By Andrew Macdonald
A Freedom of Information request on the briefing notes for Nova Scotia Liquor Corporation minister Allan MacMaster, who is also Nova Scotia’s finance minister, tells a tale of the Houston government being unwilling to kill a beer benefit cap because of how government intervention could be viewed through a global trade lens.
The Macdonald Notebook made the FOI request, and documents from the government were released to The Notebook this week.
It was a partial release because the government did not fulfill the entire request and, in one case, the government said disclosing certain information on the request would harm the government.
The Macdonald Notebook filed the FOI application in March. It was directed to the finance department and the Treasury Board as overseer of the NSLC. The FOI request asked for “all briefing notes between the Department of Finance, as well as Minister Allan MacMaster, and Nova Scotia Liquor Corp. sent to these government entities by the Craft Beer Association of Nova Scotia. Also, any briefing notes relating to these issues:
A year ago, Debie MacDonald of the Craft Beer Association listed four looming or current issues threatening the craft brewing industry:
“Outdated production limits. Nova Scotia has the lowest level defining a small beer producer, the highest applicable mark-up; and no tiered system to give the greatest benefit to the smallest producers; Punitive benefit cap. Nova Scotia is the only province to cap the preferential mark-up benefits of individual small producers. The cap rewards multinational brewers financially and penalizes small producers with a tax on direct sales. The NSLC taxes local producers on sales whether they touch them or not; and limited retail/distribution options. Increasingly, the vast majority of local brands never enter the traditional NSLC retail structure, yet no new options have been proposed as alternatives.”
Under the FOI, I requested documents from the date range of 2021 to 2024. A Freedom of Information officer responded that some of the information is exempt from disclosure because it could harm intergovernmental relations or information received in confidence from another government. “The head of a public body may refuse to disclose information that could reasonably be expected to harm the conduct by the Government of Nova Scotia of relations between the government of a foreign state.”
The ministerial briefing notes for MacMaster have the documents stamped confidential. Portions of those documents were released to The Macdonald Notebook. Some information in the documents is redacted, such as the specific name of a brewery that Dartmouth MLA Tim Halman met in January 2021.
Having consistently written about the craft beer movement in Nova Scotia, it is a given that Halman met with Nine Locks, because it had reached the $750,000 beer cap.
For Nine Locks, it faces mark-up costs of 40 per cent if it produces less than 15,000 hectolitres, or if it has received the beer cap of $750,000. So any beer it produces over that figure faces mark-up costs traditionally given to a commercial beer producer, such as Brazilian-owned Oland Brewery. Oland operates with a 600,000 hectolitre capacity.
If Nine Locks produces over 15,000 hectolitres, it faces NSLC mark-up prices of 85 per cent.
The beer cap is seen as controversial by Nova Scotia craft brewers because they feel a craft brewery should not face the same mark-up costs as Oland Brewery, part of AB InBev, the world’s largest beer producer.
In November 2021, Garrison Brewery owner Brian Titus, then chair of the Craft Breweries, asked Finance Minister MacMaster for the cap to be removed,
MacMaster responded that the previous Liberal government in 2020 updated the beer cap when it changed the NSLC Manufacturer’s Policy allowing breweries to retain the $750,00 cap, even if they go over it, or produce more than 15,000 hectolitres. Prior to that change, beer producers faced 85 per cent mark-up on all beer over 15,000 hectolitres. The Liberal policy allowed for a $750,000 beer benefit cap given to craft breweries.
Briefing notes for MacMaster state the cost per producer to remove the beer cap would represent $450,000 per brewery, “which is money taken away from other government priorities.”
In a December 2021 letter where MacMaster rejects the craft beer call to kill the beer cap, he also cites trade compliance, as the NSLC and beer industry must abide by global trade rules.
“The minister’s response spoke to trade issues affecting Nova Scotia and the need to ensure that any new policies would be trade compliant,” the briefing notes state.
In December 2021, the craft beer association expressed disappointment with MacMaster and asked that mark-up costs be frozen for Nine Locks, as it was beginning to produce more than 15,000-hectolitres.
