British Columbia’s government controlled liquor distribution system (BCLDB) is now in crisis mode due to a strike by the BCGEU which has now shut down all of the government liquor distribution warehouses and a significant number of high volume government retail stores. The complete shut down of the system will have serious knock-on effects for restaurants, bars, hotels and private retailers, all of whom depend upon the BCLDB for their import liquor supply and associated revenue. The crisis is made worse due to hang-over economic effects from the pandemic, reduced overall consumption, and from the province’s ban on the importation of U.S. alcohol.
A few of the immediate consequences are as follows:
Restaurants, bars and hotels will soon run out of import inventory on some of their most popular liquor products as it will be impossible to replenish inventory.
Private retailers will also face challenges if the strike drags on as they too will be unable to replenish inventory.
The business of import agents (mostly small local companies) is effectively suspended since they have no way of getting their product out of the warehouses where they are stored.
Special events, including charitable ones, will have trouble sourcing liquor supplies and some may have to cancel.
Saturday’s Bordeaux release event at government BCLS stores looks in jeopardy as most of the major stores are now shuttered.
It is particularly unfortunate that previous government efforts at liquor policy reform have failed to address some of the fundamental problems with the system, leaving in place structural flaws that have been around since after Prohibition. Specifically, we need to fix the following problems urgently.
Government Warehouse Bottlenecks. BC still requires that all imported alcohol be distributed through government warehouses in Delta or Kamloops. This applies even when the alcohol is primarily stored in a separate third party warehouse (which most of it is) and even when the alcohol is being delivered to a non-government licensee (e.g. restaurant, bar or private retailer). The forced requirement for a government “middle-man” is neither efficient nor environmentally sustainable. It increases costs and causes a complete breakdown in distribution whenever there is a strike (or any other disruption to the operation of the government warehouse). There is simply no reason for this system to continue. Indeed, this problem was the subject of Recommendation #1 in the 2018 BTAP Report (which I authored on behalf of the wider industry stakeholder group). Our modest proposed change was not implemented by government. If that change had been made, the system would not have ground to a halt as it has today.
BTAP Recommendation #1
Licensee to Licensee Sales. BC also still requires that hospitality licensees (restaurants, bars, and hotels) can only buy their import stock from LDB Wholesale or from a single designated government liquor store. Both of those options are now out of commission for most licensees. The only practical option (buying from private retailers) remains illegal. This too must change. Even when the system is working, it is unacceptable that it is illegal for a restaurant to buy a few bottles of wine from a nearby retailer if it has run out of something. It is utterly scandalous, that it remains illegal when the restaurant has no choice because the system has shut down. Again, this was the subject of Recommendation #11 in the 2018 BTAP Report. Again, our modest proposed change was not implemented by government. If that change had been made, then hospitality licensees would at least have some options and flexibility in trying to survive.
BTAP Recommendation #11
These are the two most prominent examples of badly needed change … and there are more. Government needs to finally fix some of these issues once and for all. Kicking the can down the road repeatedly no longer works. Prohibition in BC ended in 1921 … why are we still using and accepting aspects of a government control system for liquor that should have been modernized decades ago?
I have sometimes told a joke when I am speaking at wine and liquor law events: “there are two speeds for liquor policy change in Canada – glacial and backwards”. Sadly, the current political situation regarding the internal trade barriers for alcohol sales is proving that our provincial politicians regard the “glacial” description as absolutely appropriate for their “efforts” in this area.
To summarize, in February of this year, Federal Minister of Internal Trade stated that Canada would have its internal trade barriers regarding alcohol removed “within 30 days”. Prime Minister Carney later revised this optimistic time estimate and stated that the job would be done by “Canada Day” (July 1st).
Yesterday, Canada’s Committee on Internal Trade issued a press release “Committee on Internal Trade Meets to Strengthen Canada’s Economy” in which they happily informed us that most of the provinces (Newfoundland is a hold-out) have signed a Memorandum of Understanding to start work on a national system for direct to consumer sales of alcohol that is slated to be rolled out by May 2026. You read that correctly … no announcement of legislation, no firm commitments, no framework of an agreement … they have signed a “memo” in which they agree to start work on this … and perhaps finish that work by the middle of next year.
This is a stunning development both in the affront to earlier federal promises and its almost complete disregard for the need to help Canada’s wine businesses escape from absurd post-Prohibition era regulation. It appears that the provinces view both Minister Anand and Prime Minister Carney as part-time comedians in respect of their promises of quick action. For the provinces … there is no rush, they are quite pleased to be involved in “glacial” reform efforts to address a problem, which they appear to have not thought about … even though it has existed for about a hundred years.
