The owners of Ottawa's only craft distillery, North of 7, say the provincial government's latest attempt at supporting their fledgling industry is a step in the right direction, but falls short of what they've been asking for.

The Ontario government announced Tuesday it will invest $4.9 million over three years to help small cideries and distilleries build their businesses.

Eligible cideries will receive up to 74 cents per litre of cider produced, while distillers will receive up to $4.42 per litre on eligible sales to a maximum of $220,000 per year, according to the province.

But Ontario's craft distillers — there are just over a dozen of them — say the subsidy amounts to a drop in the bucket.

No incentive to sell high-end product

The problem, according to North of 7 co-owner Greg Lipin, is that the government is still pocketing up to 80 per cent of the proceeds from the sale of each bottle of alcohol they produce. Craft brewers and wineries, on the other hand, get to keep a significantly higher percentage of sales.

"I feel the government is being responsive to our concerns and we appreciate them working with us to become a sustainable and profitable business. However, there is much more to be done to achieve parity with beer and wine in this province or spirits in other provinces," said Lipin.

There is much more to be done to achieve parity with beer and wine in this province or spirits in other provinces. - Greg Lipin, North of 7

The new tax scheme creates a disincentive to sell higher-end products, Lipin explained.

"The new tax is based on a percentage of the sale price, so if we sell a bottle for $60 the new tax is still 61.5 per cent of that, and the rebate would be $3.31 for a 750-millilitre bottle. Obviously it is better to sell more units at $24.95 than at $60 under the new rebate system."

For craft brewers and wineries, the first several thousand litres produced are sold tax-free, allowing smaller operators to keep prices lower and margins higher. They only begin to pay taxes once they exceed that threshold. Small distillers, however, start paying tax on the first bottle they sell.

"What we have been looking for all along is a graduated markup similar to beer and wine. For micro-distillers, other provinces have provided much more meaningful reductions," said Lipin.

North of 7 pays a substantial markup fee to the LCBO even on the sale of booze from its own retail counter. In British Columbia, the markup would be 0 per cent and in Nova Scotia, 10 per cent.

Hope in store

Unlike craft beer and wine producers, distillers aren't permitted to sell their products in grocery stores. And restaurants that want to stock locally produced booze must procure it from the LCBO.

In fact the only place craft distillers like North of 7 can sell directly to the public is at their own retail shops attached to their distilleries, which are sometimes located in far-flung industrial areas.

This system benefits larger, more established distilleries which can afford the administrative and marketing costs involved. But according to Lipin, that could soon change.

"The Ministry of Finance has stated that the right to sell directly to bars and restaurants will be implemented by the LCBO and will begin in spring 2017... We can market and sell right to bars and restaurants who are interested in carrying local spirits."

Lipin says despite the slow pace of progress, there's cause for optimism.

"It is such a labour-intense process to produce spirits from scratch like we do. We start to sell our Canadian Whisky this May so those sales, plus the changes, should allow us to start covering our costs."