Selling a winery, brewery or distillery in Canada

A winery, brewery or distillery is part farm or factory, part shop and part brand. Buyers will want proof of what you make and sell, a clear count of the stock in your tanks and barrels, and a plan for the provincial and federal licences, because some move to a new owner and some do not. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a craft alcohol business ask the same questions early. Have clear answers ready before you list:

• Volumes. Litres, hectolitres or cases made and sold each year for three years, by product.
• Sales by channel. Tasting room and on site store, lounge or patio, club memberships, online and direct to consumer, restaurants and bars, private liquor stores and the BC Liquor Distribution Branch, with the margin each channel earns.
• Inventory. Bulk product in tanks and barrels, finished bottles and cans, and packaging and raw materials, with ages and costs.
• Equipment. Tanks, barrels, presses, brewhouse or still, canning or bottling lines, and their age, condition and any leases or loans on them.
• Land and building. Whether you own or lease, vineyard or orchard acreage and yields if you grow, and any grape or grain supply contracts.
• Licences. Your BC manufacturer licence and endorsements, your federal excise licences and any compliance history.
• Brand and customers. Product names, labels, trademarks, website, club members and the mailing list.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Proving the numbers

Show volumes that tie to your production records, your excise duty returns, your sales reports and your tax returns. A buyer who sees the same litres in each place will trust the rest. Show tasting room traffic and average sale, club member counts and how many cancel each year, and wholesale accounts with their volumes, because a few large accounts can be a risk. Show your own wage and any personal costs run through the business as add backs with proof.

Many of these businesses are seasonal, with a busy summer tasting room and harvest or holiday peaks. Give monthly figures so a buyer sees the full cycle, not one strong month. If your land is part of the sale, read selling a business and the building.

Inventory in tanks, barrels and bottles

Stock is often a large share of what a buyer pays for, and wine or spirits ageing in barrels can be worth far more than its cost. Count everything near closing, by product and vintage or batch, and agree in the purchase agreement how each kind will be valued: bulk product, finished goods, and packaging and supplies. See selling a business with inventory.

Federal excise rules matter here. Under the Excise Act, 2001, bulk wine and spirits are tightly controlled, and duty is generally owed when product is packaged or taken for use. Know which of your stock is duty paid and which is not, and ask your regional excise office how bulk and packaged product will move to the buyer and who will owe the duty.

Your BC manufacturer licence

In British Columbia, wineries, breweries and distilleries make and sell liquor under a manufacturer licence from the Liquor and Cannabis Regulation Branch (LCRB), often with endorsements for an on site store, lounge, picnic area or special event area. The LCRB handbook says the manufacturing facility and all its endorsements must be owned by the same person or company, so you cannot sell one separately from the other. Licences and endorsements must be renewed and the annual fees paid by March 31 each year, even while a transfer is in progress.

What happens on a sale depends on how it is structured:

• Asset sale. The licence must be transferred. You start the transfer in the Liquor and Cannabis Licensing Portal by entering the buyer's business name and email. The buyer applies with its own CRA business number, a Business BCeID, a personal history summary and other documents such as criminal record checks, a sample sign and a $330 fee. An expired licence cannot be transferred. The business can stay open, and you remain responsible for the licence until the LCRB tells both of you the application is administratively complete. The buyer then becomes the deemed licensee and may operate the licence. The handbook also lists a transfer of ownership, including a sale of the liquor business and its assets, as a change to report online within 10 days of the sale.
• Share sale. The licence stays with your company, but the handbook lists share transfers or changes, internal or external, and amalgamations as changes to report online within 10 days. A change of directors or officers is also reported within 10 days. LCRB Bulletin 25-04 says private corporations seeking approval of new shareholders still submit criminal record checks and personal history forms for every shareholder with 10% or more of the voting interest.

The handbook also lists changes that need LCRB approval before they happen, such as structural changes to service areas or a new name for the establishment. If the buyer plans changes like these, build the time into the plan. Other provinces have their own regulators and rules, so if you operate outside BC, check with yours. See transferring contracts and licences.

