WineLaw.ca

UPDATE (June 20, 2012): A new regulation has now appeared (apparently there were \”delays\” at the Queen\’s Printer) which relates to this post. The new regulation creates legal authority for the \”in-person\” importations previously announced that were thought to be \”policy\” only. However, I am expecting that this regulation will be either rescinded or changed prior to Bill C-311 obtaining royal assent, which is expected next week.

Update (June 19, 2012): Bill C-311 passed the Senate on Monday evening by unanimous vote. I am also hearing encouraging rumors that BC may change the position outlined below. Will update again when there is news.

Bill C-311 (the wine shipping law reform bill which will create a limited \”national personal use exemption\” for shipping wine from province to province) will almost certainly pass a final vote in the Senate this coming week and become law shortly afterwards. The excitement of wineries and Canadian wine consumers at having Canada\’s regulatory \”shackles\” over wine loosened a little has been tempered by provincial liquor board statements that indicate that they will not respect the spirit of Bill C-311. Instead, some liquor boards and provinces have indicated that they will try to limit or prevent Canadians from gaining access to the wines that are sold in other provinces. On this issue, the rest of the world will be laughing at us. Can you imagine the French putting up with bureaucrats who try to prevent Parisians from ordering wine from Bordeaux or Burgundy? Indeed, Europeans can bring wine or have it shipped between countries without much hassle.

The attitude of the provincial liquor boards could not be more different (and backward thinking). Rather, than respecting the spirit of Bill C-311, the unanimous vote of the House of Commons, and the wishes of Canadian wine consumers, they have chosen strident protectionism and are now arguing, firstly, that Bill C-311 does not even permit the direct shipment of wine from a winery to a consumer and, secondly, if it does permit shipment that they will apply their policies and laws to prevent or limit consumer choice (see the liquor board statements in Beppi Crosariol\’s Globe and Mail article and statements of BC liquor bureaucrats, in this press release). Let\’s take a closer look at those issues.

Does Bill C-311 Permit the Shipment of Wine Direct to Consumers?

The Importation of Intoxicating Liquors Act (IILA) is the 1928 law which prevents the inter-provincial shipment of alcohol unless it is going to provincial liquor agencies. Bill C-311 amends this law to create an exemption so that the IILA does not apply if all of the following are true:

1. the alcohol must be wine,
2. an individual must \”bring the wine or cause it to be brought\” from one province to another,
3. the wine must be for personal consumption only (not resale or commercial use), and
4. the importation of the wine must be \”in quantities and as permitted by the laws\” of the destination province.

It\’s obvious that requirements (1) and (3) are satisfied when wine is shipped to a consumer for personal use. The wording on requirement (2) also makes it obvious that both the \”in-person\” transport of wine and the shipment of wine are included because the Bill says \”bring the wine or cause it to be brought\” which is, in fact, the same wording that the rest of the IILA uses to refer to the overall prohibition on shipments of alcohol. The last requirement (4) simply says that the importation of wine can be made in \”quantities and as permitted by the laws\” of the destination province. As a result of the above, it is abundantly clear that Bill C-311 does permit the direct shipment of wine to consumers. The only issue is whether and how provincial laws may affect the exemption. We\’ll discuss that next.

What Does Provincial Law Say About Direct Wine Shipments?

On this issue, the liquor board bureaucrats appear to be circling their wagons and providing questionable advice to their political masters. British Columbia\’s recent press release on this issue states that all of the provinces \”that allow personal importation from other provinces restrict that importation to liquor that accompanies the person bringing it into the province\” and that none \”allows tax-free shipping of alcohol across their borders\”. The responsible Minister, Rich Coleman, has repeated these statements in recent media interviews. He might want to get a second opinion on the advice that he is receiving because these statements are misleading. They imply that the law of some provinces permits \”in-person\” importation of wine and that the law in all of them prohibits direct shipments. This is not correct. Some Canadian provinces (not all of them), including Ontario and British Columbia, have issued \”policy statements\” (B.C.\’s was a mere press release) stating that they will permit \”in-person\” importation of alcohol from other provinces in limited quantities but will not permit direct wine shipments. However, policy statements are not statements of law, they are simply indications of how a government interprets existing law. They have absolutely no legal effect on their own and cannot interpret a law which does not exist or which is invalid. As a result, it does not matter what the \”policy\” of a provincial liquor board is if the law does not back it up. So the real question, contrary to the position of the liquor boards, is what does the actual law of the provinces say on this matter?

