Category: Latest News

Recent recommendations from the Centre for Addictions Research at the University of Victoria have been in the news lately as they advocate changes to alcohol pricing in BC when the HST is introduced. See this recent media coverage in the Vancouver Sun which included a column by Pete McMartin. Randy Wilson of Liquor Plus provided a valuable counterpoint on this issue on CKNW\’s Bill Good Show today.

The wine industry has good reason to be seriously concerned about the recommendations in this report because they pay almost no attention to the well-established fact that moderate wine consumption is actually good for you.

The main recommendations of the report, and the reasons for them, are as follows:

• Setting a minimum price for a \”standard drink\” of $1.50 at retail and $3.00 in restaurants/bars. This is based on an assumption that increasing the price of cheaper liquor will decrease consumption for problem drinkers.
• Adjust liquor board markup so that lower alcohol content products have lower markups and higher alcohol content products have higher markups. This is based on an assumption that higher prices for higher alcohol products will encourage people to drink products with lower alcohol.
• Use increases in revenue to address alcohol-related problems.

While the intentions of the report\’s authors are obviously genuine, this appears to be a case of poorly conceived public policy. Like the prohibitionists and temperance advocates of 90 years ago, the writers of this report make almost no distinction between the safe and beneficial moderate consumption of wine and other more harmful patterns of consumption (which by and large are limited to a tiny minority of BC drinkers – usually thought to be about 1%).

The first recommendation is questionable. BC already has some of the highest taxes on liquor in the world which often result in retail prices which are double those south of the border. If higher prices would reduce consumption, then we should already have significantly less consumption (and, by extension, less problems with alcohol) than in neighbouring jurisdictions – which we do NOT. In fact, countries like Italy and France which have drastically lower taxes and retail prices have far less problems with alcohol than we do. In any event, it seems unfair to penalize the large majority who consume responsibly for the sins and problems of a tiny minority. We do not adopt this policy rationale for any other behaviour with which a small minority causes problems (eating junk food, driving a car) – why is it ok for wine drinkers?

The second recommendation is dangerous for the wine industry. Problem drinking is not an equation that is as simple as \”higher alcohol products = higher problems\”. Wine has a considerably higher alcohol content than beer or coolers. According to this recommendation, the markups on wine should be punitive to discourage wine consumption and encourage people to switch to \”lower alcohol\” beer or coolers. However, as most people know, the moderate consumption of wine is actually good for you. It\’s much more important to focus on responsible consumption than simply focusing on alcohol content. Why should a person who wants to drink one glass of expensive wine (or Scotch for that matter) be penalized for responsible consumption simply because the alcohol is higher? Which do you think is the healthier choice: 2 glasses of wine with dinner or many low alcohol beers?

The research behind this report seems questionable. For example, one headline element claims that the direct costs of alcohol exceeded government revenue by $57 million in 2002 based on \”solid estimates\”. However, this looks like very dubious science. The claim is based on some Ontario research that attempted to calculate the total costs of alcohol and other drug abuse in Canada by totalling medical costs, law enforcement costs, and other social costs such as work disruption. The actual research acknowledges that the totals are estimates … but if one looks at the research, it seems that, apart from the health care costs, the \”estimates\” are more akin to wild guesses … for example, the estimated law enforcement costs are based upon a survey of the motivations of prison inmates and the work disruption and social costs are based upon assumptions which could be very inaccurate.

Most people will find the recommendations in this report to be counter-intuitive, particularly as they relate to wine consumption. We would all do well to remember that the failure to separate out moderate consumption from problem consumption was what led North America to the disastrous experiment with Prohibition … from which we are still trying to untangle ourselves 90 years later. Don\’t get fooled again!

Effective Dec 2, 2009, licensee retail store (LRS) licenses (the newer private retail store licenses) have been decoupled from the liquor-primary (LP) licenses with which they were formerly required to be associated. See the LCLB LRS Policy Directive for details. From now onwards, the continued operation of the LP license is not required for the LRS license. Other restrictions on the operations of the LRS (including the \”standalone\” building requirement) remain but this change will allow greater freedom for LRS operators to move their operations and/or transfer them to other parties.

