Beer, Booze and Vertical Integration: making and selling your own alcohol in BC

In the late 19^th Century, brewers in America started to set up “tied houses” in order to get their product to the masses.  Tied houses were saloons financed and supported by specific brewers for the purpose of selling that brewer’s beer.  Anheuser Busch, the legendary St. Louis based company, was one of the brewers at this movement’s forefront.

The number of saloons grew rapidly.  However, they were rarely savory establishments.  Making money just by selling beer wasn’t enough to pay the bills, so many saloon keepers encouraged gambling, cockfights, and prostitution.  Consequently, saloons were often described as an “affront to respectability”.

Prohibition put a stop to all that.

Even when Prohibition was rescinded after 13 years, tied houses in many jurisdictions remained illegal.  However, more recently, some communities have started to loosen the regulations surrounding tied houses.  As these jurisdictions have reaped the benefits of a more relaxed regulatory regime, other communities have taken notice and sought to replicate them.  Consequently, more and more jurisdictions have (slowly) rolled back many of their tied house restrictions.

British Columbia is one such jurisdiction.  Thanks to extensive lobbying, the rules for tied houses were changed several years ago.  While some still think the changes do not go far enough, they have had a noticeable impact.  In particular, Vancouver is having a tied house resurgence, though these establishments are now of a decidedly more reputable character than their pre-Prohibition forebearers.

To give just a small sampling, with regards to making and selling your own alcohol in BC, within Vancouver there is Bomber Brewing, run by the Donnelly Group, Red Racer Taphouse, and RedTruck Beer Company.  Each has mindfully navigated the regulations to create new business opportunities along with memorable experiences for their customers.

Despite these regulatory changes, there are still plenty of rules in place that must be followed.  This article sets out in more detail the tied house regulations and the exemptions to them that businesses and breweries alike should be aware of.

What is a tied house?

The legal definition is more precise than the general concept, making it worth noting for businesses or breweries looking to expand into this space.  A tied house is an association between a liquor retailer or on-premises consumption establishment and a liquor manufacturer or its agent that is likely to lead to that manufacturer’s products being favoured.  The associated offsite establishments might be of any type (liquor primary, food primary, private liquor/wine store, or a caterer’s business location).

Furthermore, a tied house relationship will exist if:

1. you have any amount of ownership interest in a liquor retailer or on-premises consumption establishment, or
2. your proposed third-party operator has any amount of ownership interest in a retail or on-premises consumption establishment, or
3. you have an immediate family member with any amount of ownership interest in a retail or on-premises consumption establishment license. Immediate family members include spouses, parents, siblings and children only.

Exemptions

The resurgence in tied houses is due to the more permissive exemptions that were passed by the BC government.  The most relevant exemption is available if you are selling your own liquor products at your own manufacturing site or, if you are a winery, at an offsite wine store that you own.

Even if you qualify for an exemption, there are further regulations that you need to be mindful of.  In particular:

1. if you are a small or medium-volume manufacturer and you are in a tied house relationship with an establishment that is located elsewhere, the licensee of that establishment may apply to carry and sell your products, and you must agree if they are approved.
2. You may only have ties with up to three offsite licensed establishments.
   • If approved, they may sell your products, but they must also sell products from other manufacturers in that product category.

3. To qualify for these exemptions, manufacturer annual production volumes must not exceed:
   • 100,000 liters for a distillery
   • 750,000 liters for a winery
   • 300,000 hectoliters for a brewery

4. Manufacturers who qualify under these limits but expand future production beyond these limits will no longer be eligible for additional offsite tied house exemptions but may keep previously approved exemptions in bc.
5. All offsite exempted establishments where the manufacturer’s liquor may be sold are required to sell a range of products from a variety of manufacturers that are not associated with or connected with each other.
6. A manufacturer granted an exemption for a tied house relationship with an offsite establishment may not provide a particular liquor product exclusively to that establishment unless the manufacturer is making a reasonable quantity of comparable product available to all licensees at a comparable price, or it is a limited-run specialty product.

B.C businesspeople and beer lovers alike have celebrated the changes to the tied house rules.  However, if you are looking to capitalize on the changes, you will need to pay heed to the regulations and navigate them intelligently.  For more information or advice, please contact Alon Segev at [email protected] or 604-629-5406. You can also reach our Vancouver office at our toll-free at 1-800-604-1312.

Article written by: Alon Segev, managing partner and Eric Kroshus, 2019/2020 articling student.

Disclaimer

The above information is provided for informational purposes only and has not been tailored to your specific circumstances.  This post does not constitute legal advice or other professional advice and may not be relied upon as such.