The remarks of Quebec Minister, Christopher Skeete, are telling (see Nine Provinces, Yukon Aim to Launch DTC Alcohol Sales by May 2026). He states that the provinces are “taking their time” to “ensure they get it right” regarding “something that’s never been done before in Canadian history”. For Pete’s sake … Canada is in serious trouble if we can’t solve an issue as simple as this one in a reasonable time frame. Minister Skeete (and the others) might wish to venture outside their walled alcohol fortresses and realize that this problem simply doesn’t exist in the rest of the world.
We simply need a national personal exemption for alcohol sales and shipment, just like most countries on Earth. Perhaps our new Prime Minister will eventually take offense and act at the federal level when he realizes that these provincial promises are not worth the memo (paper) that they are written on. Glacial provincial action on important issues is simply not acceptable in the current world. Is this comedy or tragedy? Perhaps both as far as the provinces are concerned.
We are now well past Canada Day, the date that the federal government had previously promised to remove our internal trade barriers regarding wine shipped and sold between provinces. We have no actual substantive progress to date – merely some vague announcements and promises to negotiate. It appears, unsurprisingly, that the government was too optimistic in thinking that the provinces would cooperate on this endeavour. This article explains the background to the relevant issues and why it will be hard to obtain meaningful provincial buy-in. As you will read below, the basis of the problem is the province’s reliance on liquor markup as a significant source of government revenue. In my view, this is one of the most significant long-term impediments to the health of Canada’s wine businesses.
1. What Are Liquor Markups?
In most jurisdictions, governments raise revenue from wine sales by imposing excise taxes at the wholesale level which are usually volume based. They may also include alcohol sales as part of their general sales tax systems which are usually percentage based. Many governments do both of these things, like Canada’s federal government which imposes a 5% GST on all wine sales as well as an excise tax which is currently set at $0.73 per litre. These taxes are relatively transparent because they are well publicized and need to be approved by Parliament.
However, the Canadian provinces take a somewhat different approach because each holds a statutory government monopoly over all liquor distribution within that province. As part of the ‘business operations’ of that monopoly, the province can impose ‘liquor markups’ on to all products sold within that province. These markups are not taxes so they do not need to be approved by each legislature. Often, they are not well publicized or transparent. Most commonly, the markups are calculated by adding a percentage based amount to the value of the product as a wholesale markup (e.g. in BC, the base markup is 89% of the supplier cost for wine). But sometimes, a volume based amount is added (e.g. in AB, the base markup on wine is $4.11 per litre). In some provinces like BC, there are both wholesale and retail markups, the latter of which are applied within government retail stores.
To a small extent, these liquor markups cover the costs of operating the liquor distribution system in each province. But mostly they are imposed simply to generate extra revenue for government. In other words, they are hidden taxes. What are the effects of and issues with this system?
2. Government Relies on the Hidden Tax Revenue
The first major effect is that each provincial government becomes dependent upon the liquor markup revenue that is collected by its liquor monopoly. For example in BC, the LDB sold $3.9 billion worth of liquor in its fiscal year ending in 2024. After deducting cost of goods sold, its gross profit margin was $1.7 billion. Operating expenses totaled $569 million for a net profit of just over $1.1 billion. In Ontario, the LCBO contributed $2.4 billion to provincial coffers for a similar time period. These amounts are a major contribution to provincial finances and make it difficult for government to objectively assess liquor policy reform.
3. The Markups Increase End Consumer Prices
The imposition of liquor markups increases costs throughout the supply chain. So if a monopoly imposes a high wholesale level markup (tax) on wine, the end consumer will end up paying a higher retail price for their bottle of wine. The extent of this effect varies considerably from province to province depending upon how they calculate and apply their markups. As a general rule though, because the liquor markups are designed to provide high amounts of ‘hidden tax’ revenue, the prices for wine in Canada are high compared to most of the western world and very high compared to other historic wine producing nations.
This poses a challenge for the development of wine and food culture both at retail and in hospitality (restaurants, bars, hotels). It also encourages black and grey market sales as consumers seek to buy at prices that are more competitive. Generally, the lowest markups on wine (particularly higher priced wine) have been applied in Alberta which uses a volume-based markup system described above. Provinces that use high percentage based markups (like BC) generally have the highest end-consumer prices.
The variability in markups is why wine prices differ so much from one province to another. In addition, most provinces except AB apply provincial sales taxes to wine, which generates additional revenue for government and further increases costs for consumers.
4. The Markups Discourage the Marketing and Promotion of Wine
The marketing and promotion of wine within the Canadian system is challenging because, generally, the provincial liquor monopolies apply their liquor markups to almost all wine products that move through their systems … even if those wines are being used for marketing and promotional purposes, rather than being sold to end consumers. This means that it is more expensive to promote and market wine in Canada than in other places in the world.
