This discussion summarizes the compliance issues for a licensed BC winery (manufacturer) as they relate to contract manufacturing. Significant topics covered include:
- Contract manufacturing where a winery produces or processes wine or grapes for another licensed winery
- Contract manufacturing where a winery produces wine for an unlicensed brand owner
Title: Contract Manufacturing for Wineries
Date: February 2, 2021
Author: Mark Hicken, BA JD
This document contains a general discussion of the issues noted which was prepared on the date noted above. It does not constitute legal advice and was not prepared for you specifically. If you or your business needs a legal opinion, you should contact a lawyer for individual and updated advice.
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Contract Manufacturing
A winery is permitted to produce wine for another licensed winery or even in association with an unlicensed brand owner, both subject to certain conditions.
a) With Another Licensed Winery
In respect of wine produced for another licensed winery, the most significant requirements are as follows:
- The other winery must also be manufacturing wine at its facility. Both wineries must meet the minimum production requirements independent of the contract manufacturing arrangement(s). See this article that sets out the minimum production requirements: Winery Production Requirements
- The winery that ultimately owns the wine must register it with the LDB as the product of that licensed winery.
- Proper records must be kept of all production and of any transfers of the wine between licensees.
It is strongly advisable to have written contractual agreements between the licensed winery and any other winery that set out the terms of the arrangement including requirements to comply with the above and which cover the relevant wine.
b) With An Unlicensed Brand Owner
In respect of wine produced for an unlicensed entity that owns the brand for the wine being produced, the most significant requirements are as follows:
- The winery must own the wine for the entire time until it is: a) sold to retail or wholesale customers, b) sold to the LDB, c) exported, or d) transferred to another licensed winery (see below). This is significantly different from the regulatory requirements in other jurisdictions which permit custom crush through \”virtual winery\” licenses or \”shared proprietorships\” (neither of which is allowed in BC).
- The winery must register the wine as its own product with the LDB.
- The winery must conduct and control all sales of the wine and all marketing of the wine (including websites).
- The proceeds of sale for all transactions must be made to a bank account owned and controlled by the licensed winery.
- Sales of the wine may only be made from the winery (to wholesale customers) or from the winery\’s on-site store (to DTC retail customers).
- Delivery of the wine to wholesale customers may only be made either from the winery or from an authorized secondary storage location. Delivery of the wine to DTC retail customers may only be made from the winery\’s on-site store. It is not permissible to deliver wine to a DTC retail customer from an authorized secondary storage location (this was permitted on a temporary Covid response basis until October 31, 2020).
- The winery must control all storage of the wine, which must be at authorized locations.
- The wine must identify the winery as the manufacturer on its labels. Such identification should include the name, address and license number of the producing winery.
- The winery may hire the brand owner as a marketing representative for the wine under the winery’s agent license and may pay the brand owner for such efforts (i.e. provide the brand owner with a portion of the profits from the sale of the wine).
Quite frequently, the purpose of establishing a contract manufacturing arrangement with an unlicensed brand owner is because the brand owner is in the process of establishing its own licensed winery and wants to establish its brand in the marketplace prior to opening and to build inventory for the opening. It is permissible to do this and to transfer the entire brand inventory from the contracted winery to the newly opened winery once it is licensed. However, such transfers may be subject to transfer rules depending upon the categorization of the winery (see accompanying article: BC LDB Winery Categorization: Land-Based vs. Commercial). The following rules currently apply:
- OK: From land-based to land-based
- OK: From land-based to commercial
- OK: From commercial to commercial
- NOT PERMITTED: From commercial to land-based
Proper records must be kept of all such transfers. The wines must be registered with the LDB to the correct winery. All wines associated with the brand must be transferred. There is currently a grey area in respect of an LCRB requirement that a winery may only sell wine in its on-site store that was \”produced\” under that license … but it appears that this rule is not enforced against wineries in the above situation.
It is strongly advisable to have written contractual agreements between the licensed winery and any brand owner that set out the parameters of the relationship including requirements to comply with the above.