Update (Dec 10, 2009): I have now reviewed the regulation that implements these changes. Although the liquor-primary coupling is removed, there is a new requirement that \”in the opinion of the general manager, the licensee retail store does not appear to be associated with another business in the near vicinity\”. From a policy perspective, this seems rather odd … the likely reason for this is to try and stop the transfer of LRS licenses to supermarkets and big box stores so that the Alberta experience is not repeated here. As you may be aware, Superstore, Costco and Safeway all have freestanding liquor stores in Alberta located near or next to their main stores and branded similarly.

As you may have read here recently, FedEx recently announced that it was implementing a new \”direct purchase\” system so that consumers in British Columbia, Alberta and Ontario could order wine direct from U.S. wineries and have it delivered to their homes or businesses following payment of applicable liquor board markups/fees/taxes. The FedEx announcement was exciting for Canadian wine consumers because it seemed to indicate a new era of more open wine purchasing (albeit with rather steep fees in B.C.). Regrettably, it appears that FedEx did not obtain regulatory approval for this system in B.C. before announcing it (at least that\’s what the LCLB tells me). As such, it is unclear whether FedEx will be able to proceed with their plans in B.C. or in the other provinces.

However, this story highlights the major problems with Canada\’s wine shipping laws and policies. Here is a summary of the regulatory mess that we currently have.

Shipments Entirely Within a Province. Provinces such as B.C. and Ontario, which have wine industries, currently permit their own wineries to ship directly to customers but only within the same province (i.e. B.C. wineries can ship to B.C. customers but not to Ontario customers).

Shipments Between Provinces. The liquor boards in Ontario, Manitoba, and Alberta have recently threatened British Columbia wineries with \”criminal enforcement\” action under an archaic 1928 prohibition-era statute which prohibits the shipment of wine between provinces. As a result, B.C. wineries are unable to legally ship Canadian wine to the majority of Canadian wine lovers.

Shipments From Outside Canada. Wine lovers in B.C. are currently able to order wine from outside Canada and have it sent to them. However, upon arrival in B.C., the shipment will be held at Customs until the customer clears the shipment with the BCLDB. This is a cumbersome and expensive process under which the customer will be required to pay all of the various LDB fees, markups and taxes (which will be applied to the full retail price of the wine). One person who recently went through this process told me it was \”nightmarish\” – it took him hours to get the necessary paperwork right including multiple personal trips to Customs and the LDB. However, once all the money is paid, the wine will be released. I understand that there are similar processes in other provinces (although in Alberta, for example, the fees are much, much lower).

Wine Imported by Travellers. Consumers can also personally bring wine back with them from outside Canada if they do so while travelling (i.e. if you drive down to the U.S., you can bring wine back with you). As most people are aware, there is a miserly duty-free allowance of 2 bottles (750ml) per person. After that, you will have to pay liquor board fees based on the province into which you are bringing the wine. See \”Bringing Wine Back to Canada After a Trip\” for more info.

It appears that the FedEx \”direct purchase\” system is a streamlined version of the process described above for \”Shipments From Outside Canada\”. Basically, FedEx is trying to lessen the regulatory burden by taking care of some of the paperwork and then delivering the wine directly to you once it is cleared. This seems to be a sensible goal. At first glance, one would think that nobody would care about this since the relevant government (liquor board) is getting all of its money. However, the system poses problems for the liquor boards because they are still taking the position that Canadian wineries can\’t ship directly at all. It doesn\’t look too good when U.S. wineries can ship and Canadian wineries cannot.

However, the underlying problem remains. For U.S. wineries, the liquor boards have effectively permitted a direct delivery system so long as the consumer agrees to pay the applicable fees and puts up with the cumbersome process (FedEx was just trying to make it easier). However, for Canadian wineries, the liquor boards have rejected their overtures to set up a similar reporting system and have instead relied on IILA to stop inter-provincial direct to consumer shipments completely.

Legally, I find this fascinating because there are no exemptions in IILA for shipments where the purchaser intends to pay the markups/taxes. Theoretically, the level of legality or illegality under IILA is the same if a consumer brings or ships wine across an international border versus an interprovincial border. The collection of markups/taxes at the border is a separate legal issue from the shipping prohibition in IILA. The practical reality has been that the liquor boards have allowed the international shipments because they have a way of enforcing the tax/markup collection at customs. Of course, they have no mechanism for guaranteeing that a customer pays the markups for an interprovincial shipment so they have tried to stop those completely.