Lawyers (including myself) are currently working on an analysis of provincial liquor statutes and regulations (which is where the real law is found) in an effort to determine which provinces will be open for shipment once Bill C-311 is in force. In the weeks ahead, there will be more advice and information on this issue available. However, the sweeping statements of the liquor boards are almost certainly incorrect. Some of the provinces have no laws dealing with the importation of wine from other provinces and, contrary to B.C\’s statements, the law of others, like Alberta and Manitoba, specifically allows it. Read and judge for yourself:

• Section 89 of the Alberta Gaming and Liquor Regulation says: \”an adult may import from another province liquor for the adult’s personal use or consumption\”. Note the use of the word \”import\” which obviously includes both \”in-person\” transport and shipment. I do not see how it is possible for the Alberta liquor board (AGLC) to interpret this language to exclude direct shipments of wine.
• Section 58 of the Manitoba Liquor Control Act says: \”Any person may have, keep, and consume … liquor that he has … brought or caused to be brought into the province from a place outside the province and …. that he has legally purchased or acquired in any part of Canada other than Manitoba\”. Once again, I do not see how it is possible for the Manitoba liquor board (MLCC) to interpret this language to exclude direct shipments of wine.  

From a legal perspective, it is hard to understand how a quasi-regulatory body like a liquor board can issue \”policy\” statements that appear to contradict the plain meaning of the laws that they are supposed to be enforcing and upholding (for more on this point, see Rule of Law Missed By Liquor Boards).

Why Are the Liquor Boards Trying to Stop Bill C-311?

So why are the liquor boards trying to prevent a reasonable amendment which will provide a small amount of additional consumer choice? The answer is, in one word, money. This entire issue was started by the liquor boards when they threatened BC wineries with criminal prosecution for direct shipping wine to customers in other parts of the same country (see letters posted here and note the irony that the complaints were from Alberta and Manitoba, whose provincial laws permitting direct shipments are quoted above!). The liquor boards were and still are fearful that direct shipments will cut into the money that their monopolies charge in the form of \”liquor board markup\”. Liquor board markups are essentially large fees (they are not legal taxes) that are applied to wine at the wholesale level as it goes through the monopoly system and which provide provincial governments with a lucrative source of revenue (in B.C., the base liquor board markup on wine is a whopping 123%). A direct shipment bypasses the liquor board and, thus, they don\’t collect their \”markup\”. However, in my view, the concern over lost revenue is largely unfounded. The U.S. has had inter-state direct to consumer shipments for many years now. Recent estimates indicate that they comprise only 0.5% of the overall retail wine market. Regardless, I don\’t think it should be permissible in a free society for a liquor board monopoly to make criminals out of inter-provincial wine shoppers in order to jack up their revenue.

A secondary concern is competition, particularly as it relates to e-commerce. Over the weekend, Minister Coleman made additional puzzling statements upon which he may want to get second opinions (see CKNW Audio Vault – June 16th starting at about 3:35pm). He said that B.C. will not set a precedent for other provinces by opening its borders to direct shipment. Instead, he said that he would now get the provincial liquor bureaucrats to work with each other to obtain agreements on this issue (since not even 2 of the provinces have come to an agreement on this in the past 80 years, it is hard to see how this will work). He tried to justify his position by raising the \’alarm\’ that Bill C-311 applies to all wine, both domestic and imported. His stated fear was that if B.C. opened its borders to direct shipment, consumers might buy \”dumped\” Australian wine at low prices from other provinces over the internet. Many consumers are likely to respond \”so what, aren\’t you supposed to be the free enterprise guy?\”. More to the point though, the Minister should obtain better advice about the retail wine market in Canada. In fact, liquor taxes/markups are high enough across the country to mean that there would be a very limited number of inter-provincial \”bargains\”, nearly all of which would be at the higher end of the market (where \’illegal\’ cross-border shopping is already occurring anyway). \”Dumped\” super-cheap wine, like 2 buck chuck, does not exist anywhere in Canada, contrary to what the Minister has obviously been told (in all fairness, he said that he was a Scotch drinker, not a wine drinker in the interview). In any event and most importantly, consumers do not buy low priced wine in the direct to consumer channel because it typically costs an additional $2 to $5 a bottle to have the wine shipped.

