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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.

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