The documents note several other breweries were close to going over that hectolitre benchmark, namely Titus’ owned Garrison and Jon Allen’s Propeller.
The documents note that while MacMaster rejected killing the $750,000 beer cap so that craft breweries would not face mark-ups of 85 per cent, and instead retain the 40 per cent mark-up of beer, there is a one-liner that for the fiscal year 2023, the beer benefit cap was moved to $1M benefit given breweries.
In 2020, the finance department under the Liberal McNeil government, without consulting craft beer producers, set a benefit margin cap at $750,000, on the first 15,000 hectolitres retailed. It was seen as a major benefit for AB InBev-owned Oland Brewery in Northend Halifax, whose parent owner in Brazil is the world’s largest beer producer.
Oland in 2020 was deemed local by the then McNeil government, which was done at the time to create a level playing field between Oland and the province’s craft beer manufacturers.
The Local Beer Production Policy meant a 40 per cent reduction in the mark-up for Nova Scotia beer makers, for the first 15,000 hectolitres produced.
Oland manufactures about 600,000 hectolitres, while craft beer makers like Garrison and Propeller are operating at 11,000 hectolitre capacity.
The policy applies to the first 15,000 hectolitres manufactured and is capped at a benefit of $750,000.
If under 15,000 hectolitres, the mark-up is 40 per cent, sales over 15,000 hectolitres would be hit with a mark-up of 84.5 per cent. The latter mark-up is also applied even if the brewer is well below 15,000 hectolitres, but its benefit cap surpassed $750K.
The mark-up in Ontario is pegged at six per cent, in comparison.
A craft brewer over the 15,000 hectolitre threshold would be deemed a commercial brewer like much bigger Oland.
In 2020, the McNeil government declared that multi-national giant AbInBev operates a ‘local’ brewer in Halifax and was entitled to discounts on the volume of beer it sells, but craft brewers argue the policy penalized small independent beer producers. The Notebook photo
In 2023, The Macdonald Notebook broke the story that the “margin benefit cap” has been pushed to $1M in total incentive benefits, up from $750K.
Steven Stewart, a spokesperson at the finance department which oversees the NSLC, said in 2023 the new benefit cap was a temporary measure.
“Government values the success of the craft brewing industry and its role in Nova Scotia’s economy and we’re pleased with the continued growth the industry has seen. The industry has identified changes they’d like to see and just recently the government committed to implementing a long-standing request from the sector,” said Stewart.
“The existing benefit cap was increased from $750,000 to $1,000,000 for the fiscal year 2022-23, while further assessment of the impact of this policy on exports and growth in the industry is undertaken.”
Brian Titus is a craft brewer and past president of the Craft Brewers Association of Nova Scotia. The Notebook file photo
There had been a flurry of news stories in 2021, including in The Macdonald Notebook, about how the craft brewers association felt the $750K benefit cap penalized smaller craft beer companies and rewarded a multi-national company like Oland.
In a January 2021 article, The Notebook noted the craft beer association has issues with provincial regulations including how the government defines what exactly it means to be a small craft brewery.
Lunenburg Shipwright Brewery has created a specialty beer for the historic Lunenburg Academy. Contributed
The main issue is that it doesn’t pay to succeed in Nova Scotia, I wrote back then.
As remarked in its 2021 annual report, the association says Nova Scotia has outdated definitions of a craft brewery. As well, the province has the highest applicable mark-up and lacks a tiered system to give more benefit to small producers.
“A commercial brewery will see their beer get hit with an 85 per cent mark-up fee. The product is sold wholesale to the Nova Scotia Liquor Corp., (and) they mark up the price by 85 per cent, which is what the customer pays,” explained Titus in a 2022 interview.
“What Nova Scotia does …is for the smaller producers, they start up with a reduced mark-up. For us, that is 40 per cent…which means we are able to keep more of the money in our pocket.”
In simpler terms, a commercial brewery would receive 15 per cent of the retail price of its beer, while small producers would get 60 per cent.
