Distribution of Wine in Canada

The regulation of wine distribution in Canada is complex and based on both federal and provincial legislation. Each province has a distinct distribution and sales regime, varying from “closed” systems, where a Crown corporation acting as designated liquor board/commission is responsible for importation and retail sales in the province, to open regimes, where sales can be performed through a private sector retail network. Some of these current provincial regulatory regimes will likely undergo significant amendments in the next four years as a result of a recent partial settlement in a WTO dispute with Australia (“WTO Dispute”).

In Canada, a trademark can be registered at the national level only, which covers all of Canada. The registration lasts for 10 years and can be renewed for another 10 year term, for a fee. Applications can be submitted to the Office of the Registrar of Trademarks online, or sent by mail. Note that any person can oppose a trademark registration application by filing a statement of opposition after the application is advertised in the Trademarks Journal. This triggers opposition proceedings, which consist of a process similar to that of a court proceeding. The most common grounds in an opposition are that the applied-for trademark is confusing with a trademark that has (1) already been used in Canada; (2) already been applied-for in Canada, and/or (3) already been registered in Canada.

Further, under the Trademarks Act, Canada offers special protection for geographical indications (“GI”) of wines, identifying the wine as originating in a specific region or territory. The Canadian Intellectual Property Office maintains a list of GIs registered in Canada. The request for this type of registration must be submitted by or on behalf of a “responsible authority” for the wine in question, defined as a person or entity that is sufficiently connected with and knowledgeable about that wine.

GI registration can offer additional benefits. For example, a GI can only be opposed by a third party on the ground that it is not in fact a GI. This alleviates some traditional grounds of opposition specific to trademark applications, such as confusion with a registered trademark.

Labelling of alcoholic beverages sold in Canada is governed by the Food and Drugs Act and the Safe Food for Canadians Act, and their regulations. Wine labels should also comply with the Consumer Packaging and Labelling Act, which sets out general requirements as to packaging, labelling, and advertising of prepackaged products (including wine products). Additional labelling requirements may be imposed by provincial regulations that apply to products sold within that province.

Exporters are required to verify whether their labels are in accordance with Canadian laws and regulations. Given the level of complexity, international manufacturers should not presume that global product standards and labelling will satisfy Canadian rules.

Generally speaking, all mandatory information must be declared in both official languages, i.e., French and English. Label content and claims are strictly monitored. In particular, illustrations and narratives that advertise “natural” ingredients or manufacturing processes, “organic” content, or various environmental claims, are currently on the enforcement radar of the various regulators.

Specifically, labelling rules with respect to wine regulate such aspects as:

• the use of the common name (for example, the common name of imported wine should appear in bold face type, but not in italics), including the use of GIs;
• allergens, gluten, and sulphites declarations;
• alcohol by volume declaration (including how such information should be displayed);
• voluntary claims and statements on the label (age claims, certificated of authenticity, use the term “dry” or “light”, etc.);
• net quantity declaration;
• country of origin declaration.
  

Canada employs a very restrictive approach to distribution and sales of alcoholic beverages. Usually, wine must be imported into Canada through a liquor board or commission in the province where it will be sold. To be able to sell wine in the province, exporters should have their products "listed" by the liquor board or commission. Listings are province-specific, and the provincial liquor board or commission acts as the importer of record.

In most provinces, provincial liquor board listings are obtained through a local agent or representative that is licenced by the respective board. Agents receive or solicit orders for the sale of alcohol products, even though they are in many instances prohibited from selling these products directly. Agents can also obtain label approvals, and assist with any other regulatory issues. As a rule, the registered agent coordinates the importation of the product in conjunction with the relevant provincial commission or board.

The advertising of alcoholic beverages in Canada is heavily restricted. Commercial messages cannot have the effect of encouraging or incenting underage consumption, suggesting that consumption of the product is essential to the enjoyment of an activity, or portraying consumption in unlawful situations (such as while driving), etc. Suffice it to say, global marketing campaigns may not be permissible in Canada, and often, Canada-specific commercials and print copy need to be developed.