This quagmire is all about the money. Isn\’t it about time we sorted it out?

FedEx has just announced that it will be part of a new \”direct purchase\” system which will allow U.S. wineries to direct ship wine to consumers in British Columbia, Alberta and Ontario. This groundbreaking announcement will allow individuals in these provinces to purchase wine direct from U.S. wineries. FedEx will retain control of the shipment at all relevant times and, for B.C., will calculate and will remit the applicable taxes and liquor board markup (in AB and ON it appears that the buyer will have to do this while FedEx holds the shipment). The system will be \”transparent\” for the consumer with the wine arriving direct to their home or business from the winery and FedEx taking care of most of the customs issues (in B.C., consumers will be charged by credit card for the various fees). Turnaround times are impressive … FedEx\’s process chart indicates that the BC LDB will provide clearance charges to FedEx typically within 24 hours

FedEx\’s web site has an extensive description of the new \”direct purchase\” system including a FAQ, flow chart of the purchase process and calculators which enable consumers to figure out liquor board markups and fees ahead of time.

This announcement is groundbreaking and appears to be the harbinger of a new system of more open access to wine retailing for consumers. Some major questions remain though. I can\’t imagine that these three liquor boards would permit U.S. wineries to direct ship to consumers and still prohibit inter-provincial shipment of wine. My guess (and hope) is that this is part of a broader system which will also permit the inter-provincial shipment of wine between the provinces in question. The achilles\’ heel of the system for B.C. may be the provincial markups though … it doesn\’t take much playing with FedEx\’s calculator to realize that the markups applied in B.C. are absurdly high compared to the other participating provinces. Still though, this is a major step in the right direction in terms of consumer access to wine. I am anxious to see confirmation of this and additional details from the BCLDB.

[Update: I have just confirmed that the BC LDB and LCLB have not approved the \”direct purchase\” system. As such, it appears that this was a FedEx initiative alone. I\’ll update this story as things develop but it now seems that FedEx may have announced this without regulatory approval. Please see this updated FedEx story for more information]

Here is an interesting update on the \”Cellared in Canada\” labels controversy which has had so much media attention lately. At the recent wine law conference in Vancouver, Arnold Schwisberg of Toronto provided a comprehensive history of the genesis of this labelling. Arnold pointed out that, in law, there is no regulatory or statutory authority for the use of the term \”Cellared in Canada\” (or CIC for short). Rather, it is the product of a voluntary industry committee on wine standards which met many years ago (and of which Arnold was a member).

At the time, the large wineries that wanted to produce CIC wines (wines blended from international and domestic juice) could not label them as \”Product of Canada\” because they did not meet the legal requirements for sufficient Canadian content. As such, a proposal was put forward that an alternative descriptor be created. The committee eventually settled on \”Cellared in Canada\” albeit to the chagrin of some committee members who put forward concerns that this description was misleading to consumers and may not satisfy the legal requirements of the federal Food and Drug Act (FDA). The latter concern is based on Regulation B.02.108 of the FDA which reads as follows:

B.02.108 A clear indication of the country of origin shall be shown on the principal display panel of a wine.

At a later date, the LCBO then advised the trade that it would accept the Cellared in Canada wording recommended by the committee and specifically noted that it would accept this labelling as \”a replacement for the country of origin declaration\”.

As Arnold pointed out, the phrase \”cellared in Canada\” on its own does not indicate the \”country of origin\” of the wine. However, the wording that the committee intended be used was, in fact, \”Cellared in Canada from imported and domestic wine/grapes/grape juice\”. Nevertheless, even on that expanded wording, it is not clear how the Regulation is satisfied since only one country of origin (Canada through the word \”domestic\”) is identified. In B.C., that would seem to be problematic as CIC wines do not, in fact, have to contain any domestic content.

It may well be that the argument was that CIC wines do not have a single \”country of origin\” and thus, cannot satisfy the Regulation. However, it would seem that the better interpretation of the Regulation would be that all countries of origin have to be identified. This may be difficult practically since the blend may change from time to time but that would appear to be the best interpretation of the law.

