WineLaw.ca

The world is dramatically different today than it was 10 days ago. The new world is one of closed businesses, canceled events, work from home, serious hygiene and social distancing. Our collective health is the prime concern, as it must be. Governments and businesses are working round the clock to implement public health measures that will hopefully minimize the worst scenarios. Because we are in uncharted waters, however, we simply don\’t know what will actually happen … and any look toward the future must be largely speculative. Nevertheless, I have attempted to catalogue some thoughts below regarding the business and legal implications of this new world for the wine industry. I hope that these are helpful.  

Time Frame

How long will this last? We don\’t know. There are many differing estimates. However, news reports are currently indicating that it took China 3 months to \”turn the corner\” with severe restrictions. Barring a miracle cure or vaccine, the new world in North America will probably last at least that long and possibly much longer, since our restrictions are not as severe. In addition, public health experts are indicating that the maintenance of restrictions would likely be necessary in order to prevent a flare-up or resurgence, at least until a cure or vaccine is found. As a result, businesses, including those in the wine industry, must prepare and plan for the new world for the foreseeable future.

Consumption

Generally, people continue to consume alcohol during stressful or uncertain times, although they may not do so in the same ways or to the same extent as they did previously. The experience of Prohibition shows that liquor consumption will continue even in the face of blanket restrictions to stop it. As a result, liquor manufacturers including wineries may be in a somewhat better position than other business sectors. Nevertheless, the consumption patterns have already changed and will stay that way for some time as customers switch en masse from on-premise (restaurant/bar/hotel) consumption to off-premise consumption (home consumption from retailers).

Production

Hopefully, for most wineries, production will continue as normal. A welcome bit of good news was that the temporary foreign workers program will continue, although subject to self-isolation requirements (many wineries use this program for vineyard labour). There may be general shortages of skilled labour however.

Distribution

The hospitality sector is experiencing a grave crisis. As a result of both mandatory measures and changed customer behaviour, most of these businesses are either closed or operating at tremendously reduced capacity (e.g. take out only). Their situation is dire. Unfortunately, this sector is likely to continue to experience the brunt of the negative effects and be at the front line for the duration. Wholesale winery sales to the hospitality sector will obviously go down dramatically. Hopefully, there will be a sufficient amount of fiscal and regulatory support for this sector so that it can survive. These are some of your best customers. Unfortunately, it seems certain that there will be many casualties. In contrast, the retail sector is already experiencing a large increase in sales. Wholesale winery sales to retailers will likely go up (although likely not enough to compensate for the downturn on the hospitality side). So far, the retail distribution supply chain continues to operate normally. This will be critically important in the weeks ahead.

Direct to Consumer (DTC)

Some jurisdictions have ordered winery tasting rooms to close while permitting DTC sales to continue either in-store or through e-commerce. While BC has not ordered tasting room closures, the current BC health orders would make it difficult to operate a normal tasting room environment (due to capacity and distance separation). Due to changes in consumer behaviour, opening is likely not desirable anyway and could potentially create legal liability if operated incorrectly (most BC wineries seem to have closed their tasting rooms). Current regulations continue to permit on-site sales (many wineries are offering curb-side pickup or loading for pre-paid orders) and e-commerce sales with delivery. Unfortunately, the post-Comeau regulatory environment continues to make it difficult to serve many out-of-province customers (see Shipping Update). It is likely wishful thinking to hope that the provincial governments will resolve this any time soon.

Marketing: Expand DTC & E-commerce

Many forms of traditional wine marketing are unfortunately on hold. BC\’s current restrictions make it impossible to hold traditional winemaker\’s dinners or to have large scale tasting events (e.g. sadly, Top Drop was just cancelled). 

Wineries may wish to consider an evaluation and expansion of their marketing efforts (perhaps using tasting room staff) through DTC efforts, e-commerce and wine clubs. The changed consumer landscape has created a large increase in retail deliveries and a desire for products delivered to home. Reaching out to existing consumer lists and ramping up on-line advertising as well as social media are viable options although wineries should obtain advice on the marketing restrictions that relate to social media (and other advertising) if they are not clear on what those are. The expansion of wine clubs is also an option. Traditional wine club models can be promoted, particularly with \”% off\” promotions and/or free shipping. Less traditional club models might also be considered including working with other wineries, wine writers, wine experts and/or retailers. These latter options can provide additional marketing opportunities although they are subject to regulatory constraints on their structure. It is important to get proper advice in order to stay on-side.