The lower mark-up cap “is meant to overcome the economies of scale,” says Titus. “We are small producers and independent, and we’re going against Labatt, which is owned by Budweiser, which is the largest beer conglomerate in the world, period.
“That is who we are competing with and the whole point is to give a break to the smaller producers.”
The finance department under the Liberal government of Stephen McNeil decided it needed to give a break to Labatt/Budweiser because it was operating a plant in north-end Halifax and wasn’t seen as a local brewery. “Because they are not, they are a multi-national,” argues Titus.
The government changed the definition to call Labatt local, but no other province does that, he says.
Beer tanks at Oland Brewery in Halifax Northend. The plant churns out 650,000-hectolitres of beer, while craft brewer Garrison Brewery only has the capacity to make 11,000 hectolitres. The Notebook photo
That means Labatt gets the benefit of a 40 per cent mark-up cap on its first 15,000 hectolitres, which saves the company about $750,000. The brewery makes 600,000 hectolitres of beer so the lower cap is only on about 2.5 per cent of production.
“Fifteen years ago, they were at 200 staff, now they are closer to 160. You are not seeing growth and progression. Our goal is not to attack Labatt or those jobs. We want those 160 jobs to stay in the province, but we don’t want to be penalized a year and a half ago when they (government) brought this cap policy out.”
Titus says craft brewers were not consulted on the cap, it was introduced by the McNeil government without input from craft brewers.
“They said you still keep the 40 per cent mark-up until you reach 15,000 hectolitres, or when you ‘cap out’ at a maximum benefit of $750,000 because of the different mark-ups, whatever comes first. It is the point where a (craft brewery) becomes a commercial brewery.
“But you can become a commercial brewery before you hit 15,000 hectolitres if the benefit you have received as a small brewer exceeds $750,000.”
Then that craft brewer is charged the 85 per cent mark-up because it is defined as a commercial brewer.
Garrison Brewery operates an 11,0000-hectolitre plant and if it went over 15,000 hectolitres it would have to retail its product for 85 per cent mark-up.
“You keep the 40 per cent mark-up for the first 15,000 hectolitres produced and every drop you sell after that will be at 85 per cent mark-up,” Titus says.
Nine Locks co-founders and co-owners Shaun O’Hearn, left, and his cousin Danny O’Hearn. Contributed
That issue faces Nine Locks craft brewery in Dartmouth. “Because of the way they price their beer, they are actually going to hit that limit before Propeller and Garrison because their beer is 10 per cent more expensive, so they will hit the ($750,000 cap) quicker than we will.
“What it means is that Nine Locks is at 11,000 hectolitres and it is now considered a commercial brewery. It never hit 15,000 hectolitres, it got shut down 25 per cent short of that.
“As of the middle of December 2021, Nine Locks saw its mark-up go from 40 to 85 per cent. Because we are in Nova Scotia and because Nine Locks fulfilled its benefit and reached the cap, they are now paying 85 per cent,” he adds.
The eye-catching silo at the Nine Locks Brewing Company brewery in Dartmouth. Contributed
“Keep in mind, in any other province in the country, a 40 per cent mark-up is a ridiculously high number. We’re already paying the highest mark-up for a craft brewer anywhere in the country. If we were in Ontario, Quebec or in BC, we’d be paying 6.5 per cent.
“So imagine, if you said you were going to start a brewery, where would you start that brewery? Would you start it in Ontario, where you pay 6.5 per cent mark-up, or would you start it in Nova Scotia, where if you are successful, you will very quickly pay 85 per cent.
Craft brewer Brian Titus says Oland Brewery, owned by the world’s largest beer company unfairly gets a government discount meant for Nova Scotia craft breweries. The Notebook photo
“It’s a major disadvantage to start a brewery in Nova Scotia. It will immediately cool down people who have growth plans and for Propeller and Garrison, we’re a year away from the exact same thing affecting Nine Locks.”
