An LCBO staff member removes bottles of U.S. alcohol from the shelves in Toronto in March.Arlyn McAdorey/Reuters
A leading American bourbon maker is being walloped by waning Canadian demand for its products in the wake of U.S. President Donald Trump’s illogical trade war.
Jim Beam announced last week that it is halting production at one of its Kentucky distilleries in 2026. Its Clermont facility is a victim of the White House’s short-term thinking on tariffs. Bourbon, of course, needs years of aging before it is ready for sale, making trade tensions a veritable risk.
Naturally, U.S. tariffs sparked a boycott of American products in Canada this year. The Liquor Control Board of Ontario, one of the world’s largest purchasers of alcohol, for example, responded appropriately by pulling U.S. brands off its shelves. The liquor boards of other provinces followed suit in solidarity.
Those strategic decisions to shun U.S. alcohol, however, still amounted to missed opportunities for many of Canada’s small and craft alcohol producers. That’s because a slew of interprovincial trade barriers prevent them from seamlessly selling their products to consumers in other provinces.
Ontario changes to alcohol sales could lead to higher prices next year
It is a quintessential example of how persistent provincial protectionism scuttles national goals – even when there is widespread public support for expanding internal trade.
“When American liquor products were pulled from stores’ shelves across Canada as a response to U.S. tariffs, it opened shelf space that could – and should – have been filled by Canadian producers,” states a research report by the Canadian Federation of Independent Business, or CFIB, a small-business lobby group.
“Instead, rigid interprovincial rules and excessive red tape have left small businesses unable to expand beyond their home provinces, leaving significant growth potential untapped.”
Aptly titled “Bottled Up: Small business barriers to interprovincial alcohol trade,” the report from November argues that U.S. tariffs highlight the need to strengthen our domestic markets.
As of 2021, Canada had an estimated 830 breweries, 508 wineries and 191 distilleries, and domestic products account for more than half of all alcohol sales.
Nonetheless, the industry is facing headwinds.
In the fiscal year ending March 31, 2024, federal and provincial governments earned $13.5-billion from the sale of alcohol, a decline of 0.5 per cent from the previous year, according to Statistics Canada.
The federal agency, which noted that prices of alcoholic beverages increased by 2.5 per cent, pointed to a “historic drop” in the volume of alcohol sales during that fiscal year (a reduction of 3.8 per cent to 2.98 billion litres).
Canadians bought a lot less beer, wine and spirits. By contrast, there were increased sales of ciders, coolers and cannabis.
Those shifting trends stem, in part, from price sensitivity (Statscan points to a link between higher incomes and increased consumption) and changing consumer preferences. Many young adults, for instance, are teetotallers.
But small producers also face artificial barriers to commercial success because of a patchwork of provincial regulations.
“Canada’s alcohol trade landscape is highly fragmented. Each province and territory maintains its own regulatory frameworks, licensing requirements, markup structures, and distribution systems,” the CFIB report states.
“For small producers, this means navigating a patchwork of rules and duplicative paperwork, paying multiple fees, and often waiting months for approval to enter a new province.”
The Canadian Free Trade Agreement, signed in 2017, deliberately excluded alcohol to fortify provincial control. Then, in a show of discord, Alberta boycotted B.C. wine in retaliation for Victoria’s efforts to block the Trans Mountain pipeline expansion the following year.
Although all provinces (and one territory) have since signed memoranda of understanding to allow direct-to-consumer alcohol sales by May, 2026, the CFIB is right to be critical of the slow pace of change and the potential for more red tape.
Small producers already face differing provincial rules for labelling, product registration, reporting obligations, markup rates and even laboratory testing.
“For example, a malt-based product approved for sale in Alberta will face additional testing when applying for a listing in B.C., slowing market entry and increasing production costs,” CFIB’s report states.
Information gatekeeping by provincial authorities also scuppers expanded sales.
One CFIB member quoted in the report, a representative from an unidentified Ontario distillery, said it best: “Liquor boards aren’t there to try and help you, they’re there to stop you.”
Ouch.
Internal trade barriers also hurt consumers by stifling competition, inflating prices and limiting choice.
CFIB makes sensible recommendations to dismantle interprovincial trade barriers, including by simplifying licensing and distribution processes.
Paternalism over alcohol sales ought to be a relic of the past. After all, Mr. Trump’s tariffs underscore the folly of Canadian provinces waging a trade war against themselves.