Month: November 2009

As you may have read here recently, FedEx recently announced that it was implementing a new \”direct purchase\” system so that consumers in British Columbia, Alberta and Ontario could order wine direct from U.S. wineries and have it delivered to their homes or businesses following payment of applicable liquor board markups/fees/taxes. The FedEx announcement was exciting for Canadian wine consumers because it seemed to indicate a new era of more open wine purchasing (albeit with rather steep fees in B.C.). Regrettably, it appears that FedEx did not obtain regulatory approval for this system in B.C. before announcing it (at least that\’s what the LCLB tells me). As such, it is unclear whether FedEx will be able to proceed with their plans in B.C. or in the other provinces.

However, this story highlights the major problems with Canada\’s wine shipping laws and policies. Here is a summary of the regulatory mess that we currently have.

Shipments Entirely Within a Province. Provinces such as B.C. and Ontario, which have wine industries, currently permit their own wineries to ship directly to customers but only within the same province (i.e. B.C. wineries can ship to B.C. customers but not to Ontario customers).

Shipments Between Provinces. The liquor boards in Ontario, Manitoba, and Alberta have recently threatened British Columbia wineries with \”criminal enforcement\” action under an archaic 1928 prohibition-era statute which prohibits the shipment of wine between provinces. As a result, B.C. wineries are unable to legally ship Canadian wine to the majority of Canadian wine lovers.

Shipments From Outside Canada. Wine lovers in B.C. are currently able to order wine from outside Canada and have it sent to them. However, upon arrival in B.C., the shipment will be held at Customs until the customer clears the shipment with the BCLDB. This is a cumbersome and expensive process under which the customer will be required to pay all of the various LDB fees, markups and taxes (which will be applied to the full retail price of the wine). One person who recently went through this process told me it was \”nightmarish\” – it took him hours to get the necessary paperwork right including multiple personal trips to Customs and the LDB. However, once all the money is paid, the wine will be released. I understand that there are similar processes in other provinces (although in Alberta, for example, the fees are much, much lower).

Wine Imported by Travellers. Consumers can also personally bring wine back with them from outside Canada if they do so while travelling (i.e. if you drive down to the U.S., you can bring wine back with you). As most people are aware, there is a miserly duty-free allowance of 2 bottles (750ml) per person. After that, you will have to pay liquor board fees based on the province into which you are bringing the wine. See \”Bringing Wine Back to Canada After a Trip\” for more info.

It appears that the FedEx \”direct purchase\” system is a streamlined version of the process described above for \”Shipments From Outside Canada\”. Basically, FedEx is trying to lessen the regulatory burden by taking care of some of the paperwork and then delivering the wine directly to you once it is cleared. This seems to be a sensible goal. At first glance, one would think that nobody would care about this since the relevant government (liquor board) is getting all of its money. However, the system poses problems for the liquor boards because they are still taking the position that Canadian wineries can\’t ship directly at all. It doesn\’t look too good when U.S. wineries can ship and Canadian wineries cannot.

However, the underlying problem remains. For U.S. wineries, the liquor boards have effectively permitted a direct delivery system so long as the consumer agrees to pay the applicable fees and puts up with the cumbersome process (FedEx was just trying to make it easier). However, for Canadian wineries, the liquor boards have rejected their overtures to set up a similar reporting system and have instead relied on IILA to stop inter-provincial direct to consumer shipments completely.

Legally, I find this fascinating because there are no exemptions in IILA for shipments where the purchaser intends to pay the markups/taxes. Theoretically, the level of legality or illegality under IILA is the same if a consumer brings or ships wine across an international border versus an interprovincial border. The collection of markups/taxes at the border is a separate legal issue from the shipping prohibition in IILA. The practical reality has been that the liquor boards have allowed the international shipments because they have a way of enforcing the tax/markup collection at customs. Of course, they have no mechanism for guaranteeing that a customer pays the markups for an interprovincial shipment so they have tried to stop those completely.

