This morning the Alberta Gaming and Liquor Commission (AGLC) released the long-awaited results of its comprehensive policy review. The review, first launched last fall, sparked much debate among liquor stakeholders, in particular around the issue of liquor mark-up rates (for background on the review read here and here). The report contains 39 recommendations covering a wide scope of liquor policy in Alberta. For the wonkish among you, the report can be found on the AGLC website. For the rest of you with better things to do with your time, I will distill some of the highlights.
A large chunk of the recommendations focus on wine and spirits, and a good number tackle matters more significant for industry insiders, such as information flows between stakeholders, a regular policy review schedule, flexible form submission and increased information support for start-ups. However, the report does touch upon a few matters relevant to beer consumers in the province. These include:
- Elimination of the minimum production capacity requirement for breweries.
- Elimination of the separate “Brew Pub” license, which would remove restrictions on sales to other licensees.
- Small breweries (and cottage wineries) should be allowed to own restaurants/bars. Manufacturers under 25,000 hL would be allowed to own restaurants/pubs. The restaurant must be sold if the manufacturer exceeds 100,000 hL
- Permitting a brewery’s retail store (off-sales) to be in any location of their choosing (i.e., off-site off-sales locations).
- Elimination of separate brewery, winery, distiller licenses, thereby allowing production of any alcohol permitted by federal government at any manufacturer.
- Continued use of a single monopoly warehouse operator.
- No change to inducement policy or enforcement practices.
- Explore the possibility of allowing beer to be sold at Farmer’s Markets.
Some of the recommendations, including the elimination of minimum capacities and the removal of product-specific licenses have already been implemented. Others require regulatory changes and have been forwarded to the government for consideration.
You will note there is not a peep about liquor mark-ups. That is because the report is silent on the matter. One recommendation, dealing with wine and spirit mark-ups, suggests they have delayed a decision on it. Recommendation 11 says AGLC “will be providing feedback received from manufacturers to the government as part of a comprehensive package”. In other words, “we aren’t touching this hot potato and are passing it up to politicians to handle”.
So what are we to make of the report? I have not yet spoken with anybody in the industry, and so this is entirely my own first reaction. There are definitely some positive steps in the report, the biggest being the elimination of minimum production limits. This opens up the possibility of nano-breweries and significantly lowers start-up costs for new breweries. Allowing breweries to retail their beer at an off-site location is a small but useful step. Many breweries are tucked into light industrial parks and are not particularly customer-friendly. Allowing them to potentially set up their off-sales store at a more convenient location seems like a good idea.
My initial reaction to the possibility of allowing small breweries to own restaurants/pubs is positive, as is the removal of sales restrictions for brew pubs. I imagine these two recommendations are a trade-off; allowing brewpubs to sell at other locations needs to be balanced by allowing a brewery to run its own pub. That they have a strict size limit is what makes this palatable – I certainly don’t want a chain of Labatt or Molson Pubs around the province (since de facto we already have that). However, I kind of like the prospect of an Alley Kat Pub or an expanded Wild Rose Tap Room or a Hog’s Head Tavern. I think it could be an excellent vehicle to increase breweries’ profile.
The increased flexibility for manufacturers also seems like a good thing. Under previous rules, a brewery couldn’t produce mead, for example. Now they can if they wish. It also would eliminate the need for a separate license if a brewery wanted to start distilling as well. At least that is my reading of the recommendation – I could be neglecting Federal Excise rules.
However, on balance, the report feels like a big case of missed opportunities. It seems like it side-stepped most of the bigger issues facing beer in the province. There is no resolution to the heated mark-up debate and no change to the dysfunctional inducements policy and its lacklustre enforcement. The review gives Connect Logistics a free pass. And the report does nothing to address the competitive disadvantage Alberta’s open borders create for local producers, aside from a willowy promise to “advocate on behalf of the liquor industry in Alberta when consulted on proposed liquor policy changes in other jurisdictions”.
To be fair, many of the issues raised during the review are difficult for the AGLC to address, and the report does seem to want to improve relations between the AGLC and industry stakeholders. It just feels that after extensive consultations and more than a year of deliberations, the recommendations could have been more sweeping. What was a “comprehensive” review turned into a report of details and baby steps.
Still, the steps they are making are mostly positive in my eyes. I guess I was just hoping for a few bigger strides. But, overall, beer consumers are better off today than they were yesterday.
December 5, 2013 at 1:23 PM
I am really interested to see how the removal of the production minimums changes the landscape in the province. Will we see many nano start up?
December 5, 2013 at 2:19 PM
I think that overall, this is great news for the province. Too long have the minimum production requirements thwarted many a home brewer from taking the next step into the nano or micro brewery world. Yes, maybe little was done to address the mark-ups and some of the finer details, but I think this is some of the biggest news we’ve seen in Alberta for years and I’m excited for the true birth of the microbrewery here!
December 5, 2013 at 3:24 PM
Isn’t Alberta the only Province where U-Brew premises/businesses are still illegal? Why hasn’t the AGLC figured out how to monetize and manage these establishments?
December 6, 2013 at 2:08 PM
Jeremy, you are right, Alberta is one of the few provinces to not allow brew-on-premises (I know the major provinces allow it, but haven’t researched some of the smaller ones). Why? Who knows. It is a bit of a mystery. Now that they have finally realized that small scale brewing can be safe (which was their reason for the production minimum, oddly), maybe they will be more open to BOPs.