For example, even if a winery wishes to donate wine for marketing and promotion purposes (e.g. for a wine festival or trade fair), the importer will still have to pay the liquor markup. In most other places, any taxes/fees for such activity would be minimal but in Canada the liquor markups make it expensive to do such marketing. Historically, the only respite from this was to use ‘consular privilege’ (i.e. have the consulate from the wine producer’s country sponsor the marketing event and import the wine as consular wine) but this has become difficult if not impossible due to recent federal and provincial policy changes.
5. Creation of Exemptions from Markup for Local Producers
The existence of the markup system has proved to be detrimental to the development of Canada’s local wine industry. Canada’s domestic wine industry is young. Capital costs, land costs, and operating costs are high. This means that the base ‘supplier cost’ for wine produced in Canada is already high by global standards. If provincial liquor markups were added to that cost then, very frequently, the end consumer price for the wine would be too high and would be uncompetitive.
As a result, most provinces have felt compelled to provide local subsidies or preferences in order to encourage local industry. This has usually been done by reducing the effect of the markups on local wines either by exempting them from the markup entirely (BC) or by applying reduced rates of markup (ON).
While this has encouraged local industry, it has ancillary consequences: 1) In the local market, domestic wine is competing with imported products that are subject to higher mark-ups (and higher prices). While this benefits domestic wine, it makes it harder to export that same wine because as soon as the wine is outside the local market, it is competing with the same or similar wines that are priced much lower. 2) Most international trade agreements prohibit preferences which distort end consumer pricing. In contrast, direct subsidies aimed at agriculture or innovation are usually permissible. As a result, it is arguable that the approach of the provincial liquor monopolies is not trade compliant. Indeed, Canada has been found to violate some of our trade agreements for exactly this reason. These trade issues pose an ongoing threat to the system and to local producers. 3) Most provinces only provide their local preferences to their own provincial wine. Wine from other provinces is not provided with the same preferences. This is the main cause of our internal trade issues discussed further below.
Such issues become even more complex when unusual circumstances arise. For example, the recent climate related crop failure in BC has caused the BC Government to allow local wineries to obtain markup exemption even when they are using imported (mostly U.S.) grapes, which raises further trade compliance issues.
6. Problems with Inter-Provincial Trade
Each Canadian province has an alcohol regulation and distribution system that largely treats the other provinces (and their consumers) as if they were in foreign countries. As noted above, liquor markups are applied to wine from other provinces just as if that wine was imported from abroad. The regulatory structure is parochial in nature since there is virtually no recognition that other provinces’ Canadian wines should be recognized as ‘domestic’ product.
The heart of the problem is that each liquor monopoly maintains a ‘control’ mentality in order to ensure that it continues to collect the liquor markups that generate the large cash payments for its political overlords. Each monopoly is worried that its existence will be questioned if it is unable to maintain (and preferably increase) those payments. This is why most provinces still attempt to ban or restrict alcohol sales and shipment from other provinces … they are worried about losing their liquor markup revenue on those sales.
In this respect, markups have historically been worse than tariffs for the interprovincial trade in wine … because rather than creating a system that would permit the collection of the markup (and/or reducing the markups to more reasonable levels), the provinces instead made it illegal to make those interprovincial shipments … forcing wineries and consumers to break the law if they wanted to buy wine from another place within Canada.
A few provinces have changed their laws to some extent over the years. For example, Manitoba allows all such interprovincial shipments and has done so since 2012 when the federal law changed. BC and Nova Scotia allow such shipments if they consist of 100% Canadian wine and are shipped from the producing winery. Saskatchewan and Alberta allow the shipments if the markup is collected using complex permitting systems. But in the latter case, and as of April 1st, the Alberta government has moved from a relatively simple flat rate system to a more complicated one with higher markups that is going to be challenging for both wineries and consumers to accept. The other provinces and territories still maintain blanket bans.
This is a ludicrous situation which completely holds back the development and expansion of Canadian wine businesses by preventing consumers from patronizing any such business that is not located in their home province. Imagine if it was illegal for someone in Paris to purchase wine from a winery in Bordeaux? Or against the law for a consumer in Rome to buy wine from Tuscany?
In this respect, it is important to note that Manitoba (the only fully open province in Canada right now) has reported no problems with their open borders policy and has seen no appreciable drop in liquor markup revenue as compared to other provinces.
7. Reform of Liquor Markup System
The above discussion highlights the issues with the implementation of and the reliance upon liquor markups by the various provincial governments. In an ideal world, it would be beneficial to re-think this system and come up with something better. However, this will be challenging. Here are some ideas and reasons why it will be tough.
