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Small manufacturers struggle to grow in Alberta’s craft alcohol industry

Alberta Matters: Challenges small liquor producers face in the province
WATCH: As part of Global News' Alberta Matters series on craft liquor, Breanna Karstens-Smith explores challenges producers face in the province. There has been tremendous growth, but some small business owners say regulatory changes are still needed for success.

This is Part 3 in our Alberta Matters series on alcohol. Click here to read Part 1 on craft beer marketing and tourism, and Part 2 on market saturation concerns, Part 4 on the cider industry, and Part 5 on the passion distillers have for making local spirits.

The market for craft beer and spirits in Alberta has never been more successful. There are more than 120 small breweries and 30 plus distilleries in Alberta with more in the application process.

Despite the demand, some manufacturers say, challenges are preventing them from growing their businesses.

“We’re five years in, I still haven’t taken a pay cheque out of here,” Geoff Stewart, owner of Rig Hand Craft Distillery in Nisku told Global News.

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Rig Hand has 73 different products with their items in 1,200 liquor stores.

Still, Stewart estimates 65 per cent of their sales are still made out of their Nisku distillery.

LISTEN BELOW: Mike McNeil with the Alberta Small Brewers Association joins Calgary Today on 770 CHQR

Getting off the ground was difficult for him and others.

Some banks won’t give craft alcohol companies financing because the equipment and any product they have don’t have value because they can’t be re-sold if the operation goes under.

“They can’t take it to Ritchie Brothers and put up 200 barrels of whiskey because that’s the licence,” said Robert De Groot, owner of Red Cup Distillery at the Edmonton International Airport.

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Red Cup Distillery owner Robert De Groot said that it can be hard to obtain financing as a liquor producer.
Red Cup Distillery owner Robert De Groot said that it can be hard to obtain financing as a liquor producer. Global News

“Maybe government can provide some kind of loan guarantee program like they’ve done with the oil and gas industry out there. Saying, ok, it’s kind of like CMHC on your home mortgage, you know? ‘Here, bank, loan the money to these guys, we’ll guarantee it with an insurance policy,'” suggested Stewart.

Minister of Economic Development, Trade and Tourism Tanya Fir said government was not considering that at this time but encouraged producers to approach the government with their ideas.

READ MORE: Ottawa gets rid of inter-provincial liquor restrictions, provinces still need to negotiate deal

Even once businesses are up and running, owners are having a hard time getting their products on shelves outside of Alberta.

Alberta has an open market for craft alcohol so it’s possible for manufacturers from other provinces to sell in Alberta.

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Most other provinces do not have the same rules. Instead, many have tasting boards. Those panels rarely allow beer and spirits from outside their provinces to be sold in order to protect their producers from outside competition.

“I can’t do a deal with Canadian Brewhouse, who wants my product, because they want it in every restaurant they have in Canada,” Stewart explained.

“I can supply Alberta, I can supply Saskatchewan, at a really high tax rate, I can supply Manitoba, but I cannot get into B.C.

“So all of the sudden I lose this Canadian Brewhouse deal and that was a really good deal that we negotiated.”

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LISTEN BELOW: Beer writer Don Tse joins Afternoons with Rob Breakenridge on 770 CHQR

The difference taxes can make is astounding. Stewart said he has a $30 bottle of vodka that’s been approved for sale in Saskatchewan — with a $47 government tax on it.

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“They sell it to the liquor store for $77 and the liquor store has to make some money, so they put it on the shelf for $99,” Stewart said.

“So our bottle of vodka is sitting on shelves at Sobeys in Saskatoon right now at $99 a bottle, beside a bottle of Smirnoff that’s $26 a bottle.”

Stewart said while he is grateful Saskatchewan lets his products into the province in the first place, the high markup has him looking to the export market.

“If we sell a bottle of our stuff into Texas, it’s only 43 cents tax.”

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De Groot also has experience selling to the United States. “I got into Vegas before I got into Edmonton,” he said while explaining how it is easier to ship his product across the border than it is to other provinces.

READ MORE: Capitalizing on Alberta’s craft beer boom: marketing, branding and tourism in 2020

Rig Hand Distillery has faced issues getting its product stocked in other provinces.
Rig Hand Distillery has faced issues getting its product stocked in other provinces. Global News

Brewers are running into the problem too. The Alberta Small Brewers Association believes it limits the competitive ability of producers.

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The province has eased some inter-provincial trade barriers, but not on alcohol.

READ MORE: Kenney gets rid of 8 more regulatory barriers to ‘strengthen interprovincial trade’

“Alberta’s taken the lead on that and we hope the other provinces will follow suit so that provinces can exchange goods and products and services freely to the benefit of all the provinces,” said Fir.

Capitalizing on Alberta’s craft beer boom: marketing, branding and tourism in 2020
Capitalizing on Alberta’s craft beer boom: marketing, branding and tourism in 2020

Other business owners say the point of the craft industry is to be small and that changes would go against that.

Another barrier is a restriction known as the 80-20 rule. Only 20 per cent of what producers make can be mixed with other liquors or flavouring.

The Alberta Small Brewers Association believes that is limiting brewers from being able to expand into ciders and flavoured products.

“We’d like to see some easing of restrictions on blending products so that our brewers can respond to new market interest from outside of beer and expanding and growing their product category,” said Alberta Small Brewers Association executive director Mike McNeil.

Another regulation mandates 80 per cent of a producer’s yearly products be made on site.

De Grooke broke that rule by having a larger distiller make his product to satisfy an order. Now he is suspended until March.

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“Once we get past the craft, you have to be able to expand,” he argued.

Analog Brewing on Edmonton and Alberta’s growing craft beer scene
Analog Brewing on Edmonton and Alberta’s growing craft beer scene

Other distillers Global News heard from don’t see it that way. They believe the point of the craft market is to remain small.

READ MORE: ‘Still room’ left in Alberta’s booming brewing and distilling industry: brewery founder

Ultimately, despite challenges, those in the industry say the consumers are the ones who decide what’s successful.

“If we continue to supply this high quality product, I think we’re going to win in the long run,” said Stewart.