Whiskey on the Rocks: Distress is Brewing Across Canada’s Craft Alcohol Market

Canada’s alcohol sector is not a cottage industry; it is a national economic engine powered by small and independent producers. In 2021, hundreds of breweries, wineries, and distilleries employed thousands and anchored tourism from the Okanagan and Niagara to the Maritimes.

A significant share of the $25.2 billion in public revenue from alcohol comes from Canadian-made products rather than imports. As it is, local producers already carry a disproportionate share of the economic value.

Yet 2025 tells a different story. Insolvency filings across consumer manufacturing have risen, with alcoholic beverage producers overrepresented. Across Canada, revenues and brand loyalty often hold, but margins have tightened, growth has slowed, and balance sheets have weakened. The sector is discovering that craft and creative products cannot offset structural constraints in costs, regulation, and capital.

A Sector Losing Its Foam

By 2024, a rising share of craft breweries and distilleries operated on losses or margins too narrow to absorb volatility. Input costs climbed, regulatory requirements added friction across the value chain, and per capita consumption growth softened. The environment became unforgiving.

From 2023 to 2025, Canada recorded its highest number of brewery and distillery insolvencies in more than a decade amid economic challenges. Some producers entered formal restructuring. Others quietly wound down. The underlying pressure stems from structural forces the sector must now confront directly.

The Structural Economics Behind the Downturn

1. Consumer Behaviour Has Shifted: Households face elevated leverage and interest costs. Consumers are trading down to value offerings. Even where volumes hold, mix shifts compress margins.

2. Input Costs Have Increased: Malt, hops, packaging, and energy have all become more expensive. Many producers tried raising prices to keep up, but consumers pushed back, which limited how much of these higher costs could actually be recovered.

3. High Interest Rates Have Become a Breaking Point: Expansion between 2017 and 2021 relied on favourable financing. Variable-rate debt that once felt manageable has turned restrictive. Cash flows now service lenders rather than reinvestment.

4. Ongoing Tariff Challenges: Tariffs on aluminum, packaging, and key agricultural inputs continue to raise production costs across the sector. These charges layer onto existing inflationary pressures and reduce the ability of smaller operators to preserve margin.

These pressures intersect with a less visible but more consequential constraint.

The Real Constraint: Internal Borders

Walk into a Canadian liquor store and the shelves read like a world map. Imports travel across borders with ease. A small batch gin from Halifax or a craft whisky from Alberta, however, can struggle to move a single province over.

Quality rarely dictates that outcome; policy does. Behind every label sits a patchwork regulatory system that decides who scales, who stabilizes, and who drifts into restructuring. In an environment of higher costs and softer volumes, that patchwork operates less as administration and more as a direct solvency variable.

The Canadian Free Trade Agreement set out to ease internal barriers, yet alcohol remained carved out through provincial exceptions. The result is a sector segmented by jurisdiction rather than by product type or consumer demand.

Each province maintains its own liquor authority, distribution model, listing requirements, lab testing standards, and markup formulas which eventually show up on the P and L.

How Regulation Shows Up on the P and L

1. Markups That Move the Goalposts: A single 750 mL bottle can yield materially different net revenue depending on the jurisdiction. Spirits face particularly heavy burdens relative to beer and wine, creating pricing constraints that complicate national expansion strategies.

2. Compliance Drag as a Hidden Fixed Cost: Before a bottle reaches a shelf, producers may be required to complete multiple lab tests, redesign labels for various provinces, and participate in parallel listing processes. These obligations behave like fixed costs that become more restrictive as volumes decline.

3. Distribution as a Gatekeeper: Liquor board listing decisions can determine viability. Delisting from a key province often results in immediate liquidity stress.

4. Capital Structure Misalignment: Many operators financed expansion plans that assumed national scale. When regulatory friction limited those expansion pathways, leverage quickly became unsustainable.

Case Studies in Point

1. Central City Brewers and Distillers (British Columbia): Entered CCAA in November 2024 with over $60 million in liabilities. A $45 million capital program before the pandemic did not generate required returns. Covenant breaches in 2021 and a lengthy forbearance period show how liquidity stress can persist despite operational improvements.

2. Indie Alehouse Brewing Co. (Ontario): Filed an NOI in July 2025 with $6.8 million in debt. A supplier collapse in 2018, pandemic disruptions, and servicing secured loans reduced flexibility and pushed the company into restructuring.

3. Warehouse Brewing Company (Saskatchewan): Voluntarily assigned into bankruptcy in December 2022. High retrofit costs, limited scale, and inability to secure new investment exposed its vulnerability.

4. Tool Shed Brewing (Alberta): Faced liquidity strain since 2020. Difficulty refinancing its primary facility and reliance on incremental investor injections left the business without a stable operating base, and they eventually filed for an NOI in 2024.

5. Upstreet Craft Brewing (Prince Edward Island): Filed a Division I Proposal in May 2025 to continue operations as a going concern and avoid liquidation. Creditors rejected the Proposal in June. The company later entered receivership.

Taken together, these cases reveal four themes that recur across distressed operators:

1. Capital expenditures that outpaced returns;

2. Leverage that became untenable as rates increased;

3. Revenue instability from supply chain or distribution shocks; and

4. Insufficient scale to absorb regulatory and fixed facility costs.

What Operators Should Do Now: Steps to Stabilize the Brewhouse

1. Right Size Capacity: Align brewing and distilling runs with realistic demand curves rather than aspirational volumes. Persistent overproduction is one of the clearest early indicators of stress on the balance sheet.

2. Renegotiate Key Contracts: Liquor boards, lenders, and landlords often maintain formal mechanisms for temporary relief or restructuring. Early, data driven engagement creates room for revised covenants, revised payment schedules, or more flexible occupancy terms.

3. Reset the Capital Structure: Where leverage no longer matches revenue and margin profiles, explore formal and informal restructuring pathways. Tools such as covenant resets, term extensions, partial repayments, or structured sales can convert an overbuilt capital stack into one that the business can realistically sustain.

4. Focus on Core Products: Concentrate resources on the products that carry the strongest margins, clearest brand pull, and most efficient compliance profiles. Portfolio simplification reduces complexity, stabilizes gross margins, and lowers the regulatory and administrative load.

A Distressed Investor’s Barrel of Opportunities

For distressed and special situations investors, this environment offers a defined, repeatable play. Many assets suffer from capital structure misalignment rather than product fatigue.

Investors who can separate brand equity and operational capability from overbuilt facilities and legacy debt can unlock value through:

1. Targeted acquisitions of breweries and distilleries with strong local recognition but constrained liquidity;

2. Structured transactions that convert secured exposure into equity or profit sharing interests;

3. Platform strategies that roll multiple sub-scale producers into a single shared production, compliance, and distribution backbone.

The opportunity sits in buying time, credibility, and scale, then layering disciplined governance over existing craft infrastructure.

Conclusion

A wave of recalibration is moving through the industry. The winners will be operators who respond with focus, cost discipline, and an ability to navigate regulation as deliberately as they design products. The assets coming to market tell a clear story. Many failures stem from misaligned capital and constrained market access rather than weak consumer demand. Those who recognise this reality will set the trajectory of the next decade.

By Divi Dev. Divi is a restructuring lawyer and the founder of Divi Distressed Investments, L.P., specializing in business rescue and distressed corporate investments advisory. Divi provides legal services through a professional law corporation. The views expressed are personal.