A. Switch from percentage based markups to volume based markups.
Most wine producing jurisdictions use volume-based excise taxes to raise money from alcohol sales. Alberta’s volume-based markup system was the envy of the Canadian wine business until recently. For about 3 decades, Alberta’s approach created a vibrant retail and hospitality market for wine with reasonable prices, great consumer selection and consistent government revenue. About a year ago, the system was also extended to allow DTC sales for BC wineries (upon payment of the markup – about $3 per bottle). This would have created a smart national precedent for a workable and relatively open system. Unfortunately, Alberta has recently backtracked (in the hope of raising more money) and introduced an additional percentage based liquor markup on “high value” wine which will raise consumer prices and which makes the DTC system so complex that it is unworkable.
In my view, it would make more economic sense (and create a healthier wine marketplace across the country) if the provinces all switched to volume based markups (and for AB to switch back). However, this is a fundamental change which would require considerable work within the liquor monopolies.
B. Realistic levels for the markups
Liquor monopoly sales are falling due to reduced consumption. It’s unlikely that the monopolies can meaningfully reduce their operating expenses. This means declining revenue for government unless the system is restructured. At the present time, the percentage based markups are simply too high and it’s hard to increase them. They create consumer resistance, stifle the growth of food/wine culture, hurt hospitality/retail businesses, and encourage grey or black market sales. The imposition of volume-based markups at a reasonable level would restore overall health to the system … and enable government to maintain revenue without adversely affecting end consumer prices.
In addition, the use of percentage based liquor markups on trade samples and wine imported for marketing purposes actively discourages the promotion of the wine business and the development of wine culture. A volume-based system would make such costs more reasonable.
C. Some Commonality of Markup Levels Would Solve the Internal Trade Issues
If the provinces switched to volume-based markups en masse and at a relatively consistent tax level, there would be little incentive, between provincial marketplaces, for consumers to buy in a different province. This would enable the provinces to accept a personal use exemption for all interprovincial wine sales, either free of markup for all such transactions or at a commonly agreed upon reasonable level.
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However, government’s quest for more money and continued control will probably over-ride all these concerns as we have recently seen in Alberta. In addition, how likely is it that the provinces can be persuaded to adopt blanket and more consistent pricing reforms … and mostly at the same time? The unfortunate reality is that bureaucratic opposition and political inertia will likely doom any significant reform efforts … and that the best we will see is a half-baked DTC system in a few provinces that is too expensive and complicated to work.
It remains my view that the only real likelihood of change is for the federal government to legislate a solution as I previously explained in an earlier post (last two paragraphs of DTC Canada vs USA – a Tale of Unfortunate Contrast): the federal government should exercise its exclusive jurisdiction over interprovincial trade and legislate a national personal exemption amount for interprovincial wine sales. Yes, the provinces would probably object (and might go to court) … but as we have seen from Manitoba, there would be little significant effect in the long term … and once the gates are open, they will likely stay open.
Canadians deserve much better than the absurd status quo on this issue … and it is long past time for Canada to “free its wine”.
Sadly, and according to this new work done by some members of the nanny state lifestyle cabal, it is now official that there is no safe level of living (see: There is No Safe Amount of Processed Meat). Building upon the work of their anti-alcohol advocate comrades, this group has concluded that it is no longer safe to consume any amount of processed meat or drinks that contain sugar due to the small risks associated with not-so-moderate consumption of these products (for example, part of the study is based on consumption of one hot dog every single day – do you know anyone who eats that many hot dogs?).
Forthcoming guidance will likely conclude that it is also not safe to swim in the ocean (sharks!), venture out into the sun (skin cancer!), ride a bike (crashes!), drive in a car (worse crashes!), or even go for a walk (being hit by a foolish risk-accepting cyclist or driver). Similarly, don’t play sports (injuries!), don’t exercise (more injuries!), or even go outside (see sun warning above). Also, don’t have sex (very risky!) or have children (even worse!) as it is the ultimate exercise in recklessness to bring new beings into this risk-filled world where they will also be plagued by miniscule amounts of danger.
On the other hand, if you think that the above is a pile of claptrap and that the purveyors of all of this doom are simply seeking media attention (and government grants) with dodgy conclusions from questionable science, then by all means get on with your life. You will be free of the stress from reading nonsensical articles that scare you into ridiculous lifestyle choices.
You may then feel free once again to enjoy the wind in your hair while riding a bike on a sunny day, the thrill of scoring a goal in a hard fought soccer game, the warmth of the ocean on a lovely summer day, and the camaraderie of meeting friends while enjoying a BBQ steak. And you can happily have that steak with a fabulous and absolutely delicious glass of the red wine of your choice.
On the 20th year anniversary of the landmark court decision in Granholm v. Heald, it is appropriate to contrast the progress that has been made regarding direct to consumer (DTC) sales of wine within both Canada and the USA. This issue is unique to federal jurisdictions where alcohol is regulated by their states/provinces using post-Prohibition ideology. In most countries, there is no legacy of Prohibition and thus no patchwork of arcane legal restrictions surrounding alcohol sales and shipment within the country.
