WineLaw.ca

The BC government has announced that the new General Manager for the Liquor Distribution Branch will be Blain Lawson, who was previously with Coast Wholesale Appliances. Here is the press release: New Liquor Distribution Branch General Manager Named.

Here is an update on the charity wine auction issue in BC, following the receipt of additional information from the LCLB. The BC Government introduced legislative amendments last week which were intended to deal with this. The issue first arose last summer/fall when the LCLB made changes to its policy manual and took the position that fundraising wine auctions of privately donated wine were not legally permitted in BC despite the fact that such auctions had been regularly held and licensed without problem for close to three decades. The donation and auction of privately donated wine is extremely important to charities and non-profit groups because the most valuable wine for fundraising is usually older or rarer wine which is donated from private cellars. Following negative media attention and an expression of major concern by affected charities and non-profit organizations, the government issued a press release in the fall of 2012 indicating that fundraising wine auctions would be permitted … but which did not mention privately donated wine. A short while later in November 2012, the LCLB issued Policy Directive 12-08 which confirmed that wine auctions were permitted if they were held under a special occasion license with wine sourced only from the LDB. In addition, non-licensed auctions and auctions of privately donated wine would be permitted but only if the wine was contained in \”gift baskets\” or \”the equivalent\”, thus providing a temporary workaround although one based on an odd distinction which appears to have no basis in law. Finally, this past week, legislative amendments were introduced under the Miscellaneous Statutes Amendment Act (see part 3). Here is a review of what has been proposed and the issues related to the amendments.

Permit System Created. The amendments establish a permit system which was not previously required. Charities and some qualifying non-profit organizations would be able to apply for a permit to hold a fundraising wine auction. There would be an exemption from the permit requirement for \”small quantities\” of liquor which amount has not yet been defined. Organizations wishing to both serve wine and auction wine (which is the most common type of fundraiser) may have to obtain both a special occasion license and an auction permit depending upon whether the event was held in an unlicensed location or if the charity did not want to pay the wine prices commonly associated with serving wine in licensed premises. 

Privately Donated Wine. As noted above, it is critical for the affected organizations to be able to accept private wine donations and to auction the wine in order to fundraise effectively. The amendments themselves do not make any mention of privately donated wine (which was the issue that created this problem in the first place). However, I have confirmed with the LCLB that the intention is that regulations will eventually be issued that will allow an auction permit holder to receive private donations and to auction the donated wine. 

Non-Profit Organizations. The proposed amendments only permit fundraising wine auctions for registered charities and for those non-profit organizations that will use the funds generated for charitable purposes. Non-profit organizations that are not technically charitable are not included (and there are many of these).

As noted previously, while the government and LCLB are to be commended for acting relatively quickly on this issue, it is not clear whether the amendments will get passed before the current short legislative session ends. In addition, it is unclear to me why non-profit organizations that are not charitable are being left out. My review of similar provisions in Alberta, Washington state, Oregon and California shows that none of those jurisdictions leaves such organizations out (for an example, see the Napa Valley Premiere fundraiser which raised over $3 million last week). In addition, I am aware that BC politicians on both sides of the house regularly include wine in their political fundraising auctions (which are not charitable). It seems particularly inappropriate to include such a restriction in BC law … when none of our neighbours do so … and when our elected politicians have regularly done the same thing.

The BC Government introduced the Miscellaneous Statutes Amendment Act (see Part 3) today which purports to address the issue of charity wine auctions (previously covered here). While the government is to be commended for introducing legislative changes quickly, it is not clear whether the proposed changes resolve the problems that were previously encountered. The changes create a permit system for charity wine auctions (which was not previously required, and may in fact be a step backward). They do not appear to allow the auction of privately donated wine which is the critical problem and issue for most charities. They also appear to leave non-profit organizations out unless they also have a charitable purpose. I\’ll provide further details as they emerge. The Bill has been introduced only on first reading (which means that it may not pass at all given the short legislative session and could be amended). Update: The LCLB has confirmed to me that the intention is that private wine donations will be permitted for auctions. I have asked for clarification on how this will be implemented and will post as additional information becomes available.

The BC government has announced some major changes to liquor laws and regulations that include the reform of tied house relationships (govt news release: BC Liquor Laws Get Overhauled). The tied house laws previously restricted the ability of a manufacturer such as a winery to sell its own products in another business with the same ownership. Other changes include: the expanded operation of tasting rooms for breweries and distilleries, changes to promotional restrictions, a markup exemption for distillers using 100% BC product, the appointment of a BC wine \”envoy\”, the conversion of independent wine stores into licensees, and the inclusion of distance separation requirements for LRS stores in regulation rather than policy. Here is a summary of the changes:

