Month: April 2010

The BC Government has announced changes to some of BC\’s liquor laws. The statutory amendments are fairly extensive. The LCLB has a summary in PDF form here. Many of the amendments are housekeeping matters to reflect the reality of various changes to the liquor and wine business that had been informally adopted previously. However, there are also some relatively substantial changes which are for, the most part, good news. For example:

• Reform of Tied-House Laws. The current Liquor Control and Licensing Act (\”LCLA\”) contains a \”blanket prohibition\” in section 18(1) of \”tied-houses\”. The original intention of these provisions was to prevent vertical control of the liquor market (i.e. to stop manufacturers from owning pubs/restaurants/retailers so that they could favour their own products). The reality of our modern liquor industry is that such control is not a major concern. The tied-house laws ended up causing significant grief for some businesses. For example, a winery could not sell its wine at a hotel/restaurant that was owned by the same family because of the \”tied-house\” restrictions. The amendments remove the blanket prohibition and permit regulations to be issued which will govern any restrictions on \”tied-houses\”. As such, we will have to wait to see the regulations to see exactly how this issue is being fixed … but the statutory amendments are a step in the right direction.
• Inducements and Co-op Advertising. Similarly, the current LCLA contains prohibitions that prevent licensees from receiving \”money, gifts, reward or remuneration\” for the promotion or sale of liquor. These blanket prohibitions made it difficult to permit retailers and agents/manufacturers from working together to promote the sale of a product. These practices are commonplace in other industries such as the supermarket and grocery business.  The amendments eliminate the blanket prohibitions and make them subject to regulation. Once again, we will have to wait to see the regulations. However, it appears that the intention is to permit some form of co-op advertising.
• Licensee Resale. The amendments change the law so that \”a prescribed class or category\” of licensee can sell to other licensees. The explanatory PDF indicates that this is to enable rural agency stores to sell to other licensees (e.g. pubs/restaurants) in remote areas.
• Inter-provincial Border Issues. The PDF states that there will be a new \”process for bringing in small amounts of alcohol into BC from elsewhere in Canada for personal use\”. At the present time, it is generally illegal and/or so expensive to do this that consumers ignore the reporting requirements (if they are even aware of them). I have long advocated that BC take the lead on this issue and establish a workable process for inter-provincial shipping of wine. However, I understand from the LCLB that this initiative is more limited and the new process will only apply to \”small amounts\” of wine brought back personally with a traveller into BC from another province – so it will not address the inter-provincial shipping issue. Rather, it will permit BC residents to bring wine back with them from other provinces if they have been on a trip without breaking the law. It appears that the intent is to exempt such wine from provincial markups. While this is a step in the right direction, it will not solve the problem for BC wineries\’ shipping to other provinces.
• Independent Wine Stores. The \”old-style\” private wine store license (e.g. Liberty, Marquis, Everything Wine etc …) was based on an agency agreement with the Crown. This category of store is being removed from the legislation … presumably to be moved into a category of license under the regulations (where other retailers such as LRS stores are located).
• Special Occasion Licenses. There are a number of changes which clarify the process and regulation of special occasion licenses. The new statutory provisions permit \”prescribed\” classes or categories of licensees to also issue special occasion licenses. It is not clear what the extent of this is.

While we will have to see what the new regulations contain, these
reforms generally appear to be good ones and a welcome step in the right
direction for wine law reform.

UPDATE (June 3, 2010): the legislative bill which makes the above changes has now been passed by the BC Legislature and will receive Royal Assent on June 3, 2010. However, many of the more significant changes do not take effect immediately. Rather, they will be introduced by regulation.

Please contact me directly if you have any questions or comments on the above.

In U.S. news, it appears that wine and spirits wholesalers are attempting to mitigate the impact of recent court decisions permitting direct shipping of wine to consumers by strengthening the power of the states to regulate alcohol (including wine). A bill has been introduced in the U.S. Congress which is designed to make it difficult to challenge the power of the states in respect of their use of legal barriers which support the three tier distribution system. The wine and spirits wholesalers have historically supported the three tier distribution system which has until recently required that all alcohol going into a state be distributed by a wholesaler for that state. Recent court decisions (the most prominent of which is Granholm v. Heald) have permitted wineries to direct ship to consumers in other states without going through the three tier system. The bill changes the evidentiary standards for such challenges, making it more difficult for them to succeed. Wine Spectator has reported on this and is properly concerned that this could be an end to direct shipping.

My apologies for the following rant which is really a summary of recent frustrations …

News from the BC Government, LCLB and LDB is showing that the lack of accountability and transparency in our retail wine distribution system is reaching unprecedented levels. Generally, it is assumed by the law that when government regulates in an area it is doing so in the public interest. However, the BC government\’s wine and liquor distribution system throws some serious doubt on this assumption. In fact, some recent actions of the BC government seem to show that there is inadequate consideration of the public interest in this area. Consider the following recent issues.