The Granholm decision was the impetus for a ‘landslide’ of progress south of the border. The Granholm court ruled that if a state permitted DTC sales within its borders (i.e. from a winery direct to customers within that state) then it could not prohibit DTC sales to those same customers from wineries outside the state. In other words, the court held that a state could not provide preferential treatment for its own wineries by using restrictive laws that prevented out of state wineries from making the same type of sales.
The eventual effect of this was that nearly all U.S. states now permit DTC sales from other states. This summary from the California Wine Institute shows that only 5 states still prohibit DTC sales.
In contrast, Canada, now seems to have the worst of all possible worlds. We still have a patchwork quilt of alcohol regulation with differing standards and rules from province to province. There is still no national (or even close to national) standard for DTC and little to no thought given to consumer selection or competition. We have many provincial regulators that are still rooted in post-Prohibition ideology. As a stakeholder once said to me “the folks that currently regulate alcohol here were not around during Prohibition but they were trained by people who were”.
Unfortunately, this is still true in some provinces. The mentality is still fiercely protective of provincial liquor fiefdoms and their ability to generate tax revenue for their political masters. It appears fearful of any attempt to eliminate hurdles at provincial borders or to transfer control or policy-making to anyone other than the liquor bureaucracy (which doesn’t even exist in most other countries).
As such, we have made little progress on DTC in Canada. Only one province (Manitoba) is fully open (and importantly has had zero problems as a result). BC and Nova Scotia permit sales of Canadian wine direct from the winery without fees. Saskatchewan and Alberta permit such sales but only using complex permit and fee payment systems, the latter of which is now almost completely unworkable given its recent hike in markup rates. The two largest provinces still remain closed.
There have been recent pronouncements of good intentions by various governments including a proud proclamation from the federal government that we would get this solved by Canada Day. However, I am doubtful that this will get solved in a sensible way. For example, last week the Ontario government signed a memorandum of understanding with Manitoba which included mutual commitments to address the DTC problem. The preamble to the memo states “Manitoba is a leader on direct-to-consumer (DTC) sales of alcohol and is currently fully open”. The governments then agree to “develop a bilateral DTC agreement by June 30, 2025, to enhance market opportunities for producers and increase consumer choice for Manitobans and Ontarians”.
This is a solution in search of a problem. As the memo states, Manitoba is currently “fully open” to Ontario producers making DTC shipments (without charging any fees). It also has virtually no wine industry or production. So why would Ontario be concerned at all about DTC shipments from Manitoba into Ontario? Is there any reason why they would not immediately emulate Manitoba’s ‘leadership’ … and become “fully open” to DTC from Manitoba?
On a larger level, there would appear to be some obvious solutions to all of this. Many (or most) provinces could easily become “fully open” to other provinces without any significant consequences. DTC shipments from wineries have constituted and will constitute such a tiny part of the overall liquor marketplace that the liquor bureaucracy will barely even notice – and would not take any meaningful hit to their revenue. As noted above, Manitoba has experienced no issues and has been “fully open” since 2012.
The only real issue with “fully open” DTC is for those provinces that might permit DTC from both wineries and retailersand which have significantly different liquor markup structures. In those cases the price differences between provinces could be sufficient for some consumers to pay for shipping and to wait for an inter-provincial purchase … but this is already happening in the grey market. And I would suggest that any province in such a position might wish to rethink its approach to markup and to adopt something more reasonable.
Another approach which could work would be one that my colleague, Anthony Gismondi, recently suggested in the Vancouver Sun … whereby the provinces agree on a sensible ‘flat rate’ markup amount that would be collected on all inter-provincial sales which amount would be submitted to the liquor bureaucracy in the receiving province. The key to this is to make the amount reasonable and easy to collect. As Anthony suggested, $2-3 per 750 ml bottle would likely work (i.e. a national volume-based flat tax) … but higher amounts would make the scheme unworkable.
Finally, and failing reasonable provincial solutions, I would suggest that we adopt a solution that is better than the U.S. and one that is more befitting a real country: the federal government should exercise its exclusive jurisdiction over interprovincial trade and legislate a national personal exemption amount for DTC sales. We already have ‘duty-free’ exemptions for international alcohol purchases. If the provinces are going to treat each other as if they are separate countries, then let’s get the federal government to intervene and become the adult in the room. Would Canadian civilization collapse if we permitted 1 or 2 cases of wine per month per person to travel ‘duty-free’ between provinces?
I think a little competition between liquor monopolies would be a good thing. Long suffering Canadian wine drinkers deserve at least this much latitude within their own country and from their federal government.