This quagmire is all about the money. Isn\’t it about time we sorted it out?

FedEx has just announced that it will be part of a new \”direct purchase\” system which will allow U.S. wineries to direct ship wine to consumers in British Columbia, Alberta and Ontario. This groundbreaking announcement will allow individuals in these provinces to purchase wine direct from U.S. wineries. FedEx will retain control of the shipment at all relevant times and, for B.C., will calculate and will remit the applicable taxes and liquor board markup (in AB and ON it appears that the buyer will have to do this while FedEx holds the shipment). The system will be \”transparent\” for the consumer with the wine arriving direct to their home or business from the winery and FedEx taking care of most of the customs issues (in B.C., consumers will be charged by credit card for the various fees). Turnaround times are impressive … FedEx\’s process chart indicates that the BC LDB will provide clearance charges to FedEx typically within 24 hours

FedEx\’s web site has an extensive description of the new \”direct purchase\” system including a FAQ, flow chart of the purchase process and calculators which enable consumers to figure out liquor board markups and fees ahead of time.

This announcement is groundbreaking and appears to be the harbinger of a new system of more open access to wine retailing for consumers. Some major questions remain though. I can\’t imagine that these three liquor boards would permit U.S. wineries to direct ship to consumers and still prohibit inter-provincial shipment of wine. My guess (and hope) is that this is part of a broader system which will also permit the inter-provincial shipment of wine between the provinces in question. The achilles\’ heel of the system for B.C. may be the provincial markups though … it doesn\’t take much playing with FedEx\’s calculator to realize that the markups applied in B.C. are absurdly high compared to the other participating provinces. Still though, this is a major step in the right direction in terms of consumer access to wine. I am anxious to see confirmation of this and additional details from the BCLDB.

[Update: I have just confirmed that the BC LDB and LCLB have not approved the \”direct purchase\” system. As such, it appears that this was a FedEx initiative alone. I\’ll update this story as things develop but it now seems that FedEx may have announced this without regulatory approval. Please see this updated FedEx story for more information]

Here is an interesting update on the \”Cellared in Canada\” labels controversy which has had so much media attention lately. At the recent wine law conference in Vancouver, Arnold Schwisberg of Toronto provided a comprehensive history of the genesis of this labelling. Arnold pointed out that, in law, there is no regulatory or statutory authority for the use of the term \”Cellared in Canada\” (or CIC for short). Rather, it is the product of a voluntary industry committee on wine standards which met many years ago (and of which Arnold was a member).

At the time, the large wineries that wanted to produce CIC wines (wines blended from international and domestic juice) could not label them as \”Product of Canada\” because they did not meet the legal requirements for sufficient Canadian content. As such, a proposal was put forward that an alternative descriptor be created. The committee eventually settled on \”Cellared in Canada\” albeit to the chagrin of some committee members who put forward concerns that this description was misleading to consumers and may not satisfy the legal requirements of the federal Food and Drug Act (FDA). The latter concern is based on Regulation B.02.108 of the FDA which reads as follows:

B.02.108 A clear indication of the country of origin shall be shown on the principal display panel of a wine.

At a later date, the LCBO then advised the trade that it would accept the Cellared in Canada wording recommended by the committee and specifically noted that it would accept this labelling as \”a replacement for the country of origin declaration\”.

As Arnold pointed out, the phrase \”cellared in Canada\” on its own does not indicate the \”country of origin\” of the wine. However, the wording that the committee intended be used was, in fact, \”Cellared in Canada from imported and domestic wine/grapes/grape juice\”. Nevertheless, even on that expanded wording, it is not clear how the Regulation is satisfied since only one country of origin (Canada through the word \”domestic\”) is identified. In B.C., that would seem to be problematic as CIC wines do not, in fact, have to contain any domestic content.

It may well be that the argument was that CIC wines do not have a single \”country of origin\” and thus, cannot satisfy the Regulation. However, it would seem that the better interpretation of the Regulation would be that all countries of origin have to be identified. This may be difficult practically since the blend may change from time to time but that would appear to be the best interpretation of the law.

