Tyler Dyck, CEO of Okanagan Spirits Craft Distilleries, has a sip of whisky in the entrance lobby of the company’s Vernon, B.C., location on March 12.Aaron Hemens/The Globe and Mail
Tyler Dyck’s bourbon-style whisky took gold at the World Spirits Awards five years ago, but the sales boost from that recognition was nothing compared to what happened in the hours after the Canada-U.S. trade war prompted several provinces to clear Kentucky bourbon off of liquor stores shelves earlier this month.
Sitting at the bar in his Okanagan Spirits distillery in Vernon, B.C., Mr. Dyck was dwarfed by the stack of boxes loaded with bottles of BRBN (bourbon is by definition made in the U.S., so this Canadian version carries a different name), ready to be shipped to customers. Sales are up 2,200 per cent and Mr. Dyck should be celebrating – the unhappy circumstances of the trade dispute provides an opportunity for Canada’s craft distilleries to capture new markets.
“The opportunity is so great,” Mr. Dyck said. “You have to put your industries first right now.”
But regulatory burdens – multiple hurdles that range from interprovincial trade barriers that still limit the sale of alcohol across provincial borders to provincial limits on production – have dampened the festive mood.
When the provinces and territories met earlier this month to resolve interprovincial trade barriers in the face of U.S. trade turmoil, their first concrete action was to remove restrictions on direct-to-consumer sales of liquor within Canada. But the details of just how that will work are still in the early stages of being negotiated. And provincial regulations are strangling how much homegrown liquor is available on government liquor store shelves. (Private liquor stores have to purchase their product from the government’s Liquor Distribution Branch.)
B.C. Premier David Eby, in removing U.S. liquor from public liquor store shelves, urged Canadians to support his province’s world-class beer, wine and distilled products. He announced the decision while standing in a government liquor store in Victoria, with a sign over shelves that were reserved for U.S. products advising consumers to “buy Canadian instead.”
The whisky produced at Okanagan Spirits Craft Distilleries is small batch and hyper-local, using ingredients from nearby farms.Aaron Hemens/The Globe and Mail
Shortly after Mr. Eby’s news conference on March 10, Mr. Dyck was sitting in his family-owned distillery, rolling a glass of BRBN in his hand to release the aroma. It’s selling well but there is a finite supply. The whisky is small batch and hyper-local – corn and barley is produced on nearby farms, while the grains are malted in a town nearby before coming here to be fermented and distilled in his copper stills.
To be certified as a craft distillery in B.C., members are required to use 100 per cent B.C. agricultural products in their production. And the province has effectively capped how much Okanagan Spirits and other craft distillers can produce, because steep markups are imposed on their products if they make more than 50,000 litres – that’s 200 barrels – of liquor each year.
“The bourbon in your glass costs $30 a bottle to produce,” Mr. Dyck said. It’s high cost in part because the craft distilleries don’t get to enjoy the economy of scale, and they can’t purchase cheap neutral spirits from abroad as a base.
In 2013, the B.C. government set out rules for craft distilleries meant to help the industry grow, by providing relief to the smallest ones. But the industry sees it as a punitive tax on success that discourages growth. The province set out markups based on production levels, so that the distillers pay more as they grow.
As a result, of B.C.’s 85 craft distilleries, only three of them have managed to get some of their products on the shelves of B.C. liquor stores. Mr. Dyck’s distillery is not one of them: The amount of money they would return to him for each sale is well below the cost of production.
Because steep markups are imposed on their products if they make more than 50,000 litres of liquor each year, the province has effectively capped how much Okanagan Spirits and other craft distillers can produce.Aaron Hemens/The Globe and Mail
Okanagan Spirits hit its maximum annual production 10 years ago, and hasn’t been able to expand since because the markup would, Mr. Dyck said, make the products so expensive that he’d lose business to lower-cost competitors who can brand their products as “Made in Canada” so long as they have 51 per cent Canadian content. One bottle over his 50,000 litre limit would cost his company roughly $280,000. The penalties mount with each additional 10,000 litres of liquor of production, until at 100,000 litres when a company is deemed commercial and can only sell its products in government liquor stores.
Government officials say the current markup system is determined by terms set by the BC Liquor Distribution Branch.
But U.S. President Donald Trump’s threats to annex Canada has stirred up an appetite in Canadians to choose domestically-made products.
B.C. Agriculture and Food Minister Lana Popham says she is pushing within her government to fill the space vacated by American products on government-owned liquor store shelves for more local products.
“We’re very interested in creating more space for products that might not already have had access to those spaces,” she said in an interview. In B.C., liquor distribution falls under the control of the ministry of Public Safety and Solicitor General. Ms. Popham said her ministry has been pressing for these changes for years, but she sees a potential for a shift now.
“This could create a great opportunity for us. This trade war is allowing us to make changes more quickly than we would have in the past,” she said.
To make 200 barrels of liquor requires agricultural produce from about 80 hectares of farmland. Mr. Dyck believes the market would support 2,000 barrels per year from his distillery alone, enough to create a viable farming culture around this industry.
Just east of Vernon, Bar WT Farms produces about 160 hectares of hay and grain crops for local markets. Farmer Mike Witt said he will grow a specific crop for Okanagan Spirits on contract, but he said it’s a tricky thing to pull off the low-volume requirements of a craft distiller.
“Tyler is looking for a certain flavour profile, or yield characteristics,” he said. “But if he wants just half a tonne of grain, it’s difficult to grow and segregate it.”
Mr. Witt would love to see the craft distillery industry grow to a scale where sales of these higher-value crops can be counted on, year after year.
“There is a certain sense of pride in having our B.C.-grown product used locally,” he said. “When people say that they’re a customer for that distillery, or they’re a customer of the local flour mill, we can say we are a part of that.”
Gambrinus Malting in Spallumcheen, just north of Vernon, sells its honey malt for beer-making around the world, from South Korea to New Zealand. But the company’s trade with Okanagan Spirits ripples through the local economy, knitting together farmers, truckers and more.
Despite a rise in sales amid the Canada-U.S. trade war, Mr. Dyck says regulatory burdens are a significant obstacle preventing his product from reaching Canadian shelves.Aaron Hemens/The Globe and Mail
Ken Smith, director of operations at Gambrinus, has worked with Mr. Dyck for years, sometimes sending over “happy accidents” such as a batch of overmalted corn that led to the creation of an exceptional dark, chocolatey bourbon – or BLK BRBN as the label states.
Sitting at Mr. Dyck’s bar, amid the stacks of boxes ready for shipping, Mr. Smith marvels at the red tape that makes direct sales necessary. “The fact that Canadians can’t go into the liquor store to get their hands on this fantastic stuff,” he said, gesturing to his glass, “it is kind of crazy to me.”