Author: MarkH

A new LCLB policy, preventing the auction of privately donated wine at licensed charity auctions in BC, has caused the cancellation of Crush, an important fundraiser for the Belfry theatre in Victoria (see: Crush, Belfry Wine Auction Cancelled). The new policy was adopted over the summer as part of amendments to the special occasion licensing manual (PDF). This was a shock to many charities who have been holding such fund raising auctions for decades within BC without any problem. The new policy threatens the continuation of many charitable fundraising events and could affect the financial viability of some BC charities which have historically relied on these events to raise a significant amount of funding. The affected charities span the entire scope of charitable activity including arts organizations, hospitals and educational institutions. The policy seems problematic in a time of government financial restraint because a government direction to stop such fundraising will likely cause the affected charities to seek additional direct funding from government in order to continue to operate. 

Update (Oct 25, 2012): The minister responsible for the LCLB, Rich Coleman, was quoted today by CBC radio as indicating that charity auctions of private wine will be permitted and that he is hoping for a temporary fix to this problem either today or tomorrow. Will provide details once there is an official statement or news release.

This past weekend saw the Vancouver Sun publish an excellent editorial on wine shipping law reform (Allow Wineries To Sell Anywhere in Canada) with the newspaper arguing that the provinces and liquor boards should respect the democratic will of Canadians and embrace the spirit of interprovincial trade in wine as contemplated by Bill C-311 (which became law in June of this year). Unfortunately, as the editorial noted, many provinces and liquor boards are actively trying to prevent their own citizens from having consumer choice in the wine market and being able to direct order wine from other provinces. Perhaps, the most mystifying approach has been adopted by Alberta. As I have pointed out previously (see: Rule of Law Missed by Liquor Boards on Shipping Issue), Alberta provincial law clearly allows its citizens to \”import\” wine from other provinces for an adult\’s \”personal use and consumption\” (see s.89 of the Alberta Gaming and Liquor Regulation). Prior to the passage of Bill C-311, the Alberta Gaming and Liquor Commission (AGLC) took the position that Albertans were unable to direct order wine from other provinces because, although this Alberta law permitted it, federal law did not. Indeed, I received confirmation of that position from AGLC\’s legal counsel in 2009. Of course, once Bill C-311 passed, the federal prohibition was removed … and thus, one would assume that Albertans would be free to direct order wine from other provinces. However, AGLC has recently been making statements that it does not permit direct ordering and the responsible minister confirmed this position in a speech last week. As a result and in my view, both AGLC and the responsible minister have now taken a position which it is not reasonably possible to support when you read the relevant Alberta laws. I spent many years in Alberta when I was a kid and I can attest that its citizens are very proud of its \”strong and free\” approach to public policy. What is one to think of an Alberta provincial government that thumbs its nose at a unanimous vote in support of direct shipping by the House of Commons, ignores a Bill that was passed by every single member of a federal government whose Prime Minister hails from Calgary, and that comes up with bizarre interpretations of its own laws in an effort to deprive Albertans of the liberty to purchase wine from a winery in a neighbouring province. This is not the Alberta that I fondly remember. The editorial writers at the Vancouver Sun are correct: it is time for the provinces and their liquor boards to respect the rule of law and, just as importantly, to respect the democratic will of Canadians who simply want to be able to purchase wine from other places within their own country.

Here\’s a short update on wine and liquor law reform issues in BC:

Tied House and Trade Practice Reforms. BC\’s laws relating to tied houses and to trade practices in the liquor/wine industries have not been reformed in any meaningful way since the post-prohibition era. The government announced that these laws would be modernized over 2 years ago (see: BC Reforms Some Liquor and Wine Laws). However, the reforms have been awaiting new regulations ever since. The Minister recently told Business in Vancouver that these reforms would be completed \”within the next two months\”. 

