Canada's Alcohol Laws Are Stuck in the Past
If there is one thing that the never-ending lockdowns have taught us, it’s that Canadians LOVE to drink. This has become especially clear during the pandemic. Unfortunately, Ontario residents are hampered in our beveraging hobby by the Liquor Control Board of Ontario (LCBO). The LCBO is a relic of a bygone age of prohibition. Like every government-controlled entity, the LCBO is a nightmare for consumers and producers to navigate: it uses red tape and bureaucracy to destroy market mechanisms and is enough to drive any person to drink. Instead of acting as a distributor for breweries, distilleries, and vineyards to get products to market, the LCBO partakes in price setting that limits competition and puts small businesses at a disadvantage against large corporations.
The LCBO’s single and most glaring problem is that when a producer wants to sell their product, the LCBO sets the price. That is the minimum sale price anywhere in Ontario, be it at a restaurant, brewery, grocery store, or any other place one can buy alcohol. Usually, this price is higher than the what producer initially sold the product for, thus driving potential consumers from the market. This price setting also means that producers are not allowed to mark down or put their LCBO-distributed products on sale. On the other hand, the LCBO can discount the alcohol products it sells, taking sales away from the local businesses. Of course, giant companies do not feel the squeeze of sales from the crown corporation, but the loss of income severely impacts microdistilleries and the like.
The LCBO also prevents the wholesaling of alcohol to restaurants, selling to them at the same prices regular consumers pay for the same product. This is why alcohol is always substantially more expensive at restaurants than at the LCBO; restaurants have no room to mark up the prices without them becoming exorbitant. Earlier this year, the province attempted to partner with Canadian food delivery service SkiptheDishes to deliver alcohol to Ontarians. When the news broke, restaurant owners were livid, as the LCBO could charge less for alcohol as they do not have to compete with the price floor. A state company should never be in a position to outcompete private enterprises when the state biases the rules to their advantage.
In May of this year, David Clement suggested in the Financial Post that the provincial government follow the lead of Alberta in a hybrid system. The Albertan model has private retailers selling to the public while the state maintains the monopoly on wholesale, albeit at competitive market levels. He argues that Ontario could pay off a large swath of its covid-19 debt by halting new expansion, and allowing more private competition in alcohol sales by removing regulations. Clement discusses how the increase in private sales created more tax revenue for Alberta, and thus would still supply the government with a steady income. Although Clement is correct in asserting more privatization is better than the current model, leaving any business in the hands of the state would still lead to malinvestment and a distortion of real market values. Government entities have no profit incentive and compete unfairly) with the smaller private enterprises attempting to survive, as the Ontario example shows. Even though it would anger the unions, the single best option for Ontario is to sell off all LCBO assets to various companies and allow a fully private retail market in alcoholic beverages.
The best way to help businesses and consumers alike is to cut back the regulations and red tape around the LCBO and search for a private solution for alcohol. Peel back the price-setting regulations and allow for the private wholesaling of alcohol to restaurants and other venues. We do not need the Ontario government to dictate how adults consume alcohol, so let's drop the prohibition-era apparatus that’s holding us back. The nanny state apparatus is outdated and out of touch. A genuinely free market in alcohol distribution really is something to raise a glass to!