December 9, 2013 at 10:46 AM
The key to growing Alberta’s craft brewers is increasing point of presence with the customer. Full stop. Nothing else is nearly as effective and all industry lobbying and recommendations should take this fact into account.
This should be the number one imperative for craft brewers from a legislative standpoint. The more opportunities that a potential customer has to try a new craft beer, the more likely that person will become an Alberta craft brewing fan.
I feel that these recommendations help move the province in that direction.
Most of the recommendations help move us in that direction, some in a huge way. Removing minimum production levels is huge, as is allowing off site tap rooms and multiple products produced under one roof (Rogue style). Allowing beer sales at farmers markets (and all markets really), right in the heart of prime retail demographic territory, is key and should have been done years ago.
There are certain ideas floated that I am glad were not recommended. Minimum pricing, to fight “dumping” was not recommended. All minimum pricing does is add yet another barrier to entry for innovators and new entrants. It also artificially increased profit margins for the market setting players, as is shown in other provinces.
I feel there are certain points that were not recommended that should be focused on though. The Connect Logistics monopoly cannot be healthy for the industry, if nothing else, from a free market perspective. A competitive specialist distributor could for instance provide the TLC needed to expand the reach of Alberta’s craft beers. I could see a specialist not just handling products such as real ale property, but also educating the retailers on how to properly store and position the product.
I also think that the craft brewers should lobby to enter grocery stores along with farmers markets, not just next door but right next to the food (beer is food after all). With Alberta craft beer right in front of casual customers, who can taste test while buying their weekly groceries, this would grow the business exponentially, as seen in Oregon, California, Montana, Quebec, UK, etc. The fact is that many potential customers are never exposed to craft beer in the current “hidden away” system. Sure the majors would get their claws into many retailers, but there are many retailers and many retailers dedicated to local, such as Sunterra and Community Natural Foods. Safeway is a huge retailer that has a great track record in the US with craft beer, and is an acknowledged leader in helping grow the industry in California, Hawaii, Oregon, Montana, etc.
As for Alberta’s craft brewers lobbying to remove the tax break for out of province small brewers, this doesn’t serve the consumers interest nor the brewer’s. How can we expect other provinces to open up to our beer if we are shutting the door to theirs? We should lead by example. If feel that Alberta’s brewers are “taking their eyes off the ball” will this lobbying effort and they should be focusing on opening up other markets, not closing off ours. I know that blatant provincial protectionism is as Canadian as Spruce Beer, but Alberta should be better than that.
December 9, 2013 at 4:13 PM
The prospect of beer in grocery stores is a faint and distant one, I suspect. There is now a well-entrenched set of interests that would lobby hard against it (i.e., liquor store owners), as well as fears raised by the neo-prohibitionists. The fateful decision was back when liquor retail was privatized – it was a narrow window and they didn’t take it.
And in terms of open borders, how has Alberta’s 20 years of “leading by example” been working for us so far? I am not seeing a line up of provinces loosening their policies. Giving local producers a lower tax rate is hardly the same as closing our borders. It is in both the government’s and consumers’ interests to have a thriving craft beer industry. I am well aware of the complexities of the mark up issue, and there are no easy fixes. It is however a legitimate policy tool.
December 13, 2013 at 12:57 PM
All I am trying to say it that we should be adopting the best practices from other jurisdictions. Study the jurisdictions when craft beer has grown the strongest and shamelessly copy them. If we had California’s framework for instance, word for word, our industry would be much better for it.
Getting over that legislative inertia that us risk adverse Canadians are famous for is easier when you do not need to reinvent the wheel. This risk aversion holds us back in so many things, craft beer being one of them. We do have a reputation for being boring for a reason after all…
At the end of the day our goals are all the same, getting quality beer in front of as many people as possible. Alberta craft brewers and the beer industry lobbying is self serving and not taking the consumers best interest at heart.
December 9, 2013 at 12:04 PM
Removing minimum annual production capacity requirements is a simple, but major step that removes a unfair regulatory barrier to market entry applicable only to Albertan based brewing operations. The fact that this change was implemented immediately underscores its importance.
December 9, 2013 at 1:11 PM
Excellently said Shane! All of it!
December 9, 2013 at 10:19 PM
I may be totally off base, but everyone seems to be focusing on the minimums being removed, but I don’t think they were actually there before. The minimums were based on theoretical capacity, but you didn’t actually have to brew that. The only new thing that comes of this is that you can have brewhouses smaller than 10hL (which was the minimum brewhouse to theoretically brew the minimum before). It was all quite handwavey and I really think they changed it to make it clear cut on what is actually allowed.
It has been a while since I’ve read the code on that though, and now it’s probably not possible to read the old code.
December 10, 2013 at 9:18 AM
You are right to a degree. The minimum was a production capacity level, but that was still a significant hurdle for start-up breweries. It meant, as you say, a minimum 10hL system, and the necessary fermentation tanks to go with it. That drove the cost of starting a new brewery north of $1 million. Now with the potential to start smaller – even nano-sized – that capital hurdle is reduced significantly and should mean more new breweries in the province. That is why everyone is pointing to it. It is a big change in the regulatory regime.