WineLaw.ca

The United States Trade Representative has announced this morning that the Obama administration has launched a trade enforcement action at the WTO against BC\’s wine in grocery store model. The details of the challenge are contained in this press release: United States Challenges Canadian Trade Measures That Discriminate Against U.S. Wine. The basis of the action is that BC\’s \”regular shelves\” grocery model discriminates against imported wines by allowing the sale of BC wines on regular grocery shelves but only permitting the sale of imported wines in a separate \”store within a store\” model. We will provide an update on this issue at the upcoming Wine & Liquor Law Conference in Vancouver on February 14th.

Details of the 2017 BC Wine & Liquor Law Conference are now available from the organizer\’s web site: Law Seminars Wine Law Conference. The agenda should be fascinating with sessions on BC\’s brand new Liquor Control & Licensing Act (taking effect later this month), as well as a review of the new legislation\’s effect on industry and local government, discussion of wine labeling requirements, an update on interprovincial shipping and the effects of national trends in liquor law reform.

There is a discounted registration fee for those who work in the BC wine or liquor industry. This reduced $300 USD rate is now available by going to the conference registration page, selecting the \”Rate\” drop down box and changing it from \”Regular\” to \”Wine Industry Member\”. The registration fee will then change to $300.

A quick round-up of end of year wine law issues in BC and Canada:

BC LCLB General Manager Departs. Douglas Scott, the current General Manager of BC\’s Liquor Licensing and Control Branch, is leaving the Branch in early January to move to a new position within the Government dealing with Aboriginal Relations. Doug led the Branch through a time of many changes including the implementation of nearly all of the recommendations arising from the Liquor Policy Review. His replacement will be Michelle Carr, who is currently with the BC Environmental Assessment Office.

BCWA Plebiscite Changes. Some of the changes approved by the recent BC Wine Authority plebiscite have now been enacted: see \”BC changes regulations for wine labelling\” and here is a link to the Order in Council that enacts the changes – incidentally, the government is changing the name of the statute that governs BC wine from the rather obtuse \”Agri-Food Choice and Quality Act\” to the more sensible \”Food and Agricultural Products Classification Act\” (nice to see wine classified as an agricultural product!).

Federal Marijuana Report – Interprovincial Shipments. The federal government\’s report on marijuana legalization has now been released including recommendations that cannabis be available from retail storefronts and that the existing mail order system be continued (it is currently legal for medical marijuana to be shipped through the mail and between provinces). In respect of retail sales, the report advocates a separation of cannabis sales from the sale of alcohol and tobacco … which, if implemented, would prevent sales through existing government or private liquor stores. In addition, if the recommendation to continue with mail order sales is adopted, then the federal government may wish to also address the continued problems with interprovincial wine sales. It would make little sense to allow a new regime for cannabis sales which permits interprovincial shipment but to not resolve the longstanding issues with interprovincial alcohol sales at the same time. It would be relatively easy to do both by establishing permissible amounts for interprovincial shipment of both cannabis and alcohol through a federal level exemption.  

Wine Law Conference 2017. The date for the 2017 BC Wine & Liquor Law Conference is February 14th (Valentine\’s Day!). The agenda is excellent including a review of BC\’s new Liquor Control & Licensing Act as well as its accompanying regulations, review of the new legislation\’s effect on industry and local government, discussion of wine labeling requirements and related issues, provision of an update on cases dealing with interprovincial shipping, and the effects on the industry of national trends in liquor law reform. Full details and registration are here: 2017 BC Wine & Liquor Law Conference.

Here is a policy update regarding the sale of wine in grocery stores in BC.

Possible Licensing

There are currently 4 main potential avenues for enabling the sale of wine in grocery stores in BC: 1) Transfer of VQA Operating Agreement, 2) Purchase of Auction Licence, 3) Transfer of Private Store Licence, and 4) Transfer of Government Store.

In respect of VQA store transfers, these licences are held by the BC Wine Institute. Most of the operating agreements associated with these licences have been purchased by a single grocery chain, the Overwaitea Food Group (Save-On Foods). A number of them are currently open for business. These licences only permit the sale of BC product and can sell wine on the regular shelves. There are no new VQA store licences being issued.

In respect of the Auction licences, the first round of auctions allowed bidding for the \”right to apply\” for 6 licences. All were purchased by Loblaws with cumulative bids totalling about $7 million. Another round of auctions for an additional 6 licences will be held at the beginning of December. The first of these stores opened this week in South Surrey (a Real Canadian Superstore). Like the VQA licences, these licences only allow the sale of BC product which can be sold on the regular shelves.

In respect of private store licence transfers, it is possible to transfer an existing LRS or IWS licence to a supermarket. This would generally result in a \”store within a store\” sales model although it is possible with an IWS licence to end up with the \”regular shelves\” model if the products sold are restricted to BC product. I am not aware of any such transferred licences being open for business at the present time … although some grocery chains have purchased licences that they may eventually use in this way. No new private store licences are being issued.