The real issue is that the liquor boards don\’t want consumers to have a choice of where to buy wine within Canada … even if it is only a choice between monopolies. Instead, they want to maintain complete control and to force you to buy wine only from your own provincial board. This is remarkably backward thinking. Why is it legal to buy a gun in another province but not a bottle of wine? Is the internet going to go away? Is e-commerce just a passing fad? If the liquor boards were smarter, they would simply embrace the spirit of Bill C-311, adjust their prices if necessary to compensate for the miniscule revenue hit, and set up their own e-commerce sites to provide all Canadians with a better wine selection right across the country. Unfortunately, and to date, the B.C. government appears to be getting bad advice and siding with the liquor boards instead of making policy that will benefit B.C. wine consumers and B.C. wineries for the long term.

Wineries Should Get Their Own Advice

The bottom line in all of the above is that Bill C-311 should bring a small dose of much needed modernization to the Canadian wine distribution system. Wineries should take the statements of liquor boards (and their provincial masters) with a grain of salt … and get their own advice. It is the law that has prevented wineries from shipping up until now and it is the law that will allow wineries to ship to some, most or all provinces once Bill C-311 passes. It would be fantastic if the liquor boards and provinces change their tune and embrace the spirit of Bill C-311. Perhaps B.C. will still lead the way on this … but I am not holding my breath.

Bill C-311, the amendment to Canadian federal law, which would create a limited national personal use exemption for inter-provincial wine shipments has moved to its final stage at the Canadian Parliament. Today, it was passed by the Senate Banking Committee, who heard from various witnesses and rejected a request by the Ontario and Quebec liquor boards to delay its implementation for 12 months. The Bill will now move to third reading (and final vote) in the Senate. Hopefully, that will occur very soon.

UPDATE (June 20, 2012): A new regulation has now appeared (apparently there were \”delays\” at the Queen\’s Printer) which relates to this post. The new regulation creates legal authority for the \”in-person\” importations previously announced that were thought to be \”policy\” only. However, I am expecting that this regulation will be either rescinded or changed prior to Bill C-311 obtaining royal assent, which is expected next week.

On Wednesday, wineries throughout BC celebrated the passage of Bill C-311 from the House of Commons to the Senate following a rare unanimous vote by federal Members of Parliament. Unfortunately, celebration turned to confusion yesterday when the BC Government announced a new policy on the importation of wine (and other liquor) which appeared to fly in the face of Bill C-311 (see: BC Reverses Bill C-311 Wine Shipping Law). The confusion was maintained throughout the day when the responsible Minister, Rich Coleman, told media that B.C. would permit the \”inter-provincial shipment\” of wine even though the press release said the opposite. As of the time of writing this, the press release has not been revised. In an attempt to clear up the confusion, I obtained all new regulations related to liquor this morning to see what had actually been done. Surprisingly, none of the new regulations relate to this matter at all (rather, they deal with fines for supplying liquor to minors). Consequently, it appears that yesterday\’s announcement is, in fact, purely a \”policy announcement\” and that there have been no changes to the law in B.C. that relate to the inter-provincial importation of wine (or other liquor).

In respect of the wine industry, and the progress of Bill C-311, this is disappointing because the industry was looking to the B.C. government to provide leadership for other provinces such that all provinces would embrace the spirit of Bill C-311 and clearly permit the shipment of wine between provinces in amounts that are reasonable for personal consumption. It is difficult to see how other provinces can be expected to embrace the free trade of wine within Canada if the leading wine producing province, British Columbia, does not do so, or it provides only vague verbal support rather than concrete actions which will actually accomplish something. In this respect, the industry is looking for leadership and it would be helpful if the Minister would clarify matters and, particularly, express the Government\’s commitment to the following:

• B.C. consumers will be able to buy reasonable quantities of wine on trips to other provinces and return with that wine legally to their home province.
• B.C. consumers will be able to order wine by telephone and e-commerce in reasonable quantities from other provinces and it will be legal for that wine to be shipped to the customer.

