Distillation is practically magic: perfected by medieval alchemists (who’d failed at their centuries-long efforts to turn baser metals into gold), it transforms ordinary grain or sugar into much more valuable alcohol.
In economic terms, distillation exemplifies the concept of adding value. Turning barley into whisky through the application of heat and time is a step away from turning dirt into money. Yet when I asked a few independent Ontario distillers this week whether they thought anyone in their industry was making a profit, their educated guess was: probably not. Maybe one or two distillers were, they figured, while the 15 or so other companies were losing money.
One outfit, the Toronto Distillery Co., recently decided to shut down their own still. Instead, they’ll contract other companies to distil their products. The decision makes a small sector even smaller, when internationally craft distilling is moving in the opposite direction. In Ontario, we see enthusiasm in some quarters for local gins and vodkas and whiskies, but nothing like the growth taking place in the United States, the United Kingdom, and even in other provinces, including British Columbia and Quebec.
But in this province, something is blocking the flow of independently distilled alcohol — something government-shaped.
Officially, the Ontario Liberals want to help. Finance Minister Charles Sousa visited a liquor store this week to announce some goodies for booze-makers, including independent distillers, who will soon be able to claim a $4.42-per-litre rebate on the taxes they remit to the province. The subsidy — it works out to $3.31 for a 750 ml bottle — will indeed help distillers. (They’re likely to use the rebate as a direct boost to their own bottom lines rather than pass the savings off to consumers.)
“We’re positive about that announcement. It’s a step; it’s not the solution,” said Mike Heisz, owner of Stratford’s Junction 56 Distillery and newly elected president of the Ontario Craft Distillers Association. “We fundamentally appreciate what they’ve done. They didn’t have to put a rebate program in place.”
But independent distillers also said the program is too limited to foster an encouraging environment for Ontario's tiny, struggling craft distilling scene. Some are wary of seeming ungrateful, or of publicly going against the upbeat message of their fledgling association, founded just three years ago. But privately, they suggest plenty of ways the province could help them grow, if it were actually serious about doing so.
• A bigger, simpler tax subsidy. Distillers in B.C. pay no provincial taxes at all up to 50,000 litres a year, a policy that has helped the province become a leader in the industry. (Next time you’re at a nice cocktail bar, try a martini made with Victoria Gin, which shares a name with the city it comes from.) “Under B.C.’s model, we’d be profitable,” said Charles Benoit, owner of the Toronto Distillery Co.
Under Ontario’s model, he’s not.
• Official recognition. Certain all-Canadian wines enjoy Vintner’s Quality Alliance (VQA) certification. Benoit says distillers would like to see a similar program for certifying spirits: “I think a certification mark for Ontario grain-to-glass distilled products would be a useful tool for consumers who want to buy local and not be tricked with faux-local, repackaged bulk spirits.”
• Marketing support from the LCBO. The biggest hurdle for craft distillers is the LCBO, which doesn’t give local spirits a marketing leg-up, apart from a small program that places selected brands in 25 of its 654 stores. LCBO listings are vital to small distillers, yet the liquor board has no mandate to give local companies special treatment. That’s a massive disadvantage for Ontario spirits makers compared to their counterparts in other jurisdictions, including B.C. and Quebec, where local products get prime merchandising space in government-owned stores.
The LCBO’s most prominent shelf space — for example, on end-of-the-aisle displays — is largely occupied by major conglomerates, who can afford to pay many thousands of dollars to have their products featured there.
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Meanwhile, many Ontario-made spirits aren’t stocked at all, meaning sales are limited to what distillers can sell online and through on-site stores. TVO.org’s own John Michael McGrath, who attended Sousa’s announcement on Tuesday, tweeted that the minister asked one of the distillers on hand to grab a bottle of his product, for a photo op. The distiller explained that his products aren’t sold through the LCBO. Sousa then made the same request of another distiller. He didn’t have any products at the LCBO either.
If the liquor board doesn’t list their products, these entrepreneurs will have a tough time ever selling enough volume to survive long-term. (Although, in fairness to the LCBO, some distillers aren’t in stores simply because they haven’t applied; then again, in fairness to those distillers, the application process is quite tedious.)
So why doesn’t the government make a real effort to help local distillers thrive? Virtually all their competition is foreign-made — or at least foreign-owned — and Ontario craft distilling mostly involves taking Ontario-grown inputs, performing a bit of alchemy, and turning them into something more valuable. To put it more prosaically (as a premier’s advisory council report did last year): “Spirits [as opposed to wine and beer] are the highest margin category for the LCBO and critical to LCBO’s dividend to the Province.”
If we help the industry, it will help us. Hooch turns into jobs, and taxes. There aren’t many other products the government can get away with taxing at 61.5 per cent. And the more the province and LCBO can nudge consumers into switching from a $25 bottle of foreign-made vodka to a $40 Dillons Method 95, the more revenue they will collect. And those revenues will stay in Ontario instead of merely enriching one of the big international spirits conglomerates.
Perhaps what’s stopping Queen’s Park from loosening up is hard liquor’s seamier reputation compared with wine and beer. Spirits were the bogeyman of the temperance movement, personified by the Demon Rum, eager to pound the indulgent into misery and an early grave. (I know of no evidence that shows spirits drinkers are less responsible than wine or beer drinkers, mind you.) The distillers I’ve spoken with, for their part, don’t believe the government is addled by some temperance-era conceptual hangover. It’s just that few outside the industry understand the challenges they face.
But whatever the reason, if the government doesn’t ease up on small distillers, Ontario could be relegated to an industry also-ran. Independent outfits in other jurisdictions will continue to build on their head start at developing an internationally recognized spirits scene, while this province will lag behind. In other words, it’ll be just like what happened to the Ontario craft beer industry for decades on end.
Adam McDowell is a Toronto-based freelance journalist. He has been writing about alcohol for more than a decade and is the author of Drinks: A User's Guide.
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