Additional thoughts on the broader economic implications of the new world are in this Wine Economist article (the link at the end to the Rabobank report may be instructive).

Everyone is hoping that this new world will not last … and that events will be brought under control to restore some semblance of normality. When that eventually happens, we will all breathe a huge sigh of relief. This new world is one that none of us wanted. Let\’s work together to try and make it short-lived.  

The Canadian chapter of the International Wine Law Association (Association Internationale des Juristes du Droit de la Vigne et du Vin or \”AIDV\”) has now launched and announced its first ever national wine and liquor law conference, to be held in Vancouver on February 24th in conjunction with the Vancouver International Wine Festival.

AIDV Canada\’s mission is to develop knowledge of and to advance wine law and policy across Canada. Those interested in joining AIDV Canada can sign up here (membership is $225 CAD per year which includes membership in AIDV International). Membership in the international section includes invitations to the annual international conference, which is next scheduled for fall 2020 in Madeira. The AIDV Canada web site is located here: AIDV Canada. 

AIDV Canada\’s inaugural national conference on wine and liquor law will take place on February 24th during \”wine festival week\” in Vancouver. The conference will keep attendees up to date on recent developments including updates on national liquor policy, international trade, geographical indicators, and developments in case law. There will also be sessions on selling a BC winery, running a liquor agency/importer and issues arising at the intersection of liquor and cannabis licensing.

The conference fee is $250 for AIDV members and $325 for non-members. Registration and more information is available here: AIDV Canada Conference. 

If your winery or liquor business has been confused by the changes to Canada\’s interprovincial shipping laws over the last few months, we have good news for you. Our related (new) web site, Alca Intelligence, has just launched our Essential InterProvincial Shipping Compliance Subscription service, which will provide you with 12 months of critical legal information on interprovincial shipping including update notifications by email whenever there are any significant changes. The service provides immediate access to a detailed review of the current state of interprovincial shipping laws including an explanation of the recent federal changes. It also provides a complete summary of the relevant provincial laws including links to statutes, regulations and policies. Finally, there are also sample \”terms of use\” clauses for vendors to consider. The complete package should provide sufficient legal information for wineries (or other liquor businesses) to understand the current state of the law and to make their own decisions as to whether or not to ship to other provinces. 

We hope that this service will provide a more economical alternative to a legal opinion … by providing essential legal information that will enable liquor businesses to make their own decisions at a more reasonable price point. More details on the Shipping Compliance Subscription and sign up is available here. Until October 31st, get 10% off the subscription by using the referral code SHIP2019 when you sign up.

As of July 8, 2019, the BC Government has eliminated the limits on the amount of alcohol that may be brought into BC from another province so long as the alcohol is personally transported with the traveler (e.g. bringing back wine with you after a trip to Alberta). The previous limit for wine after such a trip was 9 litres (one case of 12 bottles). The new rules have no limit on amounts for personal consumption. The amended regulation is here: Order in Council 399/2019. I note that these rules do NOT apply for alcohol that is shipped from another province. The limits on such transactions, which would include e-commerce sales, remain at zero unless the alcohol is 100% Canadian wine purchased direct from a winery, in which case the limit is also an unlimited amount for personal consumption. 

The BC Government has amended its laws so as to permit the sale of imported wine on grocery store shelves. A limited number of grocery stores hold licenses for wine sales in BC. The previous government\’s policy only allowed for the sale of BC wine on those shelves. However, the earlier policy caused a WTO trade challenge by numerous countries (which challenge has been commented upon here in many posts). The new policy comes as a result of a side letter to the CUSMA trade agreement under which the BC government committed to eliminating the earlier restrictions.  See policy directive here: Allowing Imported Wine on Grocery Store Shelves. 

The Ontario Provincial Government has brought new liquor regulations into force that effectively block (at least temporarily) the recent federal shipping law reforms (see earlier article). The recent federal reforms removed the 91 year old federal prohibition on the interprovincial shipment of alcohol. As a result of those reforms, the only restrictions on interprovincial alcohol shipment are now any applicable provincial laws. Up until now, Ontario\’s provincial laws did not specifically address the importation of alcohol into that province (the LCBO had issued a \”policy\” on this matter but a policy is not a law). However, the Ontario government has now introduced a new regulation (Importation of Liquor into Ontario) that prevents the importation of alcohol into Ontario from other provinces unless the alcohol is imported by the LCBO or under its authority. This change will make it illegal for Ontario consumers to import wine directly from wineries in other provinces (since the importation would not be authorized by the LCBO). Nevertheless, on an interesting and potentially positive note, the new provision is scheduled to be repealed on January 1, 2020. Presumably, the Ontario government is intending that prior to that time, they will introduce additional changes or systems such that the blanket prohibition is no longer needed. 

