WineLaw.ca

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.

Canada\’s outdated wine shipping laws were under the microscrope again today with no lesser body than the House of Commons pulled into the debate. It turns out that the House of Commons was planning to have a \”wine tasting reception\” for MPs and Senators later this year where they would compare wines from across Canada in order to select a house wine for the Commons. Wineries in BC were among those invited to ship samples direct to Ottawa. Of course, normally wineries can\’t ship out of province at all due to an ancient post-prohibition federal law which is still on the books. The law contains an exemption for the government but winery owners were understandably miffed when asked to do something for elected officials which the rest of us can\’t enjoy – the Vancouver Sun covers the story here. More coverage from the National Post here. Personally, I think it\’s great that the MPs and Senators want to sample Canadian wine – a comparison tasting of many Canadian wines is a fine idea. However, it doesn\’t leave a good impression when the elected officials are able to organize something which the rest of us are prohibited from doing. Maybe our elected officials should take a short break from non-confidence motions and think about changing the 1928 federal law which stops the rest of us from having similar tastings.

I wrote an op-ed piece for today\’s Vancouver Sun in which I argue that it\’s time for the BC government to get out of the retail side of the liquor and wine business. I have really only glossed over the myriad of problems in this piece but suffice to say, I think that British Columbia is long overdue for sweeping reform of both its retail liquor and wine distribution system and the related regulatory framework. Simply put: our government could make more money, grow the industry and have more effective liquor policy if it adopts broad changes. It\’s time to bring B.C.\’s liquor laws and retail system into the 21st century – and it\’s a perfect Olympic legacy project.

By the way and not surprisingly, the BCGEU\’s president, Darryl Walker, disagrees with me on these issues (which is fine). However, in a response on his web site, he labels me \”a lobbyist\”. Just FYI … I am not a lobbyist and have not been paid by anybody to advance my opinions. My opinions on reform of BC wine laws are solely motivated by the fact that I am passionate about wine and care about the wine industry.

British Columbia\’s inadequate wine laws were in the news again this weekend as the \”cellared in Canada\” issue got prominent coverage on CTV News, BCTV, the CBC and in the Vancouver Sun. This story is an important one because it relates to a long standing practice where some of B.C.\’s largest wineries sell imported wine with misleading packaging such that consumers think that it is B.C. wine. The LDB is complicit in this because they list and display these products as being from British Columbia when in reality they consist of almost all imported juice.

The full story on the cellared in Canada controversy is on my marketing site.