Minimum Shelf Prices. Most people aren\’t aware that the government imposes minimum prices for beer, wine and spirits in BC. The LDB recently increased the minimum shelf price for spirits in BC from $23 to $23.75. A couple of recent articles have showed how off base this policy is. Because the LDB uses a \”fixed markup formula\” for all of its products, any increase in the shelf price will simply result in the supplier increasing the wholesale price charged to the LDB. So all that happens is that the consumer overpays, the government loses out on tax revenue and the supplier gets a windfall profit. Zero benefit to consumers … nice profit for suppliers, minor benefit to the government/taxpayers (but with lost revenue).

Privatization Derailed. The recent deal between the BC government and the BCGEU has the government promising to keep operating nearly all government liquor stores as well as the wholesale distribution system. This comes at a cost to taxpayers of about $300 million per year. The government could have privatized some or all of the retail stores, saving itself tens or hundreds of millions of dollars in operating costs while maintaining all of its existing liquor tax revenue (which is applied at the wholesale level … so it doesn\’t matter whether the product gets sold in a government store, private store or bar/restaurant). In addition, the government could have sold the government stores to the private sector, likely netting itself a one-time windfall of hundreds of millions of dollars at a time when those funds are badly needed. Instead, the government decides to keep the status quo. Zero benefit to consumers & taxpayers, no help for smaller BC wineries trying to get better distribution … but a nice benefit to the BCGEU and some of the other players who like the system the way it is.

For an interesting insight into the inner workings of the liquor system and how your taxpayer dollars are being spent, you might wish to read either this summary or the full labour arbritration decision both of which relate to a 2005 LDB awards dinner where one employee got severely intoxicated, fell over as he was receiving his award and apparently heckled the Premier, the Minister and the Lieutenant-Governor (who were all present) using some rather inadvisable and colourful language. While this is obviously a case of \”one bad apple\”, it casts some light on the use of your taxpayer dollars. The LDB fired the employee afterwards … apparently at least partly because he had caused embarassment to the LDB at a time when they were trying to avoid privatization. The LDB lost an appeal by the union of the dismissal … and the \”over-refreshed\” employee was reinstated.

Increased Distance Separation for Private Liquor Stores. Most
people also aren\’t aware that the government has a legal prohibition
which prevents a new private liquor store from opening if there is
another private store close by. It\’s almost impossible to obtain a
retail liquor license in BC … so there\’s not a great deal of
competition anyway. But, the government has just increased the \”distance
separation\” so that the law prohibits any new stores within 1 km of an
existing store. So for example, if you are lucky enough to have an
existing private liquor store license, you are effectively
shielded from any new competitors within a 2 km radius. No allowance is
made for population density so if your license happens to be in a
densely populated area – lucky you, you get an exclusive right to that
area. As readers will know, I am an advocate of more privatization in
the wine business and many existing operators do an excellent job … but this
government policy is misguided. Since when is it a legitimate function
of government to prevent competition in any retail sector? Just imagine
if this logic was extended to other businesses – e.g. we\’ll make it
illegal for anyone to open another coffee shop within 1 km of yours
regardless of how many people live nearby. Nice perk if you could get
it! Zero benefit to consumers & taxpayers … preferential treatment
for existing store owners who are in densely populated areas.

Implementation of the HST Means Increases in Liquor Board Markup. Theoretically, the introduction of the HST at a combined rate of 12% would have meant a small reduction on the taxes on wine (which are currently 10% PST + 5% GST = 15% total). However, the government has decided that this can\’t be allowed so they have directed the LDB to INCREASE the already outrageous liquor board markups. So, for example, the markup on wine, which is currently 117% will go up to an even more absurd level. Once you add the liquor board markup, the sales taxes and various liquor board fees, you have combined tax and markup rates which approach 150%! And this is on wine, a product which is actually good for you when consumed as intended, in moderate amounts. By contrast, if I chug soda pop which is not good for me in any amount, I am currently not taxed by the BC government at all and will only be taxed at 12% after the HST is added. For complicated reasons (which you can read about here if you are interested), there may actually be a small benefit to BC wineries but there will be zero benefit to consumers and taxpayers.

The sum of all of this is obvious … in my view, the government is not paying sufficient attention to the public interest on important policy decisions which affect the wine industry and wine consumers. Most monopolies in Canada have historically had a corresponding regulator whose purpose it is to protect the public interest. However, Canada\’s liquor monopolies have never had this oversight … it\’s time for consumers and taxpayers to demand change.