In respect of the government store transfer, it is possible for a government liquor store (not technically a licensee) to move to a supermarket using the \”store within a store\” model. I am not aware of any such transfers being open for business at the present time … although it is possible that some may be in the works.

Municipal Restrictions

Grocery store alcohol sales are also subject to municipal zoning and bylaw restrictions. Some BC municipalities have restricted the operation of the above licences by either not permitting the sale of alcohol in grocery at all or by making such sales subject to distance separation requirements (similar to the 1 km rule for private and government stores). 

Trade Compliance Issue

As discussed here earlier, many of Canada\’s international trading partners have complained about the grocery model on the basis that it discriminates against imported wines (i.e. BC wine can be sold on regular shelves but imported product cannot). This issue is ongoing and received additional media coverage this week: California Wine Lobby Group Says U.S. to File Complaint Over BC Liquor Reforms. The progress or resolution of any such complaint may be affected by the recent election of the Trump administration – which appears to be poised to take either an anti-trade stance or a more aggressive position on international trade issues. 

Ontario Grocery Wine Sales. The Ontario government has introduced a complicated system that will allow for an increase in the sale of certain beer and wine on the regular shelves of supermarkets as well as allow for the conversion of existing wine kiosks into \”regular shelf\” sales licenses.  Basic information on the system is available from the AGCO site here: Beer, Wine & Cider Sales in Grocery Stores. However, this summary (Ontario Announces Bid Process for Wine Licenses) from the trade organization, Drinks Ontario, also provides some very useful links. It should be noted that the Ontario approach also provides preferential treatment to \”in-province\” producers since many of the new licensees will only be able to sell Ontario product for the first 3 years of their license term and the other rules regarding sales appear to favour Ontario producers.

Here is an update on the status of the constitutional challenges to interprovincial alcohol restrictions that are currently before the courts in New Brunswick and Alberta.

Comeau Case (New Brunswick). The trial level decision found that New Brunswick\’s restrictions on the interprovincial importation of alcohol were unconstitutional. The case was then appealed directly to New Brunswick\’s Court of Appeal. The NB Court of Appeal has refused leave to appeal (i.e. they have declined to hear the appeal). This means that the lower level court decision stands and constitutes a precedent only within the Province of New Brunswick. It remains to be seen whether leave will now be sought for the case to be heard by the Supreme Court of Canada and whether such an application would be successful. CBC coverage of this decision is here: Acquittal of Cross-Border Beer Shopper Stands.

Steam Whistle, Great Western (Alberta). An injunction was issued earlier upon application by Steam Whistle (of Ontario) that prevented the application of discriminatory beer markups in Alberta which favoured in-province breweries. The Alberta government subsequently revoked the discriminatory beer markup system. However, it then instituted a \”rebate\” system for small Alberta breweries which had a similar practical economic effect. On November 9th, an Alberta court issued another injunction (upon application by both Steam Whistle and another brewery, Great Western of Saskatchewan) such that the breweries will not be affected pending resolution of the issue at a full hearing to be held in May 2017. The breweries will presumably argue that any discriminatory markup or rebate system is unconstitutional under s.121 of the Constitution which creates a \”free\” trade zone between the provinces for Canadian products. CBC coverage of the decision is here: Great Western, Steam Whistle win latest battle in Alberta beer war.

It should be noted that each of the above cases could potentially have significant effects for provincial liquor policy across the country. Most Canadian provinces currently impose some restrictions on the interprovincial transport of alcohol (see: Shipping Law Update). These could be overturned or affected by the Comeau case if it gets to the Supreme Court of Canada. In addition, many provinces (including BC) impose discriminatory liquor markups which favour their own in-province breweries, wineries or distilleries. These could be overturned or affected by the Steam Whistle/Great Western case if that case makes its way up the appellate ladder.

On Friday July 22nd, the Premiers of British Columbia, Ontario and Quebec announced a limited deal to improve access to Canadian wine in their respective provinces. The joint press release is here: Increasing the Flow of Wine Among Quebec, Ontario and British Columbia. The press release does not provide any detail as to what the initiative covers but it refers to easier on-line access to wines produced in these three provinces. It also refers to the fact that the initiative will be implemented through actions of the liquor boards in each province. As noted, there is currently very little information about the extent of this agreement.

