Hi I am in second year, and I wish to cancel some of my courses. I already know I will have financial penatly for this. What I am really concerned about is if grad schools look at cancelled courses in a negative light. Is this true?

The courses in question are not required courses for grad school, and they are courses in second year, not third or fourth year.

Depends on the school. Usually they officially do not care, though if there are multiple cancelled courses it can raise some eyebrows. Some programs officially state they do care, and others likely care "unofficially". For grad school you need a prof to work for, and they can pick whoever they want without really stating a reason.

Most grad schools that I've looked at only look at your third and fourth year. It would be worth looking at the requirements for schools you are interested in.