Privatization. As reported earlier, the BC Government recently cancelled its limited liquor privatization project as part of a deal with the BCGEU (see BC Liquor Privatization Cancelled). Business in Vancouver is now reporting that one of the motivations for the privatization project was to try and improve problems with productivity and efficiency in the existing system and to reform the pricing structure: see Censored Documents Shed More Light on Failed LDB Privatization. Hopefully, both the LDB and the provincial government will not be content to simply maintain an outdated system which has a myriad of problems (see: BCLDB Privatization – Opportunity for Reform?). Having dodged the privatization bullet, perhaps an effort will now be made to modernize the system within the constraints of government control and in a manner which will provide tangible benefits to consumers (and voters).

50/50 Rule in Restaurants Revoked. Over the summer, the BC LCLB introduced a new policy directive (PDF) which removes some problematic language from the Food Primary Licence Terms and Conditions. Effective August 3, 2012, the words \”As a general rule, liquor sales should not exceed food sales in the dining area\” has been deleted. This is a welcome change: restaurants can now breathe a sigh of relief when customers order an expensive bottle of wine to accompany their hamburgers.  

In addition, we are now entering election mode for all of the political parties. Hopefully, modernization of BC\’s outdated liquor laws will be a part of the election discussion and the platforms of each of the parties.

The BCGEU has announced a tentative deal with the BC government which includes the cancellation of the \”Distribution of Liquor Project\”, the BC government\’s limited liquor privatization project which I have previously commented upon. Here is the government press release: Tentative Agreement with BCGEU.

The cancellation will likely be greeted with relief by some sectors of the industry which had concerns over a process which provided for minimal consultation and which appeared to exchange a public monopoly for a private one … without any guarantees that there would be benefits for consumers. On the down side, BC\’s arcane and outdated liquor distribution system will now likely remain firmly entrenched in the prohibition era, retaining its system of government control and price fixing. Regrettably, wine consumers are the ones who will continue to suffer as they have for decades … since successive BC politicians appear to have little interest in modernizing a system which is rooted in the 1930s and 1940s.

The issue of whether government should or should not be involved in the liquor business (liquor privatization) continues to provoke intense interest along the West Coast. Here\’s a quick update on where things stand in the various jurisdictions with some links to some interesting articles.

Washington. Initiative I-1183 obtained voter approval in November 2011 and was implemented in June of this year when the state government shut down its remaining state retail liquor stores and state wholesale distribution warehouse system. As a result, Washington state now has an entirely privatized system of liquor distribution. The major issue in Washington following the privatization has been pricing. End consumer prices for spirits have gone up in most stores due to new taxes/fees which were included as part of the initiative (however, prices are a bit lower in \”big box\” stores such as Costco or Total). Significantly though, tax revenue on spirits has increased for the state government with recent data showing a hefty 25% increase for the latest quarter. As a result, while consumers are not seeing generally lower prices (due to the new taxes), the state government may prove to the be a winner with higher revenue. Here\’s a rundown of some of the relevant stories: Liquor sales in state picking up, Liquor prices show no signs of coming down, and Washington liquor privatization raises concerns about cross-state transportation of spirits.

Oregon. The Oregon state government is facing pressure to modernize various aspects of its regulatory regime, particularly from grocery stores who have long complained about outdated and inefficient distribution rules. Most recently, a lobbyist for state grocers told the state government that they should update state liquor laws next year or face a privatization initiative on the 2014 ballot: Grocers tell Oregon lawmakers – update liquor laws or face initiative and OLCC considers liquor sales in grocery stores.

British Columbia. The BC government continues with its \”Distribution of Liquor Project\”. This is a limited privatization project which seeks to replace the existing government wholesale distribution operation (which is coupled to a number of private bonded warehouses) with a single private operator. This is a very different approach than what was done in Washington state (see: Two Wine Neighbours – Two Approaches to Liquor Regulation). Essentially, BC is adopting the Alberta wholesale model – without affecting the government liquor stores. At the present time, the BC government has announced a short list of bidders which includes: Containerworld, Exel Logistics, Kuehne + Nagle, and Metro Supply Chain Group. The single successful bidder is supposed to be announced on October 16th, at which point a detailed negotiation process will begin. A final agreement is supposed to be signed by March 1, 2013. The transition date to the new system is slated to be April 1, 2013. It is still unclear whether this process will include reform of BC\’s arcane wholesale pricing structure for liquor (see: Privatization and BC Wine Pricing in the News and BC Liquor Economics & Privatization).