Yesterday\’s press release states the first of the above points (at least in respect of 1 case of wine per person per trip) but does not explain what the legal basis is for the change. The press release explicitly states that B.C. and all other provinces will not permit the second, much more important, point. In this respect, it is essential that B.C. promise that no distinctions will be made between the “in-person” transport of wine between provinces and the shipment of wine, including e-commerce. This issue is critical to ensure that the spirit of Bill C-311 is respected.

Finally, in respect of all of the above, it should be noted that the \”policy\” announcements of provincial governments are NOT laws. Laws are contained in statutes and regulations. Policy announcements are supposed to be indications of how a government interprets existing law. They do not have the force of law on their own and cannot interpret a law which does not exist. As a result, it is difficult to see how yesterday\’s \”policy announcement\” accomplished anything other than confusing both wineries and consumers. Hopefully, the government will clarify these issues quickly and build on the positive momentum and support that Bill C-311 has attracted thus far.

The BC Government has just issued a new wine importation policy that reverses the progress of Bill C-311 since it prevents the inter-provincial shipment of wine direct to consumer (e.g. via e-commerce). Instead, the government has indicated that BC will follow Ontario\’s lead by introducing small personal exemptions that only apply to \”in-person\” importations of alcohol. The BC wine industry was looking for leadership from its government in implementing a policy that would allow wineries to ship directly to customers in other provinces. However, the BC government has dashed these hopes by implementing a policy which does not permit this, less than 24 hours after Bill C-311 was passed by unanimous vote at the federal level. Nevertheless, it is unclear whether the government means what it says in the press release. The responsible Minister was quoted by CKNW this afternoon as stating that wineries should be able to ship wine to customers in other provinces: \”I think it\’s just another option for folks who are, let\’s say, in the Okanagan this summer, they go to a winery and, say, rather than having to drive the case of wine back to my jurisdiction, can you just send it to me? I have no problem with that.\” However, the press release issued by his Ministry this afternoon clearly states that \”All provinces and territories that allow personal importation from other provinces restrict that importation to liquor that accompanies the person bringing it into the province\”. For wineries, the distinction is crucial. The point of Bill C-311 is to enable wineries to ship direct to consumers in other provinces and to expand their markets, not just to allow importation \”on the person\”. Hopefully, this policy will be reversed quickly and the government will resume its full support of Bill C-311. In addition, the press release contains a number of factual errors:

• The press release appears to confuse \”liquor board markups\” and \”provincial taxes\”. Liquor board markups are not taxes as they are not passed and approved by the Legislature. Any requirement to pay liquor board markups is not the same as a legal requirement to pay sales taxes.
• Many provinces have no laws dealing with inter-provincial importation of alcohol for personal use. Alberta\’s provincial laws specifically permit any amount for \”personal consumption\”. The press release incorrectly states that all provinces restrict importation to \”in-person\” importation and that no jurisdiction allows for tax-free importations.

Update: Total confusion reigns as the press release says one thing and the Minister says that BC will permit shipment as opposed to \”in-person\” transport. See Latest Post on this Issue for More Information.

Bill C-311 passed its third reading vote in the House of Commons last night with a resounding unanimous vote of 287 – 0. The Bill now heads to the Senate. Hopefully, it will be dealt with quickly in the Senate and become law before the summer. Fingers crossed on that one. However, as I have previously stated, it is important to remember that the amendment permits each province to impose limits on the personal use exemption that is created. The most obvious limit would be to define the amount of wine that is a reasonable amount for personal consumption. As a result, if real progress is to be achieved, it is essential that the provinces set realistic limits. As one of two leading wine producing provinces (and as the only one that is actively supporting this Bill), British Columbia is in a unique position to take leadership on this issue and to establish a precedent for the other provinces in advance. It is hoped that British Columbia will act soon on this matter.

