Interprovincial Wine Sales

Trade Deal Doesn't Free the Grapes

The wine trade deal recently announced at the Premiers’ Conference in Whitehorse does nothing to facilitate interprovincial sales by liquor retailers. In fact it further entrenches the role of the provincial liquor monopolies. The new agreement allows online sales of BC, Ontario and Quebec wines in each of these provinces through the LDB, LCBO and the SAQ only. However, it does not ease rules prohibiting such sales by retailers or producers.

Truly opening up the Canadian liquor market requires that retailers be allowed to take orders from and ship liquor directly to customers across the country. This new deal does not do this, but instead inserts the LDB, LCBO and the SAQ as middlemen between producers and consumers.

The deal is nothing more than an add-on appendage to Ontario’s recently announced e-commerce portal, which allows Ontario consumers to order liquor online 24 hours a day for home delivery or pick up at the nearest LCBO outlet.

It sounds simple and convenient, but the devil is in the details. The LCBO will not increase its shelf stock of wines from BC or Quebec, but will order directly from the out-of-province winery to fill its customer orders and will apply its usual 73.5% mark up on out-of-province wines. This will result in an extremely high price for the wine in Ontario unless the producers reduce their usual wholesale price and settle for a lesser margin.

This exorbitant pricing might be justified if it was accompanied by extraordinary service. Unfortunately, this is not the case. In today’s Internet world, an Ontario consumer should be able to order a case of Okanagan wine online and receive courier delivery the next day, but the LCBO time frames for fulfillment are ridiculously slow, presumably as a result of inefficiencies within the LCBO’s own internal distribution systems. Where the consumer proposes to pick up the order at a nearby LCBO store, it will take 4-7 weeks for the order to be ready.

Is there more meaningful reform yet to come? Canada’s Premiers announced in Whitehorse that they are working on a “ground-breaking” and “historic” agreement on internal trade within Canada that would eliminate most inter-provincial trade barriers. In the same breath, however, they announced that there will be exceptions to protect local interests. Specifically, when it comes to alcohol, they will establish “a working group on alcoholic beverages, which will explore opportunities to improve trade in beer, wine and spirits across Canada.” Given the important provincial revenue base sourced from the provincial liquor stores, substantially freeing interprovincial liquor trade is unlikely.

A more hopeful path to free trade in liquor among the provinces might be the recent Regina vs. Comeau court decision in New Brunswick, which struck down interprovincial restrictions as contrary to Section 121 of the Constitution Act. Section 121 provides in its entirety that: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.“

The trial judge threw out a fine against Gerard Comeau, who had legally bought beer and spirits in Quebec and driven them home across the New Brunswick border. The court engaged in a thorough review of the ‘constitutional moment’ i.e. the historical context in concluding that the Fathers of Confederation fully intended that their new country be a single economic unit with the free movement of goods among the provinces.

The Comeau decision is currently winding its way through the appeal courts and whether or not it will be upheld in the Supreme Court of Canada remains an open issue. If it is upheld, the ramifications would be immense, not only for the alcohol industry, Canada’s private liquor stores, and the provincial monopoly liquor boards, but also for Canada’s various agricultural supply management regimes and other interprovincial trade restrictions.

Al Hudec is a Vancouver lawyer at Farris LLP who writes frequently about wine law issues. He can be reached at ahudec@farris.com or at 778 886 9356.