Bill C-311 ushered in a new era of Canadian wine shipping law on June 28th, just over 2 months ago. I have just updated my earlier article \”Shipping Laws on Wine Within Canada\” to provide a summary of developments to date and to include a chart showing my interpretation of the state of DTC wine shipping throughout the country (there are differing interpretations on this to which I have provided links in the article). Here\’s the short summary of some remarkable progress in a short period of time:

• Both Alberta and Manitoba had pre-existing provincial laws that permitted the interprovincial importation of wine for their residents when Bill C-311 came into effect. As a result, these provinces have been open for both winery and retailer DTC shipments since June 28th. Note: I am aware that CALJ and AGLC have been making statements that Alberta is not open for shipment, only for \”personal importation\”. In my view, this is not a reasonable interpretation of existing Alberta law.
• Ontario\’s laws are silent on the interprovincial importation of wine. It is my view that this results in Ontario being open for both winery and retailer DTC shipments on the basis of the legal principle \”that which is not prohibited is permitted\”. The LCBO has issued a contrary \”policy statement\” which, in my view, has no legal authority.
• British Columbia has amended its laws to permit the possession of unlimited quantities of wine imported from other provinces but only if the wine is 100% Canadian wine purchased direct from a winery. So BC is open for winery DTC shipments but not for retailer shipments.
• Nova Scotia announced last week that its government would change its laws sometime \”this fall\” to permit DTC shipments. It is not clear yet whether that includes both winery and retailer shipments.

The Nova Scotia government has announced that it will make legislative or regulatory changes sometime \”this fall\” that will follow the spirit of Bill C-311 and permit direct to consumer shipments of wine from other provinces to Nova Scotia wine consumers (see: Nova Scotia to Taste Wine Freedom). There are differing views of which provinces currently permit DTC shipments: see the FreeMyGrapes site for more information which includes my analysis. However, in summary, it is my view that DTC shipments are currently permitted by the laws of British Columbia, Alberta, Manitoba and Ontario. If Nova Scotia acts, then 5 out of 10 provinces will be open for DTC shipping which is tremendous progress given that Bill C-311 was only passed in June of this year. 

An Ontario Conservative MPP, Rob Milligan, has introduced Private Members\’ Bill 117, which is intended to clear up confusion in that province and clearly permit Ontario residents to import wine from other provinces in amounts for personal consumption (see story from the Northumberland View). The Bill is designed to address the uncertainty in Ontario following the passage of Bill C-311 at the federal level. Bill C-311 essentially \”passed the buck\” on wine shipping law to the provinces but Ontario currently has no statutory or regulatory provisions that deal with the inter-provincial importation of wine. Some analysts, like myself, have argued that Ontario is open to shipping because of the legal principle \”that which is not prohibited is permitted\” (see analysis at FreeMyGrapes.ca). However, the LCBO has issued a policy statement to the contrary indicating that it will not permit interprovincial importation of wine unless it is done \”in-person\” (i.e. no shipments from wineries). Bill 117 introduces a nice touch on this issue as it specifically removes all of the LCBO\’s powers in respect of any wine imported into Ontario from another province for personal consumption. Bill 117 is a private member\’s bill … such bills rarely become law. However, the federal Bill C-311 was also a private member\’s bill … and it passed with unanimous all party support.