As Arnold also pointed out, the recommendations of the committee do not have any force in law. It is the provisions of the FDA and other relevant legislation that are, in fact, binding upon the wineries.

The first ever BC wine law conference was held in Vancouver this past Thursday and Friday, November 12-13th. I co-chaired the conference with Chris Wilson of Bull, Housser & Tupper.  I was very pleased with the overall conference. We had an excellent audience with an amazing depth of knowledge including representation from wineries, agents, retailers, restaurants and government. Here\’s an update on some of the issues that were covered:

• Great discussion from winery owners on the issues to consider when starting a winery – including Michael Dinn from Joiefarm and Andy Johnston from Averill Creek.
• Issues on getting product to market in the United States by Susan Johnson from Stoel Rives in Seattle.
• Overview of labelling requirements in Canada (by Dan Bennett from BHT) including an interesting discussion of the genesis of the \”Cellared in Canada\” labels which have caused recent controversy (by Arnold Schwisberg from Toronto). I\’ll post a separate update on this issue.
• Summary of issues to consider regarding trademarks and your wines (Chris Wilson of BHT).
• Operations risk management including common liability issues for your winery (by myself).
• Interesting discussion of winery related tax issues including SRED credits (John Ormiston of Deloitte).
• Rundown of the most common employment issues facing wineries (Herb Isherwood of BHT).
• Immigration issues including foreign workers (Alek Stojicevic).
• Fascinating discussion of mainly logistical issues facing retailers and restaurants (Rob Simpson of Liberty, Stan Fuller of Earl\’s and Brian Berry of AWSM).
• Really interesting update (with newsworthy content) on the shipping law situation in Canada (Ian Blue and Arnold Schwisberg, both from Toronto, as well as Sid Cross and Anthony Gismondi). I\’ll post separately on this.
• Ecommerce and website issues (Brent Johnson from Vin65).
• Taxation and Markup Issues (Tim Crowhurst of IVSA).
• Regulatory Compliance Issues (Bert Hick of Rising Tide)
• Regulatory Overview of BC Wine (Jeffrey Thomas of BCWA).
• Reform of BC Wine Laws (Scott Fraser of BCWI and myself).

As a member of the International Association of Wine Lawyers, I just received this list of additional Canadian GIs (geographical indicators) for wine which will be protected under the Canada – EU Agreement on trade in wine and spirits. The protected GIs to be added are:

Ontario, British Columbia, BC Gulf Islands, Vinemount Ridge, Lincoln Lakeshore, Creek Shores, Twenty Mile Bench, Short Hills Bench, Beamsville Bench, Niagara Escarpment, Four Mile Creek, Niagara Lakeshore, Niagara River, St. David\’s Bench, Niagara-on-the-Lake

Previously protected GIs included under the original agreement are:

Fraser Valley, Lake Erie North Shore, Niagara Peninsula, Okanagan Valley, Pelee Island, Similkameen Valley, Vancouver Island

I have reported on France\’s bizarre moves toward neo-prohibitionist laws regulating their wine industry before. Just noticed an interesting story in Decanter following up on this issue. At a recent conference in Europe, France\’s strategy was blasted by many from the wine industry as being completely out of touch with history and reality. Particularly, what is incensing people is the effort to lump wine in with spirits and then claim that all forms of alcohol consumption are \”dangerous\” and need to be highly regulated. This rationale is exactly what led to the disastrous experiment with prohibition in North America. It\’s odd that one of the world\’s leading wine producing countries would be putting forth these discredited theories. Here in British Columbia, this is exactly what led us into the morass of unworkable laws and regulation that we have today. Most of North America has been slowly unwinding the prohibition era mess and has moved (albeit slowly) to saner and more sensible policy. Hopefully, British Columbia will not be far behind and France will abruptly end its foray into reactionary territory.

Customer: A bottle of the Caymus Cabernet please. Waiter: Sorry, sir, I am afraid you\’ll have to order something cheaper. It\’s a little slow in here tonight and we can\’t sell any more expensive wine unless we sell more food.

