B.C. craft distillers have told BIV that there are several specific ways in which the B.C. government is treating them less favourably than it does wineries.
For one thing, government mark-ups, or taxes, on spirits is higher than it is for wine.
Another beef is that craft distillers have a production limit that they must stay below to gain some tax advantages. Wineries do not have that restriction. Finally, wineries get financial kick-backs, or reimbursements, when they sell products in government-run liquor stores. Distilleries do not.
These distinctions are more fully described below, but big picture, distilleries want government to change the system so they can enjoy the same, or similar, subsidies.
They are making this an issue now because B.C. Premier David Eby has many times recently urged residents to buy Canadian alcohol.
He has ordered the province’s monopoly buyer, the British Columbia Liquor Distribution Branch (BCLDB), to take all U.S. alcohol off store shelves and stop buying all U.S. alcohol.
Corn-based whisky is therefore virtually impossible to find at B.C. liquor stores because Canadian whisky producers tend to make products using rye.
Private stores still have some U.S. whisky, which tends to be made mostly from corn, but that supply is dwindling and private store owners are not able to replenish stock because they must buy from the BCLDB, which has halted all U.S. alcohol purchases.
A second reason why distillers are now agitating to be treated like wineries is because nearly seven years have passed since the Business Technical Advisory Panel (liquor policy), which the B.C. government paid to create to advise it on liquor policy, specifically urged the government to look into what it called “inequities” and “inconsistencies” in how the government treats different alcohol producers with government perks and subsidies.
“It's absurd that they didn't fix the system right off the bat,” said Okanagan Spirits principal Tyler Dyck, who is also the president of the Craft Distillers Guild of British Columbia, which lists 39 members on its website.
The B.C. government does provide subsidies for B.C. craft distillers.
The perks, however, amount to far less than those offered to wineries that are certified under the B.C. Vintners Quality Alliance (BCVQA) designation, which mandates that all grapes must be from B.C. among other requirements.
B.C. taxes spirits at a higher rate than it taxes wine when products are sold through the BCLDB sales channel
The B.C. government’s biggest perk for BCVQA wineries and craft distillers, which are required to make products exclusively from B.C. ingredients, is that owners can avoid paying any liquor-board mark-up on their products if they sell directly to consumers, or to private stores.
This contrasts with selling products through the BCLDB’s sales channel, where so-called “mark-ups,” or essentially taxes, apply.
Selling products directly to consumers or stores is often called the farm-gate channel.
This sales channel sees wineries avoid paying liquor board mark-ups that add 89 per cent to the price of a wine for the first $11.75 per litre that the producer charges as a base price.
The BCLDB then adds an extra 27-per-cent mark-up on the remainder of wine’s base price.
Craft distillers who sell through the BCLDB endure a much bigger 124-per-cent mark-up on the first $21 of the base price per litre. The mark-up then falls in tranches to 93 per cent, 63 per cent and 43 per cent on spirits priced at more than $21 per litre.
This disparity in mark-up is one reason why it is so advantageous for distilleries to sell direct to customers or to private stores.
BIV asked the B.C. government why the mark-ups for craft distillers’ spirits are so much higher than the mark-ups on BCVQA wine but the BCLDB sent back a boiler-plate information sheet that did not answer the question. It then did not respond to a follow-up email.
B.C. craft distillers must keep production below 50,000 litres to get farm-gate subsidies
VQA wineries have enjoyed the perk of avoiding mark-ups when selling farm-gate for decades. Craft distillers only got approval for the farm-gate pricing perk in 2013, after much lobbying to then-B.C. Solicitor General Rich Coleman.
The good news for distillers is that at least they are on a level playing field with VQA wineries if they avoid the BCLDB sales channel and sell farm-gate.
Unfortunately, this is only true if those craft distilleries have a total production that is less than 50,000 litres. If they produce one litre of product more than that production cap, they get dinged with the government mark-up on their entire production run even if they sell it all direct to customers.
Dyck told BIV that his company’s production has for years been just below that 50,000-litre threshold because going over that limit by just one litre would be devastating financially.
He estimated that he would owe the B.C. government an extra $280,000 if he produced 50,001 litres of spirits, compared with only 50,000 litres. That extra cost is about 33 per cent more than it would have been a few years ago because of inflation and higher excise taxes, he told BIV.
Wineries have no production cap.
A BCVQA winery could theoretically make one million litres of wine and sell it all direct to customers and enjoy no government mark-up on a single drop of that wine.
Dyck told BIV that he would either like the BCLDB to raise its mark-up-free production limit for craft distillers or at least to allow distillers to exempt the volume that they sell through the BCLDB sales channel from their 50,000-litre cap.
That would mean that they could sell 50,000 litres of product farm-gate, and then an unlimited amount to the BCLDB, or to other provincial liquor boards.
BIV asked the B.C. government in an email if it was considering doing this but the information sheet that the government sent in response did not answer the question.
Selling through the BCLDB comes with kickbacks for wineries but not distilleries
BCVQA wineries are treated much better than craft distilleries when the businesses sell their products through the BCLDB.
This is not only because the mark-ups on wine are less than those for craft spirits.
BCVQA wineries that sell through the BCLDB also enjoy a rebate, or a 50-per-cent kickback on the base price of their wines before mark-ups are applied.
So, if a BCVQA wine is $10 before the 89-per-cent mark-up is applied, the winery gets back $5.
Craft distillers are not eligible for any kick-backs nor are wineries that are not part of the BCVQA program.
The kick-backs, or reimbursements, mean that the government charges B.C. wineries the same mark-up as Chilean, French or other foreign wines. The catch is that if the winery is BCVQA-certified, they earn the protectionist measure of the kick-back.
“It's basically an agricultural-based, value-added B.C. stimulation program,” Dyck said.
“It's a value-added program for basically powering B.C.’s economy through agriculture. We're saying it's not fair to exclude every other producer in the province, except for those that use grapes.”