On Friday June 1st, the legacy of prohibition ended in Washington state as that jurisdiction completely privatized its wholesale and liquor businesses, ending decades of \”control\” over the alcohol business. Washington\’s government, like most places in the world, will now become a regulator of the business rather than an active participant. The transformation takes place as a result of the successful Initiative I-1183, which was primarily sponsored by Costco in last November\’s election. Washington consumers can now purchase spirits in private stores (previously only beer and wine were available in the private sector). All state government liquor stores have now been closed permanently along with the state\’s wholesale distribution warehouse. The initiative also placed some new taxes on spirits in Washington which were designed to ensure that the state did not lose revenue after exiting the business (in fact, the transition was not designed to be revenue-neutral and taxes are predicted to increase state liquor revenue by about 50%). The new system is explained well in this post from Seattle\’s Wine World and Spirits: Washington Prohibition is Over. From early news reports, it appears that spirits pricing will vary greatly depending upon place of purchase (see Seattle Times Database for comparisons). Due to the new taxes, non-discounted prices will likely be higher than in state liquor stores (see: Buyer\’s Remorse Over End of State Stores as Liquor Prices Rise). However, as with all products sold in the private sector, consumers will likely be able to get better prices (some lower than in state liquor stores) if they buy products on sale or at a discount outlet such as Costco. Here are a couple of examples from the Seattle Times (The Day Liquor Went Private and Prices Stumped the Public): 1.75 L of vodka at Costco: $29 plus taxes = $41; 750 ml of Jack Daniels at Safeway: $18.99 plus taxes = $25.70. If it proves true that state liquor revenue will jump considerably then that would be good news for the state government. As a comparison, in British Columbia the minimum price for vodka for 1.75 L including taxes would be $55.41 and 750 ml of Jack Daniels sells for $31.99.

On Tuesday, there was a historic opportunity for the House of Commons to vote on and pass Bill C-311 which would amend the 80 year old law that prohibits the inter-provincial shipment of alcohol so as to allow the shipment of wine in certain circumstances (a personal use exemption). The passage of this Bill would provide great benefits to Canada\’s thriving wine industry and to Canadian wine consumers who have long suffered under a prohibition era rule which makes it illegal for them to order wine from another place within their own country. The Bill was thought to have all party support and the wine industry was excited that finally it would be rid of an archaic law which has no place in modern society. Unfortunately, the historic opportunity to fix this was delayed when a number of federal NDP MPs created a fillibuster and used up all of the time allotted for the Bill, thus preventing the vote (see story: BC wineries shackled by NDP MPs). Since the House will break for summer recess shortly, any further progress in the Bill could have been delayed until at least the Fall. Fortunately, Nova Scotia Liberal MP, Scott Brison, stepped in to save the day by providing more time for Bill C-311 next week on June 6th. The NDP has subsequently apologized for the fillibuster, claiming that it arose from a \”communications error\”. Happily, it now appears that all-party support has been restored and that the Bill will pass next week and head to the Senate. The Globe provides coverage of the story here: Proposed Changes to Wine Law Back on Table in Ottawa and CBC also has this story: Canadian Wine May Flow More Freely if MPs Get Their Way.

Good news despite yesterday\’s set backs (see: NDP Delays Wine Shipping Law Reform). Liberal MP, Scott Brison, has saved the day by stepping in and providing more time for Bill C-311 next week. Hopefully, the Bill will now pass before summer recess. Thank you, Scott Brison.

An opportunity to reform Canadian wine shipping laws (see earlier story: Canadian Wine Shipping Law Reform Comes Closer) was lost today when federal NDP members used up all of the allotted time for debate on the Bill and prevented a vote in the House of Commons. The sponsor of the reform Bill (C-311), Dan Albas, had implored the House to pass the Bill today in order to help the Canadian wine industry and Canadian wine consumers. Passage of the Bill would have amended the 80 year old post-prohibition law which prevents the shipment of wine between provinces for personal use. Unfortunately, due to the delay, the Bill will now likely be delayed until at least the Fall.

This week is a significant one for the reform of wine distribution and regulation in the Pacific Northwest. It\’s interesting to look at the changes that are happening in the neighboring jurisdictions of British Columbia and Washington state, particularly as those changes relate to the modernization of regulatory frameworks that stem back to Prohibition. Here\’s a summary of what\’s happening.

