N.S. Craft Brewers Paying Higher Taxes After Changes That Benefit Big Businesses
HALIFAX—A change to Nova Scotia’s craft brewery laws that gave a multinational company a local producer tax break will cost at least one craft brewery hundreds of thousands of dollars.
Brian Titus, the president of the Craft Brewers Association Of Nova Scotia, says a surprise benefit cap the province introduced in 2020 is stifling growth and punishing local businesses.
Titus and other members of the craft beer industry are calling on the province to make major changes to it and other rules governing local beer producers.
CBANS says “outdated government regulations and punitive new rules are now holding back the industry and making Nova Scotia an increasingly inhospitable place for craft alcohol producers.”
The ‘Sneaky’ Change That Started It All
Nova Scotia’s craft beer policy is a decades-old set of rules designed to give craft brewers a leg up against their international competitors.
The government charges a tax, which it calls a markup, on all beer produced in the province. The markup for big beer companies is about 85 percent. But for craft brewers, it’s 40 percent.
Any brewer producing less than 15,000 hectolitres a year (about 4,392,000 bottles) qualifies as a craft brewer and gets the special markup.
But in 2020, the government made changes, including a $750,000 yearly cap on the benefits a craft brewer can receive under the policy.
At the time, many in the craft beer industry felt the government was mucking with the rules to give what was essentially a tax break to one multinational company.
AB InBev owns Labatt Brewing, along with Budweiser, Corona, and hundreds of other popular beer brands.
Since Labatt operates the Oland and Alexander Keith’s Breweries in Nova Scotia, the company technically qualified as a “local producer” under NSLC’s new rules.
That meant AB InBev got to pay the lower markup on its beer until it hit the $750,000 limit.
RELATED: ‘Sneaky’ Policy Change Gives Multinational Brewing Company Local Producer Status In N.S.
According to Titus, the government promised craft brewers the rule changes wouldn’t affect them because they would hit their 15,000 hectolitre limit before the $750,000 benefit cap.
But less than two years after the policy changed, the exact opposite is happening to one Nova Scotia Brewery.
Expand Your Operation, Make Less Money
Shaun O’Hearn is the president and CEO of Nine Locks Brewing Company. He says the new benefit cap will end up costing his business hundreds of thousands of dollars a year.
Nine Locks is one of the biggest craft breweries in the province but still produces less than 15,000 hectoliters of beer a year. But O’Hearn says his brewery is bumping up against the $750,000 benefit cap anyway.
He says Nine Locks is hitting the cap at about 11,000 hectoliters and losing its special craft brewer markup because of it. Any beer the company produces above that approximately 11,000 hectolitres will be taxed at the higher markup.
O’Hearn says it feels like the rug has been pulled out from under him.
Nine Locks has just started building a new, multi-million-dollar brewery. The company began the expansion assuming it would have special craft brewer status until it hit 15,0000 hectolitres.
But the new rules, which the government put in place just as Nine Locks began the project, have huge consequences for the business.
“As soon as we need to build a new brewery the government comes in and cuts us off at the knees and says ‘okay, anything that you make over top of this [new limit] we’re going to be taxing the shit out of you and you’re going to make less than half the money off of what you sell,’” he says.
“So congratulations: you’re building a brand-new brewery but you’re going to make less money from this point on.”
O’Hearn has run the numbers and says the difference between the government’s new rules, which will give Nine Locks the special markup until about 11,000 hectoliters, and the old rules that cut it off at 15,000 hectoliters, will be about $300,000.
O’Hearn says Nine Locks can’t grow any further without building its new brewery and the project is too far along to stop.
But, because of the way the new rules are affecting his markups, the expansion will make the business less profitable.
“Our bottom line is going to take a real big hit because of this. It’s going to take a huge hit. We’re still going to do the new brewery but the company is not going to be as profitable as it would have been,” he says.
“Moving forward, it’s going to really eat into everything that we do.”
Minister of Finance Allan MacMaster declined to be interviewed for this story.
Benefits At The Expense Of Local Brewers
Titus says the government’s decision to put the $750,000 benefit cap in place always felt somewhat arbitrary and confusing.
“I can’t possibly tell you what the behind-closed-door motives were and what people were thinking… All I can do is I can step back and I can say, ‘well, what are the results?’ And they are exactly what we predicted would happen the day that we were told about this change,” he says.
“In carving out a way to give Labatt three-quarters of a million [dollars] in benefits each year they did it at the expense of local breweries.”
He says CBANS and others repeatedly warned the government the policy would hurt the industry but those warnings appeared to fall on deaf ears.
A Rejection 18 Months In The Making
Not long after the last election, CBNAS sent a letter to Minister MacMaster highlighting several policy changes it believed craft brewers desperately need.
The letter followed what Titus believed had been a productive period of communication between the government and craft brewers.
The communication began after the province’s 2020 rule changes and was meant to foster a better relationship between the industry and government.
“For the last year and a half I cannot tell you how many endless volunteer hours have been put into this,” Titus says.
So he and the rest of the industry was shocked when nearly every request was met with a series of flat denials from the minister’s office.
“It’s been literally a year and a half and right up until the day we got the shutdown letter from the minister we were having these collaborative, engaging meetings and conversation—and we honestly thought that we might be getting somewhere,” Titus says.
“Then the letter came and that was it: there was no discussion.”
Hope As Minster Comes To The Table
CBANS and others in the craft beer industry have been fairly disillusioned with the province’s approach up to this point. But Titus says things are finally changing.
Not long ago, MacMaster agreed to meet with industry representatives to hear their concerns.
Titus points out the current rules were put in place under previous governments and says he’s hopeful the new finance minister will better understand craft brewers’ problems.
“The government hasn’t technically owned any of these issues,” he says. “This could be a real fresh opportunity.”
The main thing CBANS is asking for is for the province to take a meaningful look at its rules governing craft breweries, and maybe put a pause on some until it figures out what to do.
Debbi MacDonald, the executive director of CBANS, shares Titus’ optimism.
She believes that, once the government takes the time to hear out brewers, it will see the problems it’s creating and make the necessary changes.
“I really believe the finance minister is very supportive of small business, particularly in rural communities,” she says.
“Because I’d hate to see people suffer and go out of business and close their doors because of red tape. I don’t think that’s acceptable.”
Trevor Nichols is the associate editor of Huddle, based in Halifax. Send him your feedback and story ideas: [email protected].