Federal excise licences

To produce or package wine or spirits in Canada, a person needs a wine or spirits licence from the Canada Revenue Agency under the Excise Act, 2001. Breweries need a brewer's licence under the Excise Act. These licences are issued to a person and usually do not move with the business:

• Wine and spirits. CRA memorandum EDM2-2-1 says that where a change of legal entity occurs, the existing licence is cancelled and the new entity must apply for its own licence. A spirits applicant must also provide security. The memorandum lists a change of officers or directors among the changes to report to the CRA.
• Beer. CRA circular ED200-1 says that on a change of ownership or legal entity, the existing brewer's licence is no longer valid and a new licence application must be approved before the new owner starts brewing. A new application includes premises and equipment forms, a floor plan, business, operating, sales and financial plans and a surety bond.

Approval takes time. Ask the regional excise office early what the buyer must file for your structure, and make the purchase agreement conditional on the buyer holding the licences it needs on closing day, so production does not stop.

The federal excise duty exemption for wine made wholly from Canadian product ended on June 30, 2022. The CRA says it now covers only wine made in Canada from Canadian honey or apples, such as certain ciders and meads. Buyers will check that your filings follow the current rules.

Farmland and the ALR

Many wineries, cideries and some breweries and distilleries sit on land in BC's Agricultural Land Reserve. Under the ALR regulation, these operations are designated farm uses when at least 50% of the farm product used each year is grown on the farm, or, for a winery or cidery on a farm larger than 2 hectares, on the farm and under a contract of at least 3 years with another BC farm. A 2017 change applied the contract option to breweries, distilleries and meaderies too. A buyer will want to see that you meet the rule, or that the Agricultural Land Commission has approved your use. Have your growing records and supply contracts ready, and ask your lawyer to check the current regulation and local zoning.

Keeping staff

Your winemaker, brewer or distiller often carries the recipes, the processes and the reputation. Gather each employment agreement, check notice periods and any confidentiality terms, and think about when to tell your team. A buyer may ask key people to sign new agreements before closing, or ask you to stay for a harvest or a season to hand over. See the handover after selling and what to tell employees when selling.

In British Columbia, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is deemed continuous with the new owner. That matters for staff with long service.

Brand, recipes and customers

Write down your recipes, blends and processes so they are part of what the buyer gets, and list the product names, labels, trademarks, domain and social accounts that come with the sale. See goodwill when selling.

Club members and mailing lists are valuable. In British Columbia, section 20 of the Personal Information Protection Act allows personal information to move to a buyer as part of a sale without consent, but only what is needed, only under an agreement that limits how it is used, and after closing the people whose information was passed on must be told that the sale happened. During due diligence, share counts and summaries rather than names. Tell restaurants, stores and distributors about the change in a planned way. See telling customers and suppliers.

Asset sale or share sale

In an asset sale, the buyer's company buys the inventory, equipment, brand and goodwill, and possibly the land, and the provincial licence is transferred while the buyer gets its own federal licences. In a share sale, the buyer buys your company, so the provincial licence, contracts and any liabilities stay with it, and the LCRB must be told of the share and director changes. Ask your regional excise office how it will treat a share sale of your company. Tax results differ for you and the buyer. See asset sale vs share sale.

GST/HST and PST

When the business is sold in an asset sale, the section 167 election on Form GST44 can often remove GST/HST when the buyer acquires all or substantially all of what is needed to run the business and both sides meet the registration conditions. In British Columbia, PST generally applies to taxable goods such as equipment and furniture in an asset sale, but not to goodwill, and the province has specific rules for liquor. If land or a building is part of the sale, other taxes such as property transfer tax may apply. Check your situation with your accountant. See GST and PST when selling and taxes when selling a business.

A worked example

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale?
• What must we file with the LCRB, and by when, for this structure?
• What federal excise licences will the buyer need, and how long will approval take?
• How will bulk and packaged inventory be counted, valued and moved, and who owes the duty?
• Does the land meet the ALR farm product rule, or do we need approvals?
• Can we use the section 167 election, and what PST or other taxes apply?

Rules and fees change, so confirm current requirements with the Liquor and Cannabis Regulation Branch, the Canada Revenue Agency, your lawyer and your accountant before you set dates. For more, read what your lawyer and accountant do. Running a related business? See selling a liquor store, selling a restaurant or selling a motel or small hotel. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.