the B.C. Compassion Club Society has funded the majority of Mr. Hedges's legal fees in this protracted battle against the CRA, which has totalled more than a quarter of a million dollars. In addition, the Crown was awarded costs in the latest ruling and the compassion club does not plan to appeal, she said.

Mr. Hedges, who did not want to be interviewed, started growing his own cannabis in 1988 to treat pain caused by a deformed hip and began selling to the Vancouver dispensary in 2007, racking up sales of $110,732 that year alone, according to the ruling. In 2010, police raided his Gulf Island farm and Canada Revenue Agency assessed him for back taxes owed.

The federal tax agency has long been referred files after illegal grow operations are raided in B.C. to "assess people for unremitted GST in respect of projected illegal sales of marijuana," Mr. Campbell said.

"The CRA's long-standing position has always been that GST is applicable to all sales of cannabis, whether legal, illegal under [government] authorizations to possess or otherwise," he said.