A tariff is a tax imposed by one country’s government on products that are imported from a foreign country. This makes the imported products more expensive as opposed to local alternatives.
Tariffs that are imposed on wine imported from another country will almost certainly increase the end consumer price. Here is an example of a Canadian wine being sold into the U.S. market assuming a 25% tariff (current conditions). The same principles would apply for wines from other countries if the US imposes tariffs as they may do this coming week (although the threatened tariff on European wines is 200% not 25%!).
For example:
With Tariff
Without Tariff
A Canadian winery sells a bottle of wine to a U.S. importer for $10
$10
$10
AT USA BORDER Tariff of 25% imposed by US Govt on Canadian products
+$2.50
+$0
USA BORDER
———————-
———————-
US importer pays tariff to get the wine released from customs. So the $10 cost for the wine increases to $12.50.
$12.50
$10.00
US importer must add $ to cover its expenses and profit (to generate a wholesale price). Assume 20% added. Wine is then sold to a retailer at that price.
$15 wholesale
$12 wholesale
US retailer adds $ to cover its expenses and profit (to generate a retail price). Assume 30% added.
$19.50 retail
$15.60 retail
+$3.90 with tariff
The end consumer will almost certainly pay more for the bottle of wine when tariffs are applied because the US-based importer had to pay the tariff, increasing its costs. In some rare circumstances, the US importer might absorb the increased costs or the Canadian exporter (winery) might lower its prices but this would be unusual.
As a result, tariffs are essentially hidden government taxes that are applied prior to the wholesale level of distribution, thus increasing the cost of goods throughout the supply chain.
Yesterday (March 5th), the federal government issued a first ministers’ statement indicating that significant changes will be made shortly to eliminate or reduce internal trade barriers in Canada: see First Ministers’ Statement on Eliminating Trade Barriers in Canada. Specifically, the announcement states the following regarding barriers that restrict the alcohol trade:
“Launching pan-Canadian direct-to-consumer alcohol sales for Canadian products: The Governments of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, and Canada have committed to improving the trade of alcohol products between participating jurisdictions by advancing direct-to-consumer sales for Canadian products. Currently, British Columbia allows for direct-to-consumer sales for wine, while Manitoba is already open to direct-to-consumer sales on all alcoholic beverages. The Yukon is exploring options for direct-to-consumer alcohol sales within the territory.”
I am encouraged to see that progress may be happening on this issue. However, I have been working on this issue for a decade and a half. During that time, there have been many grand statements of intention with only a few practical and workable results. On this issue, like many areas of liquor policy, the “devil is in the details”. Particularly, I wait to see for those details and to see whether the announced changes address the following two major issues.
Will There Be Realistic and Workable Tax Expectations?
The major stumbling block over the years has been provincial concerns that if they loosen their control over their respective provincial liquor monopolies by removing interprovincial restrictions, they will lose sales tax and liquor markup revenue from liquor sales. The latter amounts are the ‘hidden taxes’ that are applied by the government liquor monopolies at the wholesale level as part of their statutory monopolies over liquor distribution. Generally, the provinces have asserted that they need to collect all of the tax and liquor markup from out of province sales in order to ‘remain whole’. In my view, this concern is exaggerated.
The liquor markup fulfills two functions. Partly, it covers the costs of operating the wholesale liquor distribution system (i.e. importing, warehousing, shipping … and sometimes also retail costs). And partly, it is ‘pure tax’ that goes to general revenue. There are very different approaches to the application of these fees in each province. Sales taxes vary considerably with Alberta having none. There is similar variation for liquor markup with varying amounts charged. Some provinces exempt their own producers from markup entirely (BC) or apply reduced charges (Ontario).
In respect of an interprovincial sale where the wine is shipped directly from a producer to a customer, there are zero liquor distribution system costs to be covered. The destination province incurs no costs at all because the producer or customer pays for the shipping and costs of sale. As such, the provinces should only be worried about the ‘pure tax’ component.
And even on that part, would interprovincial sales make any appreciable difference? Manitoba has had open borders for alcohol sales since 2012 … and has not experienced any meaningful drop in provincial liquor revenue. BC has permitted DTC sales of Canadian wine from other provinces for years (without collecting any fees) … and has not seen any significant adverse effects. Same for Nova Scotia. The reality is that if a province has reasonable tax and markup levels, it will not see any substantial change … because it is much easier for a customer to buy wine locally than to order it from another province, pay for shipping, and wait for delivery. DTC generally only happens in respect of product that is difficult to find and for that small segment of the wine consumer marketplace that is willing to seek out those wines.
For any system that permits the interprovincial sale of alcohol, there needs to be realistic and workable expectations about how much sales tax and liquor markup are being collected, if any. If the system is too expensive or administratively cumbersome, it simply will not work … and may price Canadian wines out of reach of normal consumers.
