Edmonton-area distillery fights AGLC in court over regulations, licence suspensions
Agency cancelled Red Cup Distillery’s liquor licences after panel found sales violations
A small distillery near Edmonton's airport is fighting Alberta's liquor agency in court after the regulator cancelled the company's liquor licences last month and banned it from holding one for five years.
In a June 29 decision, a board panel found Red Cup Distillery had violated the Gaming, Liquor and Cannabis Act (GLCA) by bypassing Alberta Gaming, Liquor and Cannabis (AGLC) and selling tens of thousands of cases of vodka to a retailer through a supplier.
The decision is the latest in a series of disputes in which the agency has accused the company of not reporting and remitting alcohol sales, avoiding AGLC's regulatory process and not paying required markups.
According to the GLCA, Alberta liquor manufacturers must sell their products to businesses through the AGLC unless their liquor licence allows otherwise. The regulator collects the wholesale price, deducts recycling fees and deposits, keeps a provincial markup and remits the balance to the manufacturer.
Red Cup has two liquor licences — one that allows it to make liquor (Class E) and another that allows selling it to be consumed elsewhere (Class D). AGLC's handbook for liquor manufacturers says when a Class E manufacturer sells to its Class D licence, the sale must go through AGLC.
Red Cup Distillery's owner, Rob de Groot, told CBC News the company has reported all sales to regulatory authorities and that its licence does allow selling to other parties.
He said AGLC has been overstepping its bounds and trying to shut his business down so he is fighting back in court — over this decision and a previous one.
"I'll keep fighting. Failure is not an option," he told CBC News in an interview at the business on Wednesday.
Red Cup applied for a judicial review of the June hearing decision and a Court of King's Bench judge ordered an interim stay of the licence cancellations.
That means the company can continue operating in the meantime.
A spokesperson said AGLC could not comment on the matter because it's before the courts.
AGLC claims company owes $1 million
Red Cup Distillery, which has been around since 2015 and moved to the airport in 2018, manufactures vodka, gin and rye.
The company has about 30 employees and in addition to local sales, exports to the U.S. and South Africa.
According to the June hearing decision, AGLC's regulatory services branch received a tip in December that Red Cup's Alberta Ice Vodka was being sold in a large retailer's liquor stores.
Inspector Binny Sahota told the hearing panel that sales records from the retailer showed it had bought more than 600,000 bottles of the vodka from a supplier. Sahota said he also confirmed the sales with the supplier.
Sahota told the panel this process allowed Red Cup to bypass AGLC with the supplier acting as an intermediary.
Records from AGLC's regulatory services branch showed that of the 56,149 cases of vodka Red Cup had sold to the retailer between September 2019 and November 2022, the company had reported about 16 per cent.
Sahota said the company has a condition on its licence that requires biweekly reporting of all sales.
Rajeev Bastiampillai, AGLC's manager of liquor planning and reporting, told the hearing panel the markup payable on the vodka was approximately $1 million.
When payments are outstanding, he said, AGLC's financial obligations to partners, such as recycling deposit boards, become a liability.
According to AGLC's regulatory services branch, nine of 256 small manufacturer licensees in Alberta were delinquent as of June 6.
Lawyer Simon Renouf represented Red Cup during the hearing. He said the company did not accept the accuracy of the allegations by the retailer and supplier.
He said that the word "unless" — "unless the manufacturer's liquor licence provides otherwise" — in the GLCA provides an exception to the rule.
Renouf also said during the hearing that AGLC's regulatory services should not be able to threaten to cancel licences as a way of collecting a debt.
Judicial reviews
This isn't the first time AGLC has accused the distiller of not reporting sales.
An AGLC board panel suspended the company's licence for three months in 2020, after finding Red Cup had failed to remit payment to AGLC until directed to do so.
And last year, a different AGLC board panel found the company had not reported its sales between October 2021 and June 2022 and had failed to pay nearly $58,000 in markups.
"There has been no reason provided why Red Cup has not been able to adhere to the reporting and payment process and the panel finds that Red Cup must be held to the same processes and standards as other licensees," the November 2022 decision said.
AGLC's regulatory services branch had given the company a $2,500 fine and suspended the company's liquor licences before the hearing. Red Cup applied for a stay and a judicial review of the decision.
In written submissions filed with the Edmonton Court of King's Bench in May, de Groot's lawyer said the 2022 panel made an unreasonable decision, misinterpreted the act and didn't treat the company fairly.
AGLC's written submissions filed with the court on June 5 said the agency's decisions should be upheld because the panel did not make mistakes, misinterpret policies or treat the company unfairly.
Justice Jody Fraser has reserved his decision on the first judicial review, the hearing for which took place in June.
"Depending on what Justice Fraser comes back with, we may fundamentally change the rules that the AGLC's allowed to operate in," said de Groot.
The business owner said he has racked up about $300,000 in legal fees.
Other craft distillers are interested in hearing the outcomes of de Groot's cases, according to Bryce Parsons, the president of the Alberta Craft Distillers Association.
"There's a high interest in what happens and it could go very favourable for many of us. But there's another side that there's fear that it could go bad," he said.
He said small manufacturers are worried about losing access to a program that allows them to sell to retailers and customers with a lowered markup.
Parsons said small distillers face numerous challenges in Alberta and have advocated for changes that would make it easier to build their businesses, but the association generally doesn't have a problem with AGLC and views it as a strong partner.
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