The Shaky Foundation of Canada's Liquor Monopolies

Only a wine lawyer could possibly be interested in the 80 year old prohibition era law that is known as the Importation of Intoxicating Liquors Act (or the IILA). Unfortunately, over the last few months, I have had far too many occasions to think about this archaic bit of law which is actually the foundation of Canada's antiquated liquor distribution system.

It was passed by the federal government at the end of prohibition and at the request of the provinces. The historical context is as follows. As most people know, prohibition was an utter failure both here in Canada and in the U.S. Alcohol consumption actually went up during that time and the prohibition laws simply made criminals out of otherwise law-abiding and productive citizens. The provinces were desperate for a way out of the mess and each of them eventually put forth the option of government control over liquor which they thought (correctly at the time) would appeal to enough people to constitute an acceptable middle ground.

B.C. was one of the first to switch to government control. Unfortunately for the government though, and as a result of prohibition, bootlegging had become a firmly entrenched and profitable business. As a result, there were two big problems: 1) many citizens were still buying from bootleggers rather than the government stores, and 2) there was a healthy interprovincial trade in liquor between the provinces that had switched to government control and those that still had prohibition. Since the provinces don't have constitutional jurisdiction over interprovincial or international trade, they couldn't act on those matters. As a result, they asked the federal government to intervene.

The federal government acted and drafted the law such that it would shore up provincial liquor laws and policy decisions - reinforcing the move to government control. As such, the law prohibits the transport of any amount of liquor (even a single bottle of wine) across a provincial border unless the liquor is "purchased by or on behalf of, and that is consigned to" the provincial government in the destination province or "any board, commission, officer or other governmental agency that, by the law of the province, is vested with the right of selling intoxicating liquor".

Here's where the problems start. If you read the wording of the IILA literally, it ASSUMES that the province requires that all liquor be sent to it or the government agency that it has appointed. Back in the post-prohibition era, this was a reasonable assumption because there were only two systems: prohibition or full government control. Today, however, things are not so simple.

Alberta, for example, has moved to a fully privatized retail liquor distribution system. Wholesale in Alberta is still controlled by the government but contracted out to a private operator, Connect Logistics. Here in British Columbia, we have a complicated mixed retail system. We still have a government wholesaler in the LDB but this system is not straightforward as agents (distributors) work with the government to import product into the system.

As a result, in both Alberta and British Columbia, we no longer have full government control of the wholesale and retail liquor distribution systems. The IILA does not work well within that framework. Two glaring recent examples are the following.

1. Shipping Wine From BC to Alberta.

When Alberta modernized its liquor laws during the retail privatization, it included exemptions for its citizens to import liquor into Alberta so long as the amounts were reasonable "for personal consumption" (see this related post for the details). For example, on a plain reading of the sections, Albertans could thus bring a case of wine back with them from the Okanagan when they were on vacation. All of this seems perfectly sensible for modern liquor policy in a province with a privatized system. However, the IILA doesn't contemplate this because it still says that everything has to go through the government liquor board. This has caused big problems recently because the AGLC (the Alberta liquor board) has decided that, in its view, the federal law reigns supreme. Consequently, it has threatened BC wineries (and Albertans) with criminal prosecution if they dare to send or bring BC wine into Alberta without sending it through AGLC.

2. BC LDB and Imported Liquor

Once upon a time, the BC LDB acted as the purchaser, importer and retailer of all liquor in BC. Theoretically, they still act as the initial purchaser and importer. However, the system is not really as straightforward as that. In reality, and most of the time, the LDB issues the purchase order for product on behalf of a local agent (or distributor). The product is then sent (e.g. from a winery in France) to B.C. where it is stored in a bonded customs warehouse, at the expense of the agent/distributor, until retail orders are received. Only after the orders are received is the product shipped through the LDB warehouse and out to the retailers (e.g. private stores, restaurants, government stores). The LDB takes the position that it is not the true owner of, and is not responsible for, any of this product while it sits in the bonded warehouse. Not so small problem with that: the IILA doesn't contemplate that the agents could own the product on importation (and neither does the BC Liquor Distribution Act). The system works for business purposes but it isn't allowed by the relevant statutes.

As the liquor distribution systems are increasingly modernized, these problems will only get worse. The heart of the problem is the anachronistic nature of the IILA's assumption of total government control. Today, our provincial governments don't even want total control. They simply want the revenue associated with liquor sales. In this respect, the IILA needs to be reformed. It's out of step with Canadian society and with a modern approach to liquor regulation. In addition, it's a thorny issue because the IILA and the liquor board monopolies have policies and procedures that are designed to protect our domestic wine industry.

Trouble is ... who's up to fix this? I haven't heard anything from any of the federal politicians on this ... and they are the ones who need to act. It's been 80 years since the last time that they had to do anything ...