07/27/2015 12:26 EDT | Updated 07/27/2016 05:59 EDT

Ontario Is in the Middle of a Booze Revolution

glass of hot cognac over wooden ...
glass of hot cognac over wooden ...

In dealing with the Ontario government regarding alcohol laws, it isn't David vs. Goliath but David vs. Faceless Bureaucracy that believes whole-heartedly in the way it has always been done. Consumers and producers have been left with post-prohibition legacy laws and policies that are approaching a century in age and finally the government and handful of companies that control the supply chain have reluctantly begun releasing their stranglehold grip on almost every aspect of alcohol. Everyone else outside the cabal, including large scale distilleries, have been left to deal with an organization initially designed as chipped shoulder morality police with unquestionable authority -- the second part of which is still completely intact today promoting anti-business practices, like allowing only one retail store, that at their best stifle and at their worst put businesses out on the street.

What production and sales reform mean for Ontario is increased employment and economy. The Ontario Craft Brewers put the number at 4,000 additional jobs recently with new reforms for that industry allowing sales at an increased scale but as I've written about before, distillers are still left in the lurch. Over time, laws regarding consumption of alcohol in Ontario have begun to shift at a glacial pace but production side is another story. While wine and beer laws have been relaxed slightly in recent years, distilling laws have maintained the same lumbering appeal. In a landmark legal filing, Jesse Razaqpur and Charles Benoit, owners of the Toronto Distillery Company, have sued the LCBO over what they claim is the unfair practice of enforcing distillers to sell their product for the same price as at LCBO retail stores and then pay the same markup amount in tax to the LCBO. They detailed the case to Ben Johnson at Ben's Beer Blog who had the following to say:

"You could argue that the LCBO's in-store mark-up-while steep-at least covers all that the LCBO does for booze-makers: They warehouse the stuff, shelve it, pay for staff to sell it, market it, etc. But when it's sold directly from the place that it's made, as when Toronto Distillery Co. sells bottles at their place on Cawthra Ave, the LCBO still collects that markup."

The message here is that even if you want to sell your own product at your own store for your own price it goes against LCBO policy and if you don't pay up, the LCBO is coming for you and will shut you down. Benoit and Razaqpur may have struck gold with this filing though. In short they believe that since the LCBO tax they pay has not been voted on that it is outside the constitutional law of Canada which declares any tax must be voted on and passed through either provincial or federal parliament. The LCBO tax is different as it has been imposed upon all alcohol producers by the Ontario Ministry of Finance, no vote ever happened. It goes without saying that this court case could hold sweeping consequences for the LCBO should the Ontario Superior Court rule in favour of the Toronto Distillery and other, larger distillers begin to seek similar legal action.

Ontario is in the middle of a booze revolution and the fact that 13 years after the government legally allowed beer production at the microbrewery scale there are about 200 micro-breweries across the province compared to about five beforehand. It also shows that the province's population wants to try new things aside from their grandfather's Labatt Blue. Allowing craft distilleries the same opportunities to flourish will only increase tourism dollars, manufacturing dollars, agriculture dollars and the auxiliary industries that come with allowing businesses the basic ability to compete in a more open market. This needn't be a David vs. Goliath exchange between the LCBO and Toronto Distillery and, if the Ontario government is truly interested in promoting small business, it will understand the need to direct its subsidiary with those larger economic goals in mind.

In the affidavit put forward by the Toronto Distillery there are two important statements worth noting and which will undoubtedly become the final stand on which a decision hangs. The first is statement 23 in the filing that goes on to describe how the Distillery acquired 6,000 kilos of sugar beets from an Ontario farm for production of Toronto Distillery's Sugar Beet Spirit. The second is point 26 that goes on to describe how the distillery only sells this Beet Spirit at its own retail store but still must pay the $18.14 per bottle to the LCBO as part of the Government of Ontario's revenue collection process - this markup accounts for 45.9 per cent of the retail price.

The Ontario government's time of reckoning may finally come with the resolution of this affidavit and while it is likely to be a time before any type of decision comes down, the application goes to hearing on August 18th, 2015. Instead of fighting small battles with craft distillers, brewers and wineries, the government and LCBO need to realize that sweeping changes to their exceptionally outdated model and internal mechanisms is required. Ed Clark's commission has exposed a lot of bloat and frankly strange practices, now the government needs to lead the province and its thirsty residents into a new, enlightened age of small business growth and consumer choice without taking the stubborn stand that it is fundamentally correct -- small businesses like the Toronto Distillery Company and their future hang in the balance.


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