BC Liquor Law Reforms Include Tied House

The BC government has announced some major changes to liquor laws and regulations that include the reform of tied house relationships (govt news release: BC Liquor Laws Get Overhauled). The tied house laws previously restricted the ability of a manufacturer such as a winery to sell its own products in another business with the same ownership. Other changes include: the expanded operation of tasting rooms for breweries and distilleries, changes to promotional restrictions, a markup exemption for distillers using 100% BC product, the appointment of a BC wine \”envoy\”, the conversion of independent wine stores into licensees, and the inclusion of distance separation requirements for LRS stores in regulation rather than policy. Here is a summary of the changes:

• Tied House. A tied house exemption will now be available such that a small or medium sized manufacturer (licensed under s.57 of the Act – and in respect of wineries producing less than 750,000 litres per year) may have a financial relationship with up to 3 retail level licensees who are licensed under s.12 of the Act (e.g. bar, restaurant, private liquor store, caterer). Exempted retail level licensees would have to offer a \”range of products\” from other manufacturers along with the \”tied house product\”. This change will be greeted with relief by some manufacturers within BC who are currently prohibited from selling their products in financially connected businesses (an infamous example is Carbrea winery on Hornby Island who have been prevented from selling their product in the family\’s lodge, a few miles away, for many years). However, the restriction to 3 licensees will likely not be viewed as a solution to larger business operations, particularly chains of restaurants and retail stores. By contrast, Washington state scrapped its tied house restrictions almost entirely last year.
• Expanded Operation of Tasting Rooms for Breweries and Distilleries. Breweries and distilleries will now be placed on a more even footing to wineries in respect of the operation of their tasting rooms. They will now be able to obtain lounge, special event area, tour area and picnic area endorsements for their licenses. Previously, brewery and distillery tasting rooms included arcane restrictions about pricing and serving quantities that seriously limited their utility. This change brings B.C. more into line with other jurisdictions, such as Oregon which has seen huge growth in its artisan breweries and distilleries.
• Markup Exemption for Direct Delivery Spirits. The press release indicates that direct delivered spirits (i.e. product delivered direct to consumers or licensees from a distillery, not through the LDB) will be eligible for an exemption on LDB markup (which is currently 170% on spirits) if they are made from 100% BC product. Such an exemption would place direct delivery spirits on an equal footing to direct delivery wine and would provide a huge financial incentive for distillers who are able to meet the 100% BC requirement (apparently not easy for some products). In addition, as I have noted in the past, the difference on markup treatment between 100% BC product and imported product is likely a violation of Canada\’s relevant trade obligations and any expansion of this could spark a trade challenge. Indeed, this very issue is currently one of the subjects of a law suit in Washington state.
• BC Wine Envoy. Effective March 1, 2013, Herb Leroy has been appointed BC wine envoy by the province with specific responsibility to try to open up interprovincial wine shipping across the country.
• Independent Wine Stores. Some categories of private retail wine store in the province are being converted to licensees under the Act. This will make all private retailers subject to the same regulator (LCLB) and, for the most part, the same set of rules. The affected stores include independent wine stores (Liberty, Marquis, Everything Wine etc …), VQA wine stores and tourist wine stores. The new regulation continues an existing policy which prohibits the issuance of any new private wine store licenses. The discount rates (wholesale prices) that licensees get are unaffected by the change.
• LRS Distance Separation Rules. The BC government currently restricts competition in the retail liquor business by preventing licensee retail stores from relocating within 1 km of an existing store. Previously, this rule could be waived at the \”discretion\” of the general manager – which caused interpretive problems ending with a recent BC Supreme Court judgment. This discretion is being eliminated and replaced with set criteria in the regulations. 
• Trade Practices. Some minor changes have been introduced with respect to liquor industry trade practices, including the elimination of the requirement for \’buy-sell agreements\” in certain circumstances and the allowance of the promotion of events by licensees. However, the most significant issue in this area is the fact that the rules on \”inducement\” activity have not been reformed. Many in the industry were expecting a liberalization of these rules to allow co-op advertising and other financial arrangements which are typical in other industry sectors (the LCLB had previously noted that \”inducements between suppliers and licensees are quite common\” and that deregulation would not result in any \”significant change in actual business practices\”).