Three Washington Initiatives Filed To Privatize Liquor And Permit Volume Discounts

Liquor sales will be the hot topic of the summer, once again

 

Well, it’s here. I am sure that you are all thrilled to see another liquor initiative, so soon after I-1100 was defeated only 6 months ago. Sense some sarcasm?

 

The initiative train is rolling again. This time, Costco and a number of associations jump out of the gate with a limited measure that mostly focuses on liquor. The proposal aims to limit the number and type of liquor vendors, set stringent safety requirements and assure the concerned public that underage sales will not increase.

 

The initial press release does mention that the new proposal includes volume discounts for sales of wine – but there is no mention of beer. I am curious as to whether the hefty pressure applied by local beer producers led to an exclusion of changes to beer regulation. But, lets wait to read the initiative before I make any assumptions about how it will regulate beer.

 

Taking a look at the Secretary of State’s website, you can see that Tim Eyman and folk has filed three separate liquor initiatives, two on 5/3/2011 and one on 5/23/11 (this one is called “son of 1100″). As of right now, I am unsure which of these three is supported by Costco. Perhaps, they are throwing out several to get feedback before backing one for signatures this summer.

 

It also appears that Stefan Sharkansky has withdrawn his earlier initiative, presumably in favor of one or more of the new initiatives. The Secretary of State website shows that it was withdrawnon May 24, 2011.

 

Below is the press release issued collectively by Costco, the Washington Restaurant Association and the Northwest Grocery Association:

 

FOR IMMEDIATE RELEASE
May 20, 2011
OLYMPIA, Wash. – A group of local retailers and restaurants, whose members include Costco, the Northwest Grocery Association and the Washington Restaurant Association, today filed a ballot initiative that will privatize the distribution and sale of liquor in Washington state and provide hundreds of millions of dollars in additional revenues to state and local governments.

“This initiative will modernize the wholesale distribution and retail sales of liquor in a way that increases consumer choice and convenience, and increases state and local revenues while continuing to protect public safety and strictly regulate the distribution and sale of liquor,” said Joe Gilliam, president of the Northwest Grocery Association.

Under the initiative, a limited number of retail stores would be allowed to sell liquor if they meet certain requirements. Eligible stores would be required to have 10,000 square feet or more of fully enclosed retail space within a single structure or, in areas where larger stores are absent, meet other requirements set by the Liquor Control Board.

“Under the initiative, an estimated 1,500 grocery and retail stores would be eligible to apply for a license to sell liquor. The initiative would prohibit liquor from being sold at gas stations and small convenience stores,” said Gilliam. “In addition, the initiative requires a retail store to demonstrate to state regulators that it can effectively prevent sales of alcohol to underage minors in order to get a license to sell liquor. It also ensures that local communities have input before a liquor license can be issued to a local retailer and maintains all local zoning requirements and authority related to the location of liquor stores.”

Stores that are approved for licenses to sell liquor will pay 17 percent of their gross revenues from liquor sales to the state. Businesses that get licenses to distribute liquor would pay 10 percent of their gross revenues to the state the first two years and five percent thereafter.

Together, these license fees will provide state and local governments with tens of millions more per year in revenues than the current state liquor store system. This is in addition to the millions in cost reductions and profits from closing and selling the state’s liquor facilities and assets.

Under the proposed initiative, the state government would auction off its existing state-owned liquor distribution and liquor store facilities as well as the associated equipment.

Private distributors of alcohol would be allowed to obtain licenses to distribute liquor if they are approved by the Washington State Liquor Control Board.

License revenues from distributors and retailers would go into state and local budgets using the same formula applied to state liquor taxes, which would remain in place.

The initiative would also dedicate a portion of the new revenues raised from liquor license fees to increase funding for local public safety programs, including police, fire and emergency services in communities throughout the state.

In addition, under the initiative, fines and license suspension penalties for selling liquor to minors would be twice as strong as the existing fines and penalties for selling beer or wine to minors.

Provisions within the measure also update current laws on wine distribution, allowing wine distributors and wineries to give volume discounts on wholesale prices of wine to retail stores and restaurants and allowing retailers to distribute wine to their own stores from a central warehouse.

“By allowing competition in the distribution and sale of any product, including liquor, you bring about efficiencies, better product availability and more choices for customers,” said Anthony Anton, president and CEO of the Washington Restaurant Association. “We think this initiative improves upon previous liquor privatization proposals, and we are confident that we have developed a measure that most voters will support.”

Now that the initiative has been filed, it must go through the state process to establish an official ballot title before petitions can be printed. Supporters say they expect signature gathering to begin in roughly a month and they are confident the initiative will qualify for submission to the voters on the November state ballot.

 

 

 

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Is The Sale of Home Brew “Shares” Illegal? Most Likely

Bottle your home brew, but don't offer it for a price.

Wow! That was my reaction to reading a recent marketing piece in a farm share newsletter. Apparently, a New York farm share has decided to allow a home brewer to offer “shares” of his home brewing bounty to members of the farm share. While this glows of an illegal sale by an unlicensed brewer, lets discuss the specifics.

