New rules stifling craft booze business, Ontario distillers say

New mark-up and tax structure will allow distillers to keep about 45% of their on-site sales, up from 39%.

December 20, 2016   by CP Staff

TORONTO — New rules for distillers in Ontario will allow some to keep a bit more money from their own sales, but are otherwise stifling what could be a burgeoning industry in the province, some producers say.

Contained in an omnibus piece of legislation that passed on the last day of sitting for the legislature this year are changes to revenue margins for distillers with on-site retail stores. The government says the move from a Liquor Control Board of Ontario mark-up and commission to a tax structure will let those distillers keep more of their sales.

Under the mark-up structure, distillers kept about 39% from their on-site sales – about $15.58 on a bottle that retails for $39.95 and the tax structure allows them to keep about 45%, amounting to roughly $2.46 more on that $39.95 bottle.

But, says Charles Benoit of the Ontario Craft Distillers Association, only a small number of distillers in the province are operating on-site retail stores.


“I don’t want to let (the government) say this is somehow better than it was before,” Benoit said recently.

“The handful that already operated retail stores will lose a bit less money on each sale but…this is about what we’re not going to have in Ontario going forward, which is the same kind of diverse, spread-out, small distilling community that’s able to be a funcitoning business on a small community level (like craft brewers).”

Benoit – who says his Toronto Distillery Co. is closing next month – had been calling for the government to instead implement a graduated tax. He points to the model of BC, where the first 50,000 litres produced by a craft distillery are exempt from provincial tax.

“There’s dozens and dozens of prospective distillers who have been waiting on seeing the reform in Ontario like we’ve seen in other provinces before entering, so those will never get off the ground,” Benoit said.

Justin Frape, of Frape and Sons Boutique Bitters in Thunder Bay, said the government’s changes – plus the high cost of electricity – have prompted him to open a distillery in Minnesota.

“While we will maintain our cocktail bitters distillery in Thunder Bay for now, the investment – it’s about $2.5 million of investment initally for us to establish our craft distillery in Grand Marais and that will come with…about six full-time jobs,” he said. “It’s not going in Ontario and I’m disappointed about that.”

The Ontario government notes that other recent changes include allowing distillers to deliver directly to licensed bars and restaurants and tax exempting up to 1,250 litres of spirits distributed free for promotional use.

But Benoit, who is appealing an unsuccessful court challenge against the LCBO, said he can’t understand why, if the government is willing to forgo the tax revenue on 1,250 litres, it wouldn’t just allow distillers to sell that amount.

“A small distillery can’t afford to give away 1,250 litres a year,” said Benoit, who co-founded the Toronto Distillery Co.

“That’s a quarter of what we sold through the LBCO last year. To me, that is clearly designed to entrench the current hierarchy. Small distillers will not be able to take advantage of this so-called promotional allowance. It wouldn’t have cost the treasury anything more to let us sell those 1,250 litres and not remit the tax.”

Drinks Ontario called the changes a “starting point,” while the government said more help is on the way.

“We are now looking ahead and currently working with craft distillers and cider producers on the next steps that will provide specific support to their businesses, as we recognize that these two product categories do not yet benefit from support programs like those provided to other Ontario producers,” Finance Minister Charles Sousa’s spokeswoman said in a statement.

Both Progressive Conservative Steve Clark and New Democrat Catherine Fife have been advocating for the craft distillers. They say expanding the industry would present a great economic opportunity for Ontario.

“I hope that the government is still open to giving the craft distillers a fighting chance to be successful in Ontario, but there’s a distinct possibility those distillers will close or they’ll move elsewhere,” Fife said.

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