I have been trying hard not to write about the BC Government\’s liquor privatization project because it\’s summer and I would rather enjoy a glass of wine in the sun. Unfortunately, whenever I turn on the radio, a politician seems to be on explaining why the project is either a disaster or a great idea. Sadly, and in my view, much of the commentary (from both sides) seems to miss many of the relevant points. So here is a short primer on BC Liquor Economics for those poor souls who are not out in the sun …

Wholesale Distribution System. Opponents of the privatization project have been saying that the government has presented \”no business case\” for privatizing the wholesale level of the system. Instead, they seem to want to keep things exactly the way they are. The reality is that the BC liquor distribution system is inefficient and archaic. It is an outdated system that was largely designed to address the problems of the post-prohibition era. Today, it is an unaccountable bureaucracy that shields itself from a modern retail and wholesale world where the norms are fair competition, reasonable pricing and e-commerce. If you want some stories from the trenches on this issue, please read these articles: Rod Phillips on Private Liquor Stores vs. Public Liquor Stores in BC and Ralf Joneikes on All Importers, Restauranteurs Have Tales of Liquor Board Foulups. If British Columbia wants to encourage a normal food and wine culture replete with economic growth and jobs, it is not an option to keep the system the way it is. Unfortunately, and as I have written earlier (Privatization and BC Wine Pricing), the government\’s proposals for reform are limited and it is still unclear whether they will address the underlying problems in the system. Consequently, in my opinion, there is absolutely no doubt that there is a massive and undeniable \”business case\” for broad reform. What is not clear yet is whether the government\’s privatization project is the right set of reforms.   

Privatization: Loss of Revenue? Some opponents of the privatization project have been saying that government should not privatize because the BCLDB is a reliable source of revenue for the government and that we should not be selling a \”government asset\” that produces revenue. This is absolute bunk. Let me explain why. Governments make all of their liquor revenue from imposing “liquor board markup” on all products at the wholesale level. These markups are hidden taxes. They apply regardless of whether the product is sold in government liquor stores, private retailers or bars/restaurants … so the government will get its money no matter what (and already does so because about 60% of liquor in BC is already sold by the private sector). It does not matter if the government privatizes the wholesale business and/or the entire retail business, it will still get all of its liquor revenue through taxation. The only \”asset\” that is producing this revenue is the government\’s ability to charge taxes on liquor and this will continue regardless of what they do to the system. In fact, the costs of running the wholesale and retail arms of the BCLDB are actually a drag on government revenue. The Government raises about $1.2 billion annually from liquor board markups … but it costs them $300 million to run the BCLDB so their net annual revenue is reduced to about $900 million. It is really nothing but an expensive tax collection system … if they eliminated the costs of running the BCLDB, they could certainly make more money.

Give Us Better Retail and Wholesale Pricing. Voters and consumers are tired of government liquor distribution systems which restrict selection and which fix prices at ridiculously high levels. In BC, any meaningful reform of the system needs to fix our arcane wholesale and retail pricing structure so that competition is restored, prices moderated, and selection increased. Critics of privatization have pointed to high prices in BC\’s private liquor stores as evidence that privatization is not a good idea. They have also pointed to the fact that prices have gone up for spirits in Washington state after their recent privatization. But these observations are wrong since they ignore the reasons behind the pricing problems. In BC, the reason that prices are usually higher in private stores than in government stores is because the BCLDB controls all prices by denying normal wholesale discounts to the private stores so that they have no margin to work with. If we had a proper wholesale pricing structure with a level playing field for all businesses – and with competition, I can guarantee you that prices would be much lower in private stores. In Washington state, prices went up because new fees/taxes were imposed at the same time as privatization. The new taxes were designed to increase Washington\’s revenue from spirits sales by 50%. If you raise taxes, prices will go up … and it is actually a testament to the benefits of privatization that they have not gone up very much in Washington. In this regard, I am puzzled as to why the BC government continues to assert that it will \”continue to control liquor prices\” as part of the privatization project … and that those prices \”will stay the same\”. That is not an attractive position for voters and consumers. From the average voter\’s perspective, the entire exercise is a waste of time if the issues of pricing and selection are not addressed. The government should be putting forward reforms that will reduce prices toward global levels and that will increase selection. Anything less provides no benefits to consumers and voters.