As Arnold also pointed out, the recommendations of the committee do not have any force in law. It is the provisions of the FDA and other relevant legislation that are, in fact, binding upon the wineries.

The first ever BC wine law conference was held in Vancouver this past Thursday and Friday, November 12-13th. I co-chaired the conference with Chris Wilson of Bull, Housser & Tupper.  I was very pleased with the overall conference. We had an excellent audience with an amazing depth of knowledge including representation from wineries, agents, retailers, restaurants and government. Here\’s an update on some of the issues that were covered:

• Great discussion from winery owners on the issues to consider when starting a winery – including Michael Dinn from Joiefarm and Andy Johnston from Averill Creek.
• Issues on getting product to market in the United States by Susan Johnson from Stoel Rives in Seattle.
• Overview of labelling requirements in Canada (by Dan Bennett from BHT) including an interesting discussion of the genesis of the \”Cellared in Canada\” labels which have caused recent controversy (by Arnold Schwisberg from Toronto). I\’ll post a separate update on this issue.
• Summary of issues to consider regarding trademarks and your wines (Chris Wilson of BHT).
• Operations risk management including common liability issues for your winery (by myself).
• Interesting discussion of winery related tax issues including SRED credits (John Ormiston of Deloitte).
• Rundown of the most common employment issues facing wineries (Herb Isherwood of BHT).
• Immigration issues including foreign workers (Alek Stojicevic).
• Fascinating discussion of mainly logistical issues facing retailers and restaurants (Rob Simpson of Liberty, Stan Fuller of Earl\’s and Brian Berry of AWSM).
• Really interesting update (with newsworthy content) on the shipping law situation in Canada (Ian Blue and Arnold Schwisberg, both from Toronto, as well as Sid Cross and Anthony Gismondi). I\’ll post separately on this.
• Ecommerce and website issues (Brent Johnson from Vin65).
• Taxation and Markup Issues (Tim Crowhurst of IVSA).
• Regulatory Compliance Issues (Bert Hick of Rising Tide)
• Regulatory Overview of BC Wine (Jeffrey Thomas of BCWA).
• Reform of BC Wine Laws (Scott Fraser of BCWI and myself).

As a member of the International Association of Wine Lawyers, I just received this list of additional Canadian GIs (geographical indicators) for wine which will be protected under the Canada – EU Agreement on trade in wine and spirits. The protected GIs to be added are:

Ontario, British Columbia, BC Gulf Islands, Vinemount Ridge, Lincoln Lakeshore, Creek Shores, Twenty Mile Bench, Short Hills Bench, Beamsville Bench, Niagara Escarpment, Four Mile Creek, Niagara Lakeshore, Niagara River, St. David\’s Bench, Niagara-on-the-Lake

Previously protected GIs included under the original agreement are:

Fraser Valley, Lake Erie North Shore, Niagara Peninsula, Okanagan Valley, Pelee Island, Similkameen Valley, Vancouver Island

I have reported on France\’s bizarre moves toward neo-prohibitionist laws regulating their wine industry before. Just noticed an interesting story in Decanter following up on this issue. At a recent conference in Europe, France\’s strategy was blasted by many from the wine industry as being completely out of touch with history and reality. Particularly, what is incensing people is the effort to lump wine in with spirits and then claim that all forms of alcohol consumption are \”dangerous\” and need to be highly regulated. This rationale is exactly what led to the disastrous experiment with prohibition in North America. It\’s odd that one of the world\’s leading wine producing countries would be putting forth these discredited theories. Here in British Columbia, this is exactly what led us into the morass of unworkable laws and regulation that we have today. Most of North America has been slowly unwinding the prohibition era mess and has moved (albeit slowly) to saner and more sensible policy. Hopefully, British Columbia will not be far behind and France will abruptly end its foray into reactionary territory.