As noted above, importation of wine into Canada is conducted almost exclusively through a provincial liquor board that regulates the purchase, distribution and sale of alcohol, including wine. At customs, the invoice(s) must indicate the provincial board as the importer of record and (if applicable) identify the winery as the consignee. Regulatory approvals should also be kept on hand in order to present to the Canada Border Services Agency if required.

Taxes are levied at both federal and provincial levels. Generally speaking, Canada levies the following taxes on alcohol beverage products, including wine:

Excise Tax: levied on all alcohol beverage products. As of April 1, 2020 the excise duty rates applicable to wine range from $0.021 to $0.665 per litre. Currently, the excise duty does not apply to wine produced exclusively in Canada. However, Canada will likely repeal this exemption on domestic wine in the next two years as a part of its settlement in the WTO Dispute.

Custom Duty: the duty rate varies depending on the type of wine imported, and its origin;

GST/HST: Goods and Services Tax (“GST”) levied at 5% of retail price. Canada has entered into agreements with certain provinces to collect the Harmonized Sales Tax (“HST”) at a rate of 13%. In those provinces an importer should pay the HST instead of the GST.

In January 2018, Australia filed a complaint with the World Trade Organization (“WTO”) alleging that a range of Canadian distribution, licensing and sales measures such as market access and listing policies, product mark-ups, as well as duties and taxes on wine applied at the federal and provincial levels may discriminate against imported wine.

In July 2020, the WTO Dispute was partially settled with potentially far-reaching consequences for the Canadian and imported wine industries. In particular, Canada and the provinces of Ontario and Nova Scotia agreed to implement the following measures:

• repeal the federal excise duty exemption on domestic wine by June 2022;
• eliminate the tax difference between Ontario wine and non-Ontario wine sold in off-site winery retail stores by June 2023;
• amend Ontario’s provincial regulations restricting access to imported wine in grocery stores;
• phase out a mark-up policy applied by Nova Scotia to wine from local emerging wine regions. The phase-out will begin no later than end of June 2021.
  

As was noted above, each Canadian province has established a distinct distribution and sales regime, and has a commission, board or other government authority which is responsible for regulating the sale and consumption of liquor. Most provinces have what is generally referred to as a “closed” system, where the Crown corporation is responsible for the importation of product into the province, as well as for most retail sales. Some provinces, such as Alberta, use a private sector retail network, while others, including Ontario, British Columbia, and Quebec, use a combination of private and public retail outlets. The Liquor Control Board of Ontario, or “LCBO”, is currently the world’s largest importer / purchaser of alcoholic beverages.

Standard procurement measures include internal processes established by the Crown corporations which contemplate product profiles, incorporating historical purchasing patterns and new consumptions trends. The LCBO, for example, has a Product Management Policy and Procedures Manual which sets out listing access rules and various other processes through which new wine products can be evaluated, approved and ultimately introduced into the Ontario market. A contract is generally formed as between the manufacturer and the Crown corporation, which sets out supply obligations, pricing considerations, set-off rights, etc. The product often has to satisfy chemical analysis testing and quality assurance audits, must be compliant with applicable packaging and labelling standards, and, in many cases, must be shipped in containers containing province-specific markings for ease of stocking.

While each province maintains its separate procurement process, most employ similar mechanisms. Manufacturers seeking to enter into the Canadian market will need to consider each province separately, in order to be successful in having their wine products listed by the provincial boards or commissions. Agents operating on behalf of manufacturers often provide services in connection with provincial procurement processes. These services can be particularly helpful at the initial stages of negotiation with the relevant Crown corporation.

The Canadian procurement process for alcoholic beverages has been a frequent subject of discussion at the international level, and has actually been challenged from a trade perspective multiple times at the WTO, and through dispute resolution procedures pursuant to regional trade agreements such as the North American Free Trade Agreement. As noted earlier, the Canadian procurement process can be expected to undergo potentially significant changes in light of the recent partial settlement in the WTO Dispute.