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Alberta’s subsidy plan to boost its own craft beer industry has been hammered again by a trade panel ruling.

READ MORE: Alberta NDP’s beer tax contravenes Canadian internal trade rules: panel

An appeal panel under the Agreement on Internal Trade has upheld an earlier decision that provincial subsidies to assist smaller Alberta craft brewers are unfair and violate inter-provincial free trade rules.

“By tying the grant explicitly to certain levels of production and sales of beer produced in Alberta, the (grant) program encourages the production and sale of Alberta beer and provides a competitive advantage… over beer produced in other provinces,” wrote the appeal panel.

All brewers in Alberta pay the same $1.25 tax per litre on beer, but in 2016 Finance Minister Joe Ceci introduced grants in 2016 to help small Alberta producers expand their businesses.

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READ MORE: Alberta expands energy rebate program to help hospitality industry

Calgary-based Artisan Ales, which sells imported beer, filed a complaint with the internal trade panel, saying the grants effectively tilted the playing field against those who bring in beer from outside.

An original hearing panel found the tax and grant program constituted unfair trade while the appeal panel said the tax was fine but agreed the grant program was still offside under free trade rules.

READ MORE: Alberta importer says beer tax made profits plunge: ‘A policy destroyed our business’

Artisan Ales owner Mike Tessier said the program has severely undercut his business, but said the panel ruling is a victory for common sense.

“We were right the first time,” Tessier said in an interview. Tweet This

Bo Vitanov, the co-owner of Artisan Ales, said she knew immediately the province’s changes would damage business.

“Our sales are probably a quarter of what they were before the first implementation of the policy was made back in October 2015,” she said. “Our profits have basically been eradicated. It’s been really depressing. We were a viable growing business.”

Vitanov said after the province narrowed the legislation further in 2016, “anyone who is bringing in microbrewery beer from anywhere else (other than Alberta) is at a disadvantage.”

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WATCH: Alberta’s craft beer subsidy was aimed at helping brewers find success with a financial boost, but a trade panel has upheld a decision that it violates current rules. Lauren Pullen has reaction from brewers and the Calgary-based company that launched the complaint.

1:54 Goodbye Alberta craft beer subsidy Goodbye Alberta craft beer subsidy

After years of letter writing and voicing objections to Alberta’s rules, she welcomes the trade panel’s decision.

“We felt vindicated. We’re really happy because obviously they’ve validated what we believed all along, that the government’s policy was not compliant with trade regulations.

“It’s bittersweet. We’ll probably never get our business back to the way it was before. The government has meddled in the market — they’ve changed it significantly. Tweet This

“Once you lose shelf space, it’s really difficult to try and get the shelf space back.”

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LISTEN: Economist Trevor Tombe and Artisan Ales’ Mike Tessier join Ryan Jespersen to discuss the AIT decision

Derek From, a lawyer with the Canadian Constitution Foundation, said this ruling goes a step further than the first decision before the province appealed.

“Because they said: ‘Look, we don’t even need to look at the history of this thing, look at how it developed, we don’t need to look at the combined effect of the markup and the grant program. The grant program on its own is discriminatory.’

“So that’s even more than we asked for and a bigger slap down for Alberta.” Tweet This

From said the province’s policies have been driving up beer prices.

READ MORE: Alberta challenges trade panel’s ruling on beer tax

“If you were offering a competing IPA from a local brewer, the outside-the-province brewer would be $20 now. Well, you could raise your prices from $12 if you’re local, you could probably put it up to $18. You would still be undercutting your competition and you would have a much bigger profit margin there.”

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While the focus of the issue is beer, From says it extends much farther.

“Yes, we have this decision that says Alberta can’t rebate taxes to Alberta brewers, but really what this is is that Alberta can’t put illegal trade barriers in place and harm the Canadian economy.” Tweet This

READ MORE: Alberta government ‘disappointed’ by leak, will review beer tax policy

Alberta has six months to change things to line up with the ruling.

Alberta’s finance minister said the province will abide by a free trade ruling against its craft beer subsidies, but says the program will be replaced with something else.

LISTEN: Finance Minister Joe Ceci discusses the AIT panel decision

Joe Ceci said the province is committed to helping its craft brewing industry grow, especially given it faces stiff protectionist measures in other provinces.

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Ceci wouldn’t say what the changes will be.

For two years, Alberta has been taxing all beer producers at the same rate, but also giving grants to Alberta brewers.

READ MORE: Change in Alberta beer markup ‘bad news’ for Saskatchewan brewers

Neil Herbst, head of the Alberta Small Brewers Association, said his group will talk to Ceci about a new program and called the trade panel decision frustrating.

“I don’t think there is one brewery that exports beer out of Alberta,” said Herbst. “It’s not because we haven’t tried. It’s because there are barriers all over the place, mostly non-tariff barriers.” Tweet This

Opposition Leader Jason Kenney said the ruling was predictable and suggested the NDP government needs a consistent trade policy.

“If we want to champion free trade in the movement of our oil, we have to champion free trade on everything,” Kenney said in Calgary.

“Let’s free the beer.”

READ MORE: Saskatchewan, Alberta tussle over job site licence plates

The dispute drew in Saskatchewan, which also argued the program was unfair. It became a bone of contention late last year when Saskatchewan threatened to ban Alberta licence plates from its job sites in retaliation.

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“We are very pleased with the decision which confirms that Alberta’s beer market distorting policies unfairly discriminate against Saskatchewan and Canadian brewers,” Trade and Export Development Minister Jeremy Harrison said. Tweet This

“We call on the government of Alberta to immediately comply with this ruling, as they have promised, ensuring that brewers from our province and the rest of Canada can compete fairly with Alberta-based brewers.”

Saskatchewan also said it helped Artisan Ales as an intervener in the original panel and appeal process.

READ MORE: Saskatchewan disappointed in Alberta’s beer tax appeal

Alberta’s beer plan has been modified a number of time since Ceci announced changes to government markups on beer sales in 2015.

Until then, beer producers had been charged a markup on a sliding scale. Large producers paid the maximum of $1.25 a litre.

LISTEN: Canadian Constitution Foundation lawyer discusses the case that went to the AIT panel

Alberta kept the sliding scale for provinces in the New West Partnership at that time — Saskatchewan, Alberta and British Columbia — but made all other brewers pay the maximum $1.25 regardless of how much or how little they sold.

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Opponents argued this was a violation of free trade and, in 2016, the province made all beer producers in Alberta and elsewhere pay the same $1.25 a litre. It also introduced grants for Alberta producers which prompted the legal challenge by Artisan Ales.

Alberta has argued that the $1.25 across-the-board markup and the grants are two different things and are both allowed under inter-provincial free-trade rules.

— with files from Emily Mertz, Global News