 

 

First of all, if you are unfamiliar with farm share, let me indulge you. A farm share is similar to a co op. Members purchase a “share” of the farm’s crop with a subscription fee. The members are then entitled to receive a box of produce on a given interval (weekly, monthly, etc.). The fee for the share is typically derived from the costs of production, so that the farmers can be paid for their labor.

 

One particular farm share in New York City (i’ll keep that quiet), decided to allow a member to offer its home brew as a produce box “add on” service. Apparently, for $44, you get four deliveries of six-pack bottles. The beer is described below:

 

 

4. NEW! BEER SHARE – ADD-ON BY JUNE 1st!

One of our long-term XXXX members and talented beer maker is offering a XXXX Homebrew Share this year. Buy a share and receive craft beer home-brewed right here in XXXX. Members of the Homebrew Share receive 4 deliveries. Each homebrew share consists of either a six-pack of 12 oz. bottles or three 22-oz bottles. You will pick-up your homebrew shares at your designated XXXX pick-up location every 3 weeks starting June 29th / July 2nd.

 

The homebrew shares costs $44. That works out to $11 per six-pack – one dollar more than a six-pack of Coronas.

 

What kind of beer will be in the homebrew share? You will drink unique beer, made from original recipes. Beer that you cannot get anywhere else. All of our beer is bottle-conditioned and brewed in small batches, with the best ingredients, and using herbs and spices that make our beers unique and delicious. Today, we started the first beer for our shareholders – a chocolate pink peppercorn ale! Some of our past homebrews include: a caramel brown ale, a honey I.P.A., a sour-cherry stout, a chocolate-and-jalapeno dark ale, an oolong-and-orange summer ale, and a toasted-grain-and-maple-syrup ale. We have some new exciting recipes that we’ve been crafting over the past few months, and can’t wait to brew them for you!

 

Sounds amazing, right?! Well, its almost assuredly illegal.

 

The general rule is that most states allow you to produce beer for your own consumption – not for sale. Many states also allow you to share that home brew with your friends and others at home brew competitions.

 

But in New York there is no express provision that allows production of home brew. The law specifically provides a prohibition against the sale of beer, but no permission for home brewed beer. Washington, for example, has a specific provision that enables home brewing.

 

Under New York statute, Chapter 3-B, Article 8, § 100 provides that no person shall “manufacture for sale or sell at wholesale or retail any alcoholic beverage within the state without obtaining the appropriate license therefor required by this chapter.” The statute later defines “beer”  as any “fermented beverages of any name or description manufactured from malt, wholly or in part, or from any substitute therefor.” At best, this vaguely permits home brewing for personal consumption, by not regulating it.

 

The question is whether the home brew share, discussed above, falls within the purview of this statute. I feel that it clearly does.

 

It is clear that these people are purchasing the beer and have no involvement in the brewing process. In fact, they do not know what is being brewed. Secondly, the brewer would need to prove that he derives no gain from these shares – meaning that he cannot even indulge in a free bottle. Finally, he is marketing the product by advertising publicly.

 

Even the most charged legal mind would have an immensely difficult time trying to convince a liquor control agency that this is not a sale. Even then, would it be worth it? The home brewer would likely have to turn over all records related to costs to ensure that he derives no gain. I believe that he would also have to show that the “share” members have some input and control over the brewing process, illustrating that they are also “brewing” with him. Of course, it is commonplace to brew collaboratively with others (I do it every time). But, this is above and beyond what the law already only tacitly permits.

 

While a novel idea, I believe that this will probably be shut down soon. 1000s of brewers across these great states have to go through the TTB and state procedures to sell their booze. So too, will this guy.

 

 

 

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TTB Eliminates Some Review, Tries to Simplify COLA Process

That type, contrast and format better be right before you print!

 

There was some interesting news yesterday, on BevLog. According to the site’s report, the TTB has announced that they are cutting back on some of the stringent review procedures that make submitting COLAs a hassle.

 

The TTB will no longer look at formatting requirements, expecting submitters the know the rules before submission. This means that the TTB will, theoretically, no longer sit on your label submission for a matter of months, just to return it because your color contrast was off.

 

According to Industry Circular 2011-04 (graciously uploaded by the good folks at BevLog), the TTB  “will no longer examine labels to determine whether the images included in the applications meet the type size, characters per inch, and contrasting background requirements.”  If you read further, the TTB explains that it reserves the right to review and return applications for these reasons when it deems necessary.  Thus, beverage producers are not 100% clear of these requirements.

 

So, what does this mean? Well, my first feeling was that this might actually have a worse impact on COLA submitters. There is some potential here for the TTB to call for an adjustment to labels well after you have packaged your product and sent it off into the marketplace. That is a frightening thought, but its a reality in light of the new procedure.

 

My suggestion: know the formatting rules and setup internal controls. Ensuring that you are complying with the formatting requirements will save you a significant headache, down the road.

 

 

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