Manitoba private wine store saga continues

Opinion

Hey there, time traveller!
This article was published 03/02/2019 (2153 days ago), so information in it may no longer be current.

They’re at it again.

Since 1994, when private wine stores were first licensed to operate in Manitoba, there has been nearly constant conflict between the private owners and government.

Over those 25 years, the relationship between private wine retailers and government has featured numerous investigations, audits, penalties, lawsuits and out-of-court settlements. It all adds up to a lot of animosity.

The latest skirmish erupted last week when Banville & Jones Wine Company announced it was seeking an injunction to stop direct-to-customer (DTC) sales from wineries outside the province. Lawyer Robert Tapper said DTC is tantamount to “bootlegging” and could represent “a deathblow to independent wine stores.”

Those allegations make it sound as if the province is treating the private wine stores very unfairly. But in keeping with the long and murky history of conflict between the wine stores and the province, things are not entirely as they appear. To understand what is going on here, we need to go back, way back in the history of both the wine stores and interprovincial alcohol trade.

The groundwork for the current legal framework was laid by the federal government in 2012, when it passed a law that permitted wine to be carried across provincial borders without penalty, nullifying restrictions in place since Prohibition. Unfortunately, most provinces continued to use a variety of legal and administrative means to discourage people from bringing any form of alcohol from one province to another.

Manitoba, however, has been consistently ahead of the curve on this issue. Shortly after the federal law passed, the former NDP government allowed Manitobans to purchase wine online from an out-of-province winery and have it delivered to their homes. Restaurants and — you guessed it — private wine stores are not permitted to order directly from out-of-province wineries.

These provisions were reiterated when the current Progressive Conservative government passed a new law governing both alcohol and cannabis sales. That law stipulates that it is OK to possess and consume alcohol for personal use that has been “lawfully imported into Manitoba.” The Manitoba Liquor and Lotteries Corporation (MLLC) website clearly indicates that DTC purchases of wine are considered lawful.

These liberties may be popular among Manitoba wine lovers, but it angers the private wine stores, who are wholly dependent on the MLLC for their supply.

By law, private wine stores must purchase their product through the MLLC, which allows the province to levy all appropriate duties and taxes at the point of importation. It also means that MLLC can partly control the price the private stores charge for some wine.

If a store wants to sell a particular wine that is also carried at Liquor Marts, they must sell it for the same price. However, the private wine stores are also allowed to mark up non-listed wines as much as they want. That means they can, and do, apply markups much larger than MLLC does for the wine it sells through Liquor Marts.

The wine stores are also allowed to purchase a certain quantity of wine without having to pay the provincial markup. This was included in the original deals to allow the private vendors to compete against a Crown corporation.

It’s a perfectly imperfect system that perhaps should have been modernized along with other provisions governing DTC purchases. However, the wine stores are not being treated badly in Manitoba even though they have, at times, acted badly.

In 2006, the private wine stores won a multimillion-dollar settlement against MLLC, which had been accused of using predatory marketing practices — including aggressive use of loyalty rewards and price discounts — to compete unfairly against the private wine stores. The wine stores ultimately used this settlement to give themselves special protection against competition from other private vendors.

It is widely believed that part of the settlement was an assurance by the province it would not expand the number of licensed private wine stores in the future. Although MLLC has consistently refused to confirm that provision, since 1999 — when the second wave of private wine stores opened in Manitoba — the province has never allowed other retailers into the market.

It’s also important to note that the same wine store seeking the injunction now, Banville & Jones, was previously caught manipulating its invoices to avoid paying provincial taxes.

Banville & Jones was caught in a split-invoice scheme, where it struck agreements with wineries to record the invoice price of a particular wine below its actual wholesale price. That means less tax is calculated upon importation. The wine store then pays the winery the difference between the invoice price and the actual wholesale price.

With such a long and tattered history of legal conflict, how exactly are we to judge the Banville & Jones lawsuit?

First off, it seems unlikely that the wine store or anyone else is going to be successful at putting the DTC genie back in the bottle.

Premier Brian Pallister is among the country’s foremost champions of removing interprovincial trade barriers. It’s not known what kind of wine the premier likes, but one can imagine that, philosophically, he loves the idea of allowing Manitobans to purchase any wine, from anywhere, without restrictions. He has the added comfort of knowing that there is legislation in place legalizing DTC purchases.

In that context, it’s likely that Banville & Jones isn’t really seeking to stop DTC sales outright. Instead, the lawsuit is a bid to win some sort of reduction on taxes it pays at the point of importation, to level the playing field with out-of-province wineries.

On the surface, that doesn’t seem like an unreasonable thing to do. Unless, of course, you consider that there has been very little reason in the relationship between the province and its private wine stores.

dan.lett@freepress.mb.ca