Rhys Caldow, 38, appeared in the dock at the Ballarat Magistrates' Court on Monday.

Police prosecutor Senior Constable Giles Brown said police executed a search warrant on October 22 at a shed in Joseph Street, Canadian where Caldow runs his auto electrical business.

The court heard Caldow and another man were present and police allegedly found a traffickable quantity of cannabis and cocaine, methamphetamine, an unregistered shotgun and ammunition.

Caldow made a no comment interview to police.

Senior Constable Brown said police had concerns about bail given the quantity of drugs, the unregistered shotgun and ammunition found.

Defence lawyer Andrew Madden said the co-accused located at the shed was living at the premises and there were issues as to who was in possession of the drugs.

He said there was no evidence Caldow was engaging in drug trafficking and the charges were laid on the basis of the quantity of the drugs.

Mr Madden said Caldow instructed the handgun was an old family heirloom and he found the ammunition while out metal detecting.

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He said it was possible Caldow would receive a community corrections order for this offending if proven guilty given he had no relevant prior convictions and there was a risk he could spend more time on remand than any sentence imposed.

The court heard Caldow ran his auto electric business from the Canadian shed but lived with his parents in Ballarat.

Magistrate Letizia Torres said she granted Caldow bail because the compelling reasons test had been met.

"But these are very serious offences," she said

"Three different kinds of drugs were found in the premises you own and the gun is completely unacceptable to have unregistered and without a licence."

Caldow was released on bail with conditions he live at his parents' house and not use a drug of dependence.

He will return to court in May.

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