Canadian Wine Regulators: Control Freaks

The following blog post is from our friend, Bennett Lee, a Canadian wine lawyer located in Vancouver, British Columbia, working for the Boughton law firm.  Bennett may be contacted at [email protected] and you can learn more about Boughton at www.boughton.ca.

Vancouver, Canada may be one of the most livable cities in the world, but its wine culture is hobbled by archaic liquor laws and policies which drive its private wine merchants, importers, restaurants, wine lovers and most local provincial wineries slightly crazy.
The problem stems from the Prohibition era, when the Federal government ceded regulatory power over the purchase, distribution and sale of wine under The Importation of Intoxicating Liquors Act to provincial government liquor board monopolies which took control of the wine business and have never looked back.
The Liquor Distribution Branch (LDB) in British Columbia, for example, charges a markup of 123% on all wines imported into the province, which are sold through a mix of government-run stores and licensed private outlets.  Since the government is both regulator and competitor, the playing field is anything but level, slanting heavily in favour of the LDB. 
The service in government-run stores lags behind private sector wine sellers, who are generally more knowledgeable and passionate about wine, but make less than the average government store shelf stocker who can’t tell a Merlot from a malbec.
Wine can’t be sold through grocery or convenience stores, supermarkets, pharmacies, gas stations or warehouse club retail outlets.  Licensed private wine merchants have to source their product through the LDB.  The process can be painfully slow and arbitrary.  They have to pre-pay for orders and storage, but delivery from government-controlled warehouses can take months, and they can’t sell to restaurants, deliver wine to customers or store wine off site. 
Restaurants have to pay retail for wines from a single designated government-run store, which forces them to operate at higher cost margins.  The already inflated government price is then passed on to customers – e.g., a wine which sells for $10 in California will cost the restaurant over $20 and be priced on the wine list at $45-$60.  Corkage is officially banned.  Even splitting cases of special orders with other restaurants is a no-no. 
Sommeliers frustrated in their efforts to develop interesting wine programs are venting in the blogosphere and finding a very receptive audience: 
Vancouver consumers have far less selection in small production wines than in Seattle, Portland or San Francisco because the LDB is the final arbiter of what can be sold.  The 123% markup for all imported wines makes them expensive, often twice what they cost in Seattle, a two hour drive to the south.  However, you have to stay 48 hours and can only bring back two bottles duty-free – any more and the taxes will more than double the original price you paid.
B.C. wineries – 200+ at last count – can only sell through the LDB at a significant discount, so most rely on direct sales, an option not available to outside wineries.  But they can’t set up off site tasting rooms for promotion and that 1928 Act effectively prohibits shipping their wine directly to customers in other provinces or territories.  It’s illegal for tourists from Calgary or Toronto to buy a case from a winery in B.C. and bring or ship it home.
This anomaly has become a flashpoint for change. The provincial official who was in charge of enforcement has openly acknowledged that the law restricting interprovincial commerce is silly and unenforceable.  The outgoing premier agrees that it needs to change.  A member of Parliament from the Okanagan is lobbying to have the outdated Act amended. 
The natives are restless, but proponents of any significant change – read: privatization – face some formidable obstacles. 
The government has a cash cow – nearly $900 million in B.C. in 2010 – and is not about to give up control of retail distribution unless that revenue is maintained.  Government unions are opposed to privatization because it means a loss of jobs. Larger B.C. wineries would also prefer to let sleeping dogs lie since, if the provincial borders are opened up, other countries will push for similar application to their wines under international trade laws.
Trouble is already brewing over the preferential treatment given to local wineries:
The combination of consumer discontent and outside pressure will eventually bring about a more wine-friendly environment here, but the changes will probably be incremental: relaxing the rules on corkage, allowing the interprovincial shipment of wines for personal consumption, etc.
It may not sound like much, but it would certainly be progress to us here in the cool blue North.
Copyright Dickenson Peatman & Fogarty at www.lexvini.com