The recently introduced Alberta DTC system provides an instructive example. When introduced, this system required producers to pay a simply flat fee amount (about $3) on each bottle. This was easy for producers to charge and reasonable enough that consumers would likely pay it. However, Alberta has recently indicated that it is changing its markup structure … and it is not yet clear how much fees will increase or whether the fee calculation will become overly complicated (see Alberta Hikes Liquor Markups).
Consequently, I await the details associated with our new ‘open borders’ for alcohol. It may be too much to hope for truly ‘free’ sales and shipment but I am hopeful that the provinces may at least introduce a sensible system that will work for both producers and customers.
Will Consumers Have Both Producer and Retail Choice?
A secondary concern is whether the new system will apply so that customers can buy wine from both producers and retailers in other provinces. To date, the only province that openly permits both is Manitoba. The reforms in BC and Nova Scotia only apply to Canadian wine purchased directly from a winery. If Canada wants to join the rest of the world, it should let wine lovers shop for wine in other provinces without such limitations … and simply let consumers find, buy and love any wine that they can find within their own country.
What Wine Does the Tariffs Apply To? The Canadian tariffs will apply to all U.S. produced wine that enters Canada as described above. The tariffs would not apply to non-U.S. wine (e.g. French or Italian wine) that enters Canada from the U.S. or from other countries.
When Will the Tariffs Take Effect? The Canadian tariffs take effect as of 12:01 am today (Tuesday March 4th). However, they will not apply to goods that were already in transit to Canada today. As such, these tariffs will apply to all U.S. wine arriving at the border which is shipped today or later. The tariffs are imposed when the product enters Canada so wine that is already within Canada will not be subject to the tariffs. For example, U.S. wine that is already in Canadian stores or is already in the Canadian distribution system will not be subject to the tariffs.
Will Wine Prices Rise Because of the Tariffs? U.S. Wine prices should not rise immediately because wine that is already here will not be subject to the tariffs. Wine importers will likely exhaust their existing stocks of U.S. wine at existing prices so they should be able to supply retailers and restaurants/bars for some time depending upon their stock levels in Canada. Importers will hope that the tariff disputes are resolved before they have to import new stock. If an importer brings in new stock from the U.S., that stock would be subject to the tariffs and the importer would likely have to raise consumer prices (see below).
How Much Could Prices Rise? If an importer brings in new stock from the U.S., there would likely be considerable price hikes. The 25% tariff would be added to the supplier’s cost before the imposition of other taxes and liquor board markups. The cumulative effect creates a multiplier of “tax on tax” which would significantly increase costs for the importer and make it very difficult for them to ‘absorb the cost increase’. For example, using rough calculations, I believe that a U.S. bottle of wine currently retailing for $20 would increase by about $5-6. All price points would be affected with greater dollar price increases at higher price points. I note that the effect in Alberta will be compounded with the recent change in AGLC liquor markup rates.
Will U.S. Wines Still Be Available? What Will be the Effect on Sales? The reciprocal tariffs are an action of Canada’s federal government. However, liquor distribution is controlled by the individual provinces, all of which have government monopolies on distribution at the wholesale level and most of which also have government retail stores. Some provinces have either entirely removed or selectively removed U.S. alcohol products from distribution by their provincial liquor monopolies (update: most Canadian provinces have now entirely removed U.S. alcohol from government monopoly distribution). These actions will obviously have severe marketplace effects. Even in those provinces which continue to permit sales, the effect on consumer purchasing of U.S. wines will likely be significant if this dispute drags on. Some consumers may choose to avoid purchasing U.S. wines due to the politics of the situation. But even for those that don’t, all U.S. wines would become less price competitive as compared to Canadian wines and wines imported from other countries. There would likely be a significant loss of market share from the U.S. in favour of Canada and other countries.
What About Bringing Wine Back After a Trip? The tariffs will not apply for accompanied imports of wine that are within an individual’s duty-free limit. However, they would apply for any amount of wine that is outside the limit. As such, the importation of U.S. wine by a traveller that is not duty-free will become considerably more expensive.
What About Selling Canadian Wine in the U.S.? The American tariffs would affect the price of Canadian wine in the U.S. marketplace in a similar way to that described above (although the U.S. does not import much Canadian wine). As a result, any new shipments of Canadian wine (or other alcohol) into the U.S. would be subject to tariffs with resulting eventual price increases and eventual erosion of market share. This issue would be more significant for Canadian spirits manufacturers.