However, it is possible that the agreement is based upon a relatively new e-commerce program unveiled by the LCBO (Ontario\’s liquor board) late last year, which indicates a process for \”special orders\” of Canadian wines. The details of that program can be found here: LCBO E-commerce, particularly in the links labelled \”e-commerce presentation to the trade\” and \”FAQs about e-commerce\” (both are PDF documents). If the LCBO program is the basis for this provincial deal, then the following characteristics would constitute the fundamentals of the program:

• Wineries would be able to list their products on an e-commerce website run by the liquor board in the other province (e.g. LCBO or SAQ, Quebec\’s liquor board).
• Consumers in the other province could purchase any of the listed wines so long as they ordered by the case. 
• The wines would not be stocked by the liquor boards. Rather, they would be ordered by the liquor board from the winery following a customer order.
• The winery would ship the wine to the liquor board in the other province, who would then either deliver the wine to a government liquor store for pickup by the customer (free) or arrange for delivery to the customer\’s home or office at extra cost. Delivery would only be possible within that liquor board\’s particular province.
• It seems likely that the wines listed on the site would be subject to provincial liquor board markups, which in the case of Ontario are 73.5% for out of province wine. This would mean that the wines would either have a higher end-consumer price in the other province than they would in their home province or that the winery would have to sell to the liquor board at a significant wholesale discount.

The Alberta government has announced that, effective August 5th, it is eliminating the discriminatory liquor markup policy that was introduced in the last provincial budget. As reported here earlier, Alberta had previously had a liquor markup policy that applied equally to products regardless of place of origin. The budget changed that by providing lower preferential markups to small breweries located in Alberta and provinces that had signed the New West Partnership. As a result, an Ontario brewery, Steam Whistle, sued the Alberta government and obtained an injunction to prevent the change on the basis of a preliminary argument that s.121 of the Constitution (the \”free trade provision\”) might prevent provinces from charging markups or fees that did not apply equally to all Canadian products. The Alberta government has now announced that they are reversing course and going back to a system that is non-discriminatory: Government to Create Consistency for Alberta Beer Markups. This move should effectively end the Steam Whistle case – which will also end the potential for a court ruling on the effect of s.121. At the same time, the Alberta government announced it will later introduce a \”grant program\” to encourage the growth of Alberta based small brewers.

The New Brunswick government has filed an appeal of the \”cross-border\” liquor case that was decided last month (the Comeau case) and which held that provincial liquor laws could not impede the \”free trade zone\” guaranteed by s.121 of the Constitution.  The appeal goes directly to the New Brunswick Court of Appeal (skipping an intermediate level of court) and contends that the judge made errors of law in interpreting s.121. One of the primary appeal arguments is that the judge did not follow older decisions of the Supreme Court of Canada that interpreted s.121 in a much more restrictive manner. The CBC news report on the appeal is here: New Brunswick appeals cross-border liquor case. The appeal is not surprising given the importance of the issues in this case.

In what could prove to be a groundbreaking decision of immense importance to the Canadian wine industry, a New Brunswick judge has found today that provincial laws that restrict the interprovincial transport of liquor are unconstitutional. The judge found that s.121 of the Constitution which guarantees a free trade zone within Canada does not allow provinces to create laws that prevent Canadians from transporting liquor from another province. It is not currently binding on other provinces because it is the decision of a NB trial court. However, if it is appealed to the Supreme Court of Canada, which seems all but certain, then it may eventually become binding across the country. Even now, it will likely be influential because there is now a precedent for other Canadian jurisdictions, if not a binding one. I note that all Canadian provinces have some form of laws, regulations or policies that inhibit the interprovincial trade in alcohol (Manitoba is the least restrictive). All of these restrictions are now vulnerable to a similar challenge.

This case may become Canada\’s Granholm (a case which opened up the U.S. market to direct to consumer wine shipping). This may be the start of a new era when Canadians from one part of the country will be able to legally purchase wine, or other alcohol, from another part of the country just as most people in the world are able to do. This is a very significant development for the Canadian wine industry because it may transform their markets from customers in a single province to all of the residents of the entire country.

Here is a link to the full decision: NB Liquor case.

From a wine lawyer\’s perspective, 2016 is shaping up to be what could be an exciting year in Canada. There are two significant court cases likely to be decided this year, from opposite sides of the country. Either one of these cases could significantly change the regulatory landscape for the wine industry in Canada.

In this sense, Canada could see a decision which may eventually have \”Granholm-like\” significance. Granholm v. Heald was the 2005 U.S. Supreme Court decision that opened the U.S. wine market to direct to consumer shipping by holding that a state could not discriminate against out of state wineries if it allowed in-state wineries to direct ship to consumers. In the recent Silicon Valley Bank \”State of the Industry 2016\” report, it was commented that the U.S. wine industry \”really dodged a bullet\” due to the Granholm decision because the decision \”knocked the legs out from protectionist state laws that favored in-state wine producers\”. The subsequent rapid expansion of the direct-to-consumer wine market greatly helped small wineries who found it difficult to obtain distribution because of a consolidation of distributors and the growth of grocery/big-box wine sales.