Titus would rather see the Nova Scotia government operate a tiered market share like other Canadian provinces, an important issue because 80 per cent of the 70 craft brewers in Nova Scotia are classified as small breweries.
He says a brewery that has a 2,000-hectolitre capacity should get “a much-reduced mark-up and, as they got a little bigger, up to 5,000, they would get a larger mark-up, and as you grow you get bigger and eventually lose all the mark-ups.
“We have been trying to go to a tiered structure for a decade so that it helps the little guys who need it the most.”
Various governments have dismissed the idea, he says.
He says the only winner with the $750,000 cap “is Labatt, because when they put that rule in, again all of a sudden, they are considered local, so they get a discount of $750,000. They are going to make the same amount of beer this year as last year, but all of a sudden they are $750K to the richer.”
Titus says where it becomes unfair is that the cap penalizes small producers. “We don’t care if they support big business, but it should not come at the expense of small business.”
Before the $750,000 benefit cap was put in place four years ago, the matter was simple in defining a small craft producer.
Some of the beers produced by Nine Locks Brewing Company. Contributed
“It was really simple: As soon as you hit 11,000 hectolitres, you lost the (mark-up) benefit. You became a commercial brewer and you were on your way,” explains Titus. “That is how it used to be.”
Titus says the lower mark-up is offered in every province. “The only way you are going to have a small brewery, which will eventually become a medium producer and hopefully eventually becoming a large producer, the only way you can do that is by giving people a bit of a break,” he says.
In April 2020, the Liberal government changed its definition of a craft brewer to one that makes 15,000 hectolitres or less on an annual basis.
A second element of the definition is that a craft brewery is one that earns a benefit cap of less than $750,000 in fees that don’t have to be paid by the Nova Scotia Liquor Corporation. Under this definition, Dartmouth’s Nine Locks, with a hectolitre capacity of 11,000, sees a retail mark-up of 85 per cent of its beer at NSLC stores, rather than the 40 per cent craft brewers face, because its benefit cap exceeds $750K.
“Because Labatt (Oland Brewery) gets the same benefit up to $750k as locals, and because there’s no tiered/progressive mark-up structure, this means small producers like Uncle Leo’s & S0or Island pay the same 40 per cent NSLC mark-up as Labatt for the first 15,000 hectolitres,” Brian Titus tells The Notebook.
“Producers actually benefit from this new policy implemented in April 2020,” said NSLC spokesperson Bev Ware in a news chat in 2022.
Oland Brewery has been on Agricola Street in Northend Halifax since 1905. The Notebook photo
“We used to have what was called ‘the craft beer policy’, and that meant once a brewery hit 15,000 hectolitres of production, they were considered a commercial brewery. That was permanent, so they would lose the preferential mark-up (of 40 per cent).
“With the new policy that we implemented in April 2020, it is called ‘a local beer policy’. And that allows local producers to retain the benefit of the preferred mark-up they would have lost. So now, once they reach $750K in annual benefits or 15,000 hectolitres, they are then considered commercial breweries until the end of the fiscal year.
“So, in Nine Locks’ case, it happened from December 2021 until March 31, 2022, and then they are considered a commercial brewery. Then they go back to receiving the preferential mark-up (40 per cent)” for part of the fiscal 2022 year. That would not have happened under the old policy,” said Ware. “Breweries stand to benefit from this new policy put in place. They would have lost that benefit under the old policy.”
Nine Locks reverts to the commercial fee which is paid by Oland, Molson, Coors, Budweiser and Moosehead Breweries.
So, instead of paying 40 per cent retail mark-up, it is now seeing a retail mark-up of 85 per cent. In 2022, Nine Locks co-founder and president Shaun O’Hearn told me he is losing a $100,000 profit on the status of a commercial brewery.
O’Hearn forecast in 2023 he could potentially lose profits of $350,000, money he can’t re-invest in his Waverley Road brewery which in 2022 underwent a multi-million dollar plant expansion.
If craft beer isn’t your choice, there are plenty of options at Gahan House Nova Centre. Contributed