• Tied House. A tied house exemption will now be available such that a small or medium sized manufacturer (licensed under s.57 of the Act – and in respect of wineries producing less than 750,000 litres per year) may have a financial relationship with up to 3 retail level licensees who are licensed under s.12 of the Act (e.g. bar, restaurant, private liquor store, caterer). Exempted retail level licensees would have to offer a \”range of products\” from other manufacturers along with the \”tied house product\”. This change will be greeted with relief by some manufacturers within BC who are currently prohibited from selling their products in financially connected businesses (an infamous example is Carbrea winery on Hornby Island who have been prevented from selling their product in the family\’s lodge, a few miles away, for many years). However, the restriction to 3 licensees will likely not be viewed as a solution to larger business operations, particularly chains of restaurants and retail stores. By contrast, Washington state scrapped its tied house restrictions almost entirely last year.
• Expanded Operation of Tasting Rooms for Breweries and Distilleries. Breweries and distilleries will now be placed on a more even footing to wineries in respect of the operation of their tasting rooms. They will now be able to obtain lounge, special event area, tour area and picnic area endorsements for their licenses. Previously, brewery and distillery tasting rooms included arcane restrictions about pricing and serving quantities that seriously limited their utility. This change brings B.C. more into line with other jurisdictions, such as Oregon which has seen huge growth in its artisan breweries and distilleries.
• Markup Exemption for Direct Delivery Spirits. The press release indicates that direct delivered spirits (i.e. product delivered direct to consumers or licensees from a distillery, not through the LDB) will be eligible for an exemption on LDB markup (which is currently 170% on spirits) if they are made from 100% BC product. Such an exemption would place direct delivery spirits on an equal footing to direct delivery wine and would provide a huge financial incentive for distillers who are able to meet the 100% BC requirement (apparently not easy for some products). In addition, as I have noted in the past, the difference on markup treatment between 100% BC product and imported product is likely a violation of Canada\’s relevant trade obligations and any expansion of this could spark a trade challenge. Indeed, this very issue is currently one of the subjects of a law suit in Washington state.
• BC Wine Envoy. Effective March 1, 2013, Herb Leroy has been appointed BC wine envoy by the province with specific responsibility to try to open up interprovincial wine shipping across the country.
• Independent Wine Stores. Some categories of private retail wine store in the province are being converted to licensees under the Act. This will make all private retailers subject to the same regulator (LCLB) and, for the most part, the same set of rules. The affected stores include independent wine stores (Liberty, Marquis, Everything Wine etc …), VQA wine stores and tourist wine stores. The new regulation continues an existing policy which prohibits the issuance of any new private wine store licenses. The discount rates (wholesale prices) that licensees get are unaffected by the change.
• LRS Distance Separation Rules. The BC government currently restricts competition in the retail liquor business by preventing licensee retail stores from relocating within 1 km of an existing store. Previously, this rule could be waived at the \”discretion\” of the general manager – which caused interpretive problems ending with a recent BC Supreme Court judgment. This discretion is being eliminated and replaced with set criteria in the regulations. 
• Trade Practices. Some minor changes have been introduced with respect to liquor industry trade practices, including the elimination of the requirement for \’buy-sell agreements\” in certain circumstances and the allowance of the promotion of events by licensees. However, the most significant issue in this area is the fact that the rules on \”inducement\” activity have not been reformed. Many in the industry were expecting a liberalization of these rules to allow co-op advertising and other financial arrangements which are typical in other industry sectors (the LCLB had previously noted that \”inducements between suppliers and licensees are quite common\” and that deregulation would not result in any \”significant change in actual business practices\”). 

Good news: the BC government has announced today that it will start issuing caterers\’ licenses for liquor service. This will be a great help for event organizers who can now enlist a caterer to handle all aspects of an event\’s liquor purchase and service. Previously, people hosting an event serving liquor in B.C. needed to get a special occasion licence, take the Serving It Right course, purchase and transport the liquor and accept liability for liquor service at the event. Catering companies can now handle these responsibilities on behalf of their clients. See the press release for more details and the LCLB policy directive. The regulatory changes are contained in 2013 Orders in Council number 69 and number 70.

The 2013 of the annual BC wine law conference is coming up on Monday, February 25th, at the beginning of a week which is otherwise devoted to the Vancouver International Wine Festival. If you are interested in BC wine or liquor law issues, please join us at the conference. Here are just a few of the exciting highlights:

• Update on the current state of the industry including agricultural policy issues.
• A report on the changes to interprovincial shipment of wine including a province by province review of applicable laws and rules.
• Overview of export/import issues including relevant international trade agreements.
• Discussion of the use of alternative business structures such as custom crush operations and urban wineries.
• Regulatory issues affecting the distribution of wine and liquor in BC including a review of the recent privatization in Washington state as well as potential improvements for BC’s system.
• Wide-ranging discussions of various operational issues including labeling, counterfeiting, on site tasting rooms, land management issues, environmental regulations and employment law. 

Here is a link for more information, including the conference agenda, location and registration. Those who work in the BC wine industry are eligible for a 50% discount on the conference fee: simply register as a \”student\” in the online registration process.