Sound ridiculous? Perhaps not in Vancouver …

The City of Vancouver is currently implementing changes to its bylaws regarding the operating hours of restaurants and liquor service in restaurants. One little noticed section of the changes seriously threatens the business viability of most restaurants in Vancouver and would have extremely detrimental effects on the consumption of wine in restaurants.

As part of the condition of granting a restaurant a food-primary license, the province (LCLB) currently has a requirement that the restaurant primarily be in the business of selling food rather than liquor. The province can currently check this by enforcing a requirement that in any 24 hour period, the restaurant should not be selling more liquor than food. While this method of testing the balance seems problematic to me, it generally has been accepted by restaurants because food sales at lunch (and/or breakfast etc …) can balance out higher liquor sales at dinner.

The City, however, is proposing to change the 24 hour check to an 8 hour check. That would mean that solely during the hours of dinner service, a restaurant would have to sell more food than liquor. It doesn\’t take too much thought to realize that this is a completely unworkable rule. Suppose, for example, that a single table of two orders an expensive bottle of wine ($150) with two entrees ($50). That purchase would skew the sales toward liquor instantly. If that was the only table for the night, or if all other tables ordered 50/50, then the restaurant would be off-side for the night. I would venture to guess that this rule will be immediately unworkable in most popular restaurants in Vancouver.

The effect on fine wine sales could be dramatic. If the manager for the night notices that the restaurant is running 50/50, then theoretically he or she should prevent customers from ordering expensive wine because that would throw the restaurant off for the 8 hour period. Any restaurant that sells moderate to expensively priced wine should be extremely worried about this rule. As the Olympics approaches, this is a huge backward step for the modernization of wine laws in Vancouver.

Restaurant groups are mobilizing to fight this law. The Vancouver Sun has also covered the wine/liquor food bylaw this morning (October 27th)

Update (November 3, 2009): Good News …. The City of Vancouver has withdrawn the proposed bylaw and it will not be considered in its original form, as described above. There will now be a \”rethink\” and further consultation with the industry.

The Ontario government has announced changes to their regulatory regime which affect both VQA and Cellared in Canada (CIC) wines. Supposedly, Ontario is attempting to move consumers away from CIC blends and toward VQA product made from 100% Ontario juice. There will a change to the minimum domestic content requirement for CIC wine sold in Ontario from 30% to 40% overall (and to 25% for any single bottle). By contrast, B.C. has no domestic content requirements at all for CIC wine. The Ontario changes will obviously create increased demand for Ontario grapes but not in time for this year\’s harvest for which there is a glut of unsold product. By 2014, the domestic content requirement for CIC wines will be eliminated along with the tax breaks that Ontario currently provides for this category. The government claims that during this time, VQA sales will increase and consumers will move toward true Ontario product. However, as noted, B.C. has zero domestic content requirement for CIC wines and, in fact, CIC wines far outsell VQA product. As a result, the B.C. experience would seem to suggest that the Ontario strategy will be difficult to achieve on the consumer side.

The VQA Support Program is also returning in the LCBO. This program, which was canceled a while back, is similar to BC\’s VQA rebate program for government liquor stores. In Ontario, the program will return an extra 30% \”rebate\” to the wineries in order to encourage wineries to sell through the LCBO. Generally, VQA wine sold directly from wineries is not subject to liquor board markup (in either BC or Ontario). However, wine sent through the liquor boards is subject to full liquor board markup which means that the wineries must take a substantial cut in their profit margin in order to sell through government stores. The VQA rebate programs are designed to encourage wineries to send product into government stores by rebating some of the selling price and thus increasing the wineries\’ profit margins.

However, there is a serious issue as to whether these programs are sustainable in the long term as a result of Canada\’s obligations under international trade agreements such as NAFTA and GATT (a related though less serious trade issue is discussed here). An earlier challenge under GATT by the EU regarding discriminatory liquor board markup policies was successful and resulted in a settlement agreement under which Canada pledged to eliminate such differential pricing.

This story is now also covered in Wines & Vines. A summary of the massive amounts of recent publicity on Cellared in Canada wines is on my marketing site. A full update on all of these issues will also be provided at the upcoming November conference on Winery and Wine Distribution Law. There is also a good summary of recent developments on the Wine Case Blog.