Alberta Govt Reverses Discriminatory Markup Policy

The Alberta government has announced that, effective August 5th, it is eliminating the discriminatory liquor markup policy that was introduced in the last provincial budget. As reported here earlier, Alberta had previously had a liquor markup policy that applied equally to products regardless of place of origin. The budget changed that by providing lower preferential markups to small breweries located in Alberta and provinces that had signed the New West Partnership. As a result, an Ontario brewery, Steam Whistle, sued the Alberta government and obtained an injunction to prevent the change on the basis of a preliminary argument that s.121 of the Constitution (the "free trade provision") might prevent provinces from charging markups or fees that did not apply equally to all Canadian products. The Alberta government has now announced that they are reversing course and going back to a system that is non-discriminatory: Government to Create Consistency for Alberta Beer Markups. This move should effectively end the Steam Whistle case - which will also end the potential for a court ruling on the effect of s.121. At the same time, the Alberta government announced it will later introduce a "grant program" to encourage the growth of Alberta based small brewers.

NB Appeals Cross-Border Liquor Decision

The New Brunswick government has filed an appeal of the "cross-border" liquor case that was decided last month (the Comeau case) and which held that provincial liquor laws could not impede the "free trade zone" guaranteed by s.121 of the Constitution.  The appeal goes directly to the New Brunswick Court of Appeal (skipping an intermediate level of court) and contends that the judge made errors of law in interpreting s.121. One of the primary appeal arguments is that the judge did not follow older decisions of the Supreme Court of Canada that interpreted s.121 in a much more restrictive manner. The CBC news report on the appeal is here: New Brunswick appeals cross-border liquor case. The appeal is not surprising given the importance of the issues in this case.

NB Case Strikes Down Interprov Liquor Restrictions

In what could prove to be a groundbreaking decision of immense importance to the Canadian wine industry, a New Brunswick judge has found today that provincial laws that restrict the interprovincial transport of liquor are unconstitutional. The judge found that s.121 of the Constitution which guarantees a free trade zone within Canada does not allow provinces to create laws that prevent Canadians from transporting liquor from another province. It is not currently binding on other provinces because it is the decision of a NB trial court. However, if it is appealed to the Supreme Court of Canada, which seems all but certain, then it may eventually become binding across the country. Even now, it will likely be influential because there is now a precedent for other Canadian jurisdictions, if not a binding one. I note that all Canadian provinces have some form of laws, regulations or policies that inhibit the interprovincial trade in alcohol (Manitoba is the least restrictive). All of these restrictions are now vulnerable to a similar challenge.

This case may become Canada's Granholm (a case which opened up the U.S. market to direct to consumer wine shipping). This may be the start of a new era when Canadians from one part of the country will be able to legally purchase wine, or other alcohol, from another part of the country just as most people in the world are able to do. This is a very significant development for the Canadian wine industry because it may transform their markets from customers in a single province to all of the residents of the entire country.

Here is a link to the full decision: NB Liquor case.

DTC for 2016 - Canada's "Granholm" Revolution?

From a wine lawyer's perspective, 2016 is shaping up to be what could be an exciting year in Canada. There are two significant court cases likely to be decided this year, from opposite sides of the country. Either one of these cases could significantly change the regulatory landscape for the wine industry in Canada.

In this sense, Canada could see a decision which may eventually have "Granholm-like" significance. Granholm v. Heald was the 2005 U.S. Supreme Court decision that opened the U.S. wine market to direct to consumer shipping by holding that a state could not discriminate against out of state wineries if it allowed in-state wineries to direct ship to consumers. In the recent Silicon Valley Bank "State of the Industry 2016" report, it was commented that the U.S. wine industry "really dodged a bullet" due to the Granholm decision because the decision "knocked the legs out from protectionist state laws that favored in-state wine producers". The subsequent rapid expansion of the direct-to-consumer wine market greatly helped small wineries who found it difficult to obtain distribution because of a consolidation of distributors and the growth of grocery/big-box wine sales.

The first Canadian case is the New Brunswick case of R. v. Comeau. In this case, Mr. Comeau crossed over the provincial border from his home province of New Brunswick to purchase some beer and spirits in Quebec, where they are cheaper. He was nabbed by the RCMP on the way back. Rather than paying the fine, he chose to fight the charges. As a result, a constitutional challenge has now been made to the New Brunswick law that prevented Mr. Comeau from importing the alcohol. The details of the case are here: Canada's Complex Liquor Laws Under Spotlight in N.B. Trial. This case was argued last year and a decision is expected this spring.

The second case is more recent. Up until last year, Alberta's taxation system for alcohol was non-discriminatory. All alcohol was subject to "flat tax" (volume based) markups that applied equally regardless of where the alcohol was produced. However, in the most recent Alberta budget, the NDP government chose to depart from the previous approach and to apply lower markups to beer that was produced by craft breweries in those provinces that had signed the New West Partnership (BC, AB, SK). Craft beer produced in other provinces is now subject to higher markups. Predictably, Ontario's craft breweries were not pleased. One such brewery, Toronto's Steam Whistle Brewery, was sufficiently upset to hire legal counsel and to take action (details here: Steam Whistle Granted Injunction Against Alberta's Protectionist Beer Tax). They have subsequently obtained an injunction to delay the imposition of the discriminatory markups until such time as a full hearing is held. A court date has now been set for July of this year, at which it is expected that a constitutional argument will be made that one province cannot impose discriminatory markups on alcohol products produced in another province. This is a very similar argument to the one that was successful in Granholm.

If one or both of these cases is successful, there could be "Granholm-like" effects for the wine industry and for Canada's liquor boards. If restrictive inter-provincial liquor transport laws are struck down in the Comeau case, then Canadians may become free to order wine and other alcohol from anywhere in the country. If discriminatory provincial markup policies are struck down in the Steam Whistle case, then Canadian liquor boards will no longer be able to impose taxes or markups on out of province producers that they do not apply to in-province producers. The latter development would fundamentally change BC's current policies since they currently exempt BC producers from liquor board markups on many products. 

There will be a full discussion of the above cases at the BC Wine & Liquor Law Conference in Vancouver on Monday, February 22nd ... including a presentation from the lawyers that argued the Comeau case in New Brunswick.

Secondary Tasting Rooms: WA vs BC

Wine media in Washington state is reporting on a Bill that would increase the number of secondary (off-site) tasting rooms for WA wineries to a new maximum of four: see Washington Wineries Ask Legislature for More Tasting Rooms. Secondary tasting rooms have proved to be extremely successful in Washington since a legislative change in 2000 which introduced the current allowance of two off-site tasting rooms per winery. The change allowed wineries to locate tasting rooms either in downtown wine area towns (e.g. Walla Walla) or closer to urban markets (e.g. Woodinville, which now has 130 tasting rooms just northeast of Seattle). These changes have meant that wineries could increase sales in their DTC channel which is, by far, the most profitable retail channel for the wine industry. Meanwhile, here in B.C., the provincial government has accepted a recommendation of the liquor policy review that secondary tasting rooms should be permitted. However, to date, there has been no announced timeline for implementation and wineries are unable to operate even a single off-site tasting location.