I am not familiar with Canadian flag rules, but here in the US, the US flag code specifically says not to use the flag as wearing apparel (see here, subsection 8d). Subsection 8i further states that it should not be used for advertising.

It's not really enforced. And obviously a lot of people flat-out ignore it. But some people take it pretty seriously and will have reactions similar to the man you described.

Maybe someone should look up the Canadian flag code and see if it says anything similar?