On Friday, June 21st, Bill C-97 (the 2019 Budget Implementation Act) was given Royal Assent, which means that the Bill became law in Canada. One of the sections of this Bill amended the Importation of Intoxicating Liquors Act so as to completely remove the federal restriction on the interprovincial shipment and transport of alcohol which has been in place since 1928. As a result of these changes, there is no longer any federal prohibition on the movement of alcohol between provinces. Customers of wineries (or of other alcohol shippers) may still be subject to any relevant provincial laws on the possession of alcohol that has been imported from another province but the federal law is no longer. This is a very positive step in the long fight to reform Canada\’s post-prohibition shipping restrictions. More analysis in the days and weeks ahead.

This regulatory update covers a recent policy change that may affect BC wineries. The policy change relates to the permissible uses for alcohol production (i.e. wineries) on property that is contained in the Agricultural Land Reserve (ALR). 

ALR Policy Change. In December 2018, the Agricultural Land Commission posted a new policy that covers the operation of alcohol production facilities (including wineries) that are located on ALR land (\”Policy L-03 – Alcohol Production Facilities in the ALR\”). This applies to many, if not most, BC wineries. The new policy can be read and downloaded here: ALC Policies and Bylaws. The change that wineries may wish to review is the addition of new criteria relating to the allowable \”development area\” for a winery on the particular parcel of ALR land upon which the winery facility is located. The new policy permits a maximum of 5% of the parcel to be used for the \”development area\”. The calculation only includes the parcel on which the production facility is located and does not extend to other land owned or leased by the winery. The definition of development area is very broad and includes all buildings, roads, parking areas and landscaping. For example, if a winery is located on a parcel of ALR land that is 10 acres, it would be permitted a development area of 0.5 acres. Many existing wineries may be off-side with this new rule. While I would not expect the ALC to enforce the policy change in respect of existing facilities, this change may affect new winery projects and any proposed changes to existing wineries. 

BCLDB Manufacturer Info. I also note that the BCLDB has now added a section to their web site that provides information and documentation on some of the policies that they administer that relate to BC manufacturing: Info for BC Liquor Manufacturers. Particularly, there is now publicly available information relating to the categorization of wineries in BC as either \”commercial\” or \”land-based\”. For example, the sales agreements for both types of wineries are now available as well as the land-based winery criteria and direct delivery information (see BC Manufacturers – Sales Agreements). This is a positive step in respect of the availability of this information to industry (although I note that the 2018 BTAP report, which I chaired, recommended that all manufacturer regulation be centralized at the BC LCRB).

 

As noted here earlier, the Canadian Government indicated in its Federal Budget 2019 that it would amend the Importation of Intoxicating Liquors Act (\”IILA\”) so as to remove the federal prohibition on the shipment of alcohol between provinces. The actual text of the Budget implementation bill was released last night. As indicated, the Budget Bill carries through on what was promised. Section 3(1) of the current version of the IILA prevents the shipment or transport of any alcohol into Canada or between provinces unless the alcohol is sent to the liquor authority (liquor board) in the destination province. Amendments made to the IILA in 2012 and 2014 created a limited exemption from this prohibition if the alcohol was intended for personal use and if the provincial laws in the destination province permitted it. Few provincial laws were changed to allow for the exemption (see Shipping Laws Article).

The Budget Bill proposes a more substantive change. It changes the IILA such that it only applies to shipments coming into a province from outside Canada. In other words, inter-provincial shipments of alcohol are no longer subject to the IILA prohibition at all. The earlier exemptions are removed because of this change in approach. These reforms would mean that if a winery is making a DTC shipment, then it would no longer be subject to any federal restriction on the shipment itself. The customer in the receiving province might be subject to any relevant provincial laws on the possession of imported alcohol (the constitutionality of such laws was upheld in the recent Comeau case) once the alcohol was received, but the actual shipment between provinces would no longer be prohibited. This is a positive change which will be welcomed by the wine industry if the Budget Bill passes and the changes are brought into effect.

I note on a practical level, that if these changes are to proceed, the federal government will have to pass the Bill before the end of June, when the House of Commons breaks for a summer recess. This is the last scheduled sitting of Parliament before the next federal election. There is also a news release on this issue: Canada Acts to Eliminate Barriers to InterProvincial Trade in Alcohol.