Yesterday, the Alberta Gaming, Liquor and Cannabis Commission (AGLC) announced that liquor markups in Alberta will increase as of April 1st 2025 for “high-value wine”. Liquor markups are government imposed fees applied at the wholesale level as a result of the statutory government monopoly over wholesale liquor distribution. Essentially, they are ‘hidden’ taxes on liquor. Previously, AGLC had applied a volume-based markup on wine, which now increases slightly to $4.11 per litre ($3.08 per 750 ml bottle). This fee remains constant regardless of the value of the wine. This system was often referred to as the ‘flat tax’ and was preferred by many in the industry as being relatively simple. It resulted in prices for wine that were relatively low by Canadian standards.
A new system has now been introduced that is more complicated and imposes additional fees on “high value” wines that are based on the value of the wine (sometimes referred to as ‘ad valorem’ taxes). The flat tax described above still applies for wines that have a “reference invoice price” up to $15 per litre ($11.25 per 750 ml bottle) (I call this “Supplier Cost” below) . Using approximate calculations that would translate to about $20 per 750 ml bottle at retail once the various fees are added in. So wines at or below that consumer price point should be relatively unaffected.
However, for wines above the $15 per litre reference point, there are new additional percentage based fees that are shown in the table below:
AGLC New Wine Markups
As you will note, this system is fairly complicated imposing 3 levels of additional fees, based on the wine’s value. The fees are 5% for value between $15-20 per litre. Then 10% for any value between $20-25 per litre. Then 15% for any value above $25 per litre. Again, using approximate calculations, this would have the following effects. Retail margins vary considerably so the numbers would change accordingly (examples below use a retail ‘markup’ of 38%).
Supplier Cost inc. excise/duty (750 ml)
Flat Tax Markup
Additional ‘High Value’ Markup
Approx Wholesale Price
Approx End-Consumer Price
Approx Price Increase
11.25
3.08
0
14.33
19.78
0
15.00
3.08
0.19
18.27
25.21
0.26
18.75
3.08
0.57
22.40
30.91
0.79
30.00
3.08
2.26
35.34
48.77
3.12
75
3.08
9.01
87.09
120.18
12.43
The new system will create end-consumer price increases as noted and which are more significant as the value of the wine increases. Any value (supplier cost) above $18.75 per bottle will be ‘taxed’ at 15% so the largest increases will occur for expensive wines (above approx. $30 retail). Effectively, Alberta has now introduced a new hidden ‘tax’ of 15% on expensive wine.
The new system becomes effective on April 1st, 2025. I note that it remains unclear how these changes will apply to the recently announced DTC registration system under which BC wineries can sell directly to consumers in Alberta.
The last couple of weeks have been tumultuous for Canada with on again/off again threats of tariffs from the U.S. President. However, the turbulence has also shone a light on our own internal problems, and particularly upon those related to the persistence of internal trade barriers such as the inability of most Canadian consumers to legally purchase alcohol from producers and retailers in other provinces.
As most Canadians will remember, there was a hope that this specific problem would be solved in 2018 when the Supreme Court of Canada considered the issue in the case of R. v. Comeau, in which Gerard Comeau was charged after purchasing alcohol in Quebec and bringing it back to his home province of New Brunswick. His legal counsel argued that the restrictive provincial laws were invalid because the Constitution guarantees that products produced in one province “shall be admitted free into each of the other Provinces”. Mr. Comeau won the case at the trial level. Unfortunately, (and tragically in hindsight) the Supreme Court overruled the trial court. They declined to recognize the plain meaning of these words and, instead, upheld provincial restrictions that prevented Mr. Comeau (and other Canadians) from shopping for alcohol in another province.
At the time, Andrew Coyne (who was then writing for the National Post) called out the Supreme Court’s “baffling” decision and asked what was the worst part of it: was it “the shoddy reasoning, the tendentious reading of simple declarative statements, the selective approach to history, the willful naivete?”. I commend anyone interested to read his full analysis here: “Supreme Court beer ruling ties the constitution in knots, and the economy with it”. It’s hard to disagree with any of Mr. Coyne’s criticisms. Indeed, many of them are prescient of the situation we now find ourselves in.
The bottom line is that this was an awful decision on many levels. Canada now desperately needs to rid itself of this ruling and escape the economic straightjacket that it creates for us. Federal and provincial governments alike have professed to take action on this issue for years but very little progress has been made – mostly because the provinces like their absolute control over the money that liquor sales generates for them. It is far past time to fix things and throw these silly restrictions into the dustbin of embarrassing regulatory trash that has burdened us for so long.
The federal minister responsible for internal trade, Anita Anand, commented last week that we could possibly see the end of these restrictions “in 30 days” … with meetings scheduled between the various levels of government to address this. I remain optimistic but am not holding my breath due to the long history of much talk and no action. The feds and provinces need to deliver on this … please get it done. Let us join the rest of the world and eliminate all barriers to the interprovincial alcohol market.