Washington State. On Friday June 1st, Washington will completely privatize its liquor distribution system, moving to \”open state\” status after decades of being one of a diminishing number of \”control states\” in the U.S. (for more info, see Tom Wark\’s article: Should Alcohol Bureaucrats Be Dissing the Will of the People?). Up to now, Washington maintained overall control of liquor distribution in the state through the use of government wholesale distribution warehouses and by restricting the sale of spirits to government operated liquor retail stores. Beer and wine, however, has long been available in grocery stores and private retailers following earlier reforms. The new system, which was mandated by last November\’s successful Initiative I-1183, will remove all government participation in the wholesale and retail liquor business. Instead, Washington state will move to becoming a tax collector and regulator, functions that lack the conflict of interest inherent when the state is also involved in the business that it is supposed to be regulating. The taxation/regulation function is the system that nearly all governments in the world follow, particularly those where there is no legacy of Prohibition.

The New York Times ran an excellent story on the switch-over yesterday, which notes that there may actually be a \”dry\” period in some areas of a few days this week during the transition: A Taste of Prohibition As Liquor Stores Go Private. No doubt, there will be much commentary and analysis after the fact on the impact of the changes. However, for consumers, the major questions center on pricing and selection. Washington consumers currently enjoy beer and wine prices that are often about 50% less than those in B.C. However, their spirits prices, while lower than in B.C., are higher than in other U.S. states, particularly those in California. Initiative I-1183 requires the introduction of new percentage based state licensing fees for spirits at both the wholesale and retail levels which were projected to increase state liquor revenue by 50%. Come Friday, consumers will be able to see whether those fees have increased end pricing at retail and/or whether competition has had an effect. It may be difficult to separate these factors in any analysis of price changes. 

British Columbia. Here in Canada, changes are also on the horizon, albeit of a different nature from our southern neighbor. On Tuesday May 29th, Bill C-311 (which would amend the Importation of Intoxicating Liquors Act to permit the inter-provincial shipment of wine for personal use in certain circumstances) will return to the House of Commons for third reading and, hopefully, a final vote before heading to the Senate. If and when this Bill passes, Canada will finally jettison its Prohibition-era constraint on shipping wine from one province to another: a problem that has been mostly solved in the United States through two decades of reform efforts and one very influential Supreme Court decision (Granholm v. Heald). This federal level change would be hugely beneficial to the expansion of the Canadian wine industry and the development of Canadian food and wine culture in general.

At the provincial level, the Government of B.C. is also in the process of re-examining its liquor distribution system. The Government has already passed some smaller reforms including caterers\’ licenses and has mused about joining the civilized world by permitting corkage (which is currently illegal). However, the biggest possible change is the \”Distribution of Liquor Project\” (DLP) which essentially asks private companies to bid on the management of the government wholesale distribution system and also to provide ideas on how to re-structure it. However, B.C. has chosen to look to Alberta for the distribution model for the DLP rather than Washington. The DLP proposes that BC replace the \”government monopoly\” distribution system with a single private operator under contract to the government. This type of modified \”control state\” structure was rejected in Washington and the process in B.C. has already been criticized by various groups here. However, while the DLP will reduce competition at the wholesale level, it does provide an opportunity to address many structural problems in the current government run system including supply chain inefficiencies, limits on product selection, conflicts of interest and a byzantine wholesale pricing model. B.C. consumers have been negatively affected for decades by these problems, which along with excessive levels of taxation, have resulted in some of the highest prices for wine in the western world. It is currently too early in the DLP process to comment on any possible effects on pricing.

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The bottom line on these changes is an interesting comparison. Washington will now join the majority of the world by rejecting the Prohibition-era control mentality and becoming an \”open or free state\” with respect to liquor regulation. British Columbia, on the other hand, has chosen to update the control mentality a bit rather than jettison it. B.C. will remain as a \”control state\” albeit one that may become more efficient. In both jurisdictions, the ultimate success of any changes will ultimately be judged by consumers (and voters) on the basis of pricing and selection. We\’ll have to wait to see on that one in both places … although answers from Washington may come as soon as this Friday.