A new year always brings the promise of change. In BC, perhaps 2013 will finally bring the advent of consumer-focussed reform of our archaic liquor and wine laws. It is now 92 years since BC repealed prohibition … and we are still stuck with a \”government control\” mentality for both the regulation and distribution aspects of our wine industry. The current government has made some welcome minor changes in the past year (e.g. the introduction of corkage and the acceptance of interprovincial wine shipments). However, most of the major problems remain (see the FreetheWine and ModernizeWine sites) and, as such, BC remains out of step with the rest of the world. Our outdated approach creates problems for the entire province because it stifles the growth of food/wine culture and inhibits job creation in our increasingly important hospitality and tourism industries.

I am hopeful that liquor law reform will become an election issue this year … because it is long past time for BC to enter the modern age of liquor regulation. The past year saw increased media attention to liquor law issues. Whether it was arcane festival beer garden restrictions, liquor in movie theatres, interprovincial wine shipments, the shutting down of charity wine auctions or, most recently, the restriction of all age events, BC citizens are getting increasingly annoyed by an outdated approach to liquor regulation which is firmly rooted about 80 years in the past (see Liquor Law Year in Review, Open The Tap, and Liquor Laws Should Treat Us Like Adults). Most North American jurisdictions have modernized their liquor regulatory systems to a much greater degree than BC. Close to home, both Alberta and Washington state now have systems which are essentially modern. Even Ontario is now discussing modernization in the wake of a realization that the LCBO is not the economic golden goose that it pretends to be (see this Globe and Mail commentary: Four Reasons Why Ontario Will Be Better Off Without the LCBO). 

In BC, we have an election in May and hopefully, any new government will adopt a more modern approach on the regulatory side. In addition, and with relevance to the distribution side of the equation, the government\’s fiscal situation continues to deteriorate.  The next government will need to look for ways to increase revenue. Currently, the BCLDB provides about $900 million of alcohol revenue annually to the government. However, it costs almost $300 million to run the system. Our wacky and insanely complicated wholesale pricing system means that there is no room for government to increase prices. If any future government wants to wring more revenue from alcohol sales it will have to redesign the system or cut costs or do both.

There are plenty of opportunities for sensible reform of the existing system and I remain cautiously optimistic that the election may become a catalyst for change. British Columbia\’s wine drinkers deserve a government that promotes food and wine culture and that encourages the growth of economic activity in the hospitality sector. I\’ll post again later this week with some suggestions for meaningful change.

If you are interested to hear more about this topic, be sure to attend the 2013 Wine and Liquor Law Conference in Vancouver on February 25th. There will be a conference topic dedicated to the discussion of positive reform measures.

Prince Edward Island has acted to free the grapes (at least partly) by quietly amending its Liquor Control Act (s.33) to allow PEI residents to possess up up to 9 litres of wine per person that has been imported from other provinces. PEI\’s liquor board (PEILCC) says that this only applies to \”in person\” transport of wine, not direct shipment. PEILCC and I disagree on this point because the law uses the word \”import\” and, in my view, the use of the word \”import\” can only be reasonably interpreted to include both \”in person\” transport and direct to consumer shipments. The language used applies to all wine, not just domestic … and there is no restriction to winery purchases so retail purchases would also be okay. On the down side, the section is poorly worded because it creates a cumulative personal exemption … PEI residents are only allowed to possess up to 9 litres of wine that has been imported at any given time (in other words, if you already have 1 case, you will have to drink it before you can order another one) … a restriction which is both impractical and unenforceable. 

For a complete review of provincial law on wine shipment within Canada, see this page: Shipping Laws on Wine within Canada.

Modernization of Ontario\’s wine distribution and regulatory system has hit the news today as Ontario PC leader, Tim Hudak, has come out publicly in favour of at least some degree of privatization (see: PC Leader Hudak Urges Sale of Alcohol in Ontario Grocery, Convenience Stores). In addition, many Ontario wine producers are mounting a campaign to allow private wine stores within the province in order to increase their distribution and reach new markets. This campaign also received coverage in today\’s Globe from Beppi Crosariol: Wine Producers Lobby for Private Stores in Ontario. Beppi\’s article included a good analysis of the government revenue issue … which usually pops up as soon as anyone mentions privatization. Those who believe that privatization will reduce government revenue simply do not understand the economics of liquor in Canada. For a primer, see my earlier article Canadian Liquor Economics 101 which explains why privatized or partly privatized systems make more money for government than systems with government retail. But for more recent numbers, see Beppi\’s article where he reinforces the point by noting that Alberta\’s privatized system makes more money for government than Ontario\’s state retail system. 

The Nova Scotia government has followed British Columbia\’s lead by introducing provincial legislative amendments which will permit direct to consumer wine shipping into that province. The government press release is here: New Amendments Benefit Wine Industry, Consumers. The changes are stated to be similar to British Columbia\’s in that they only apply to 100% Canadian wine. The press release states that only Manitoba and B.C. already permit direct to consumer shipping. That is a contentious statement: see the FreeMyGrapes site for other views and my earlier post which concludes that BC, Alberta, Manitoba, Ontario (and now Nova Scotia) are open. The link to Nova Scotia\’s bill is here but note that the details of it will be contained in regulations which have yet to be issued. In addition, I note that Saskatchewan recently made some amendments to its liquor laws which expressly exclude direct to consumer shipping (see s.59 of Alcohol Control Regulation).