Tuesday, November 21, 2006
It Lives! It's Dead. It Lives! It's Dead.
I borrowed this idea from the former Chief Counsel for the California ABC who was describing to legislators some years ago the convoluted and seeming illogic of California's alcohol licensing laws. Since June of this year, as the Beer Guys began the process of planning an expansion of our existing beer business to provide kegged and canned beer in wide distribution, we have lived one day in jubilation as our plans seemed ready to move ahead, and the next in despair as the project seemed dead.
What is the problem? Tied-house laws.
The most fundamental purpose of tied house laws was the creation and preservation of a three tier distribution system of manufacturer, wholesaler, and retailer. An owner of any one of those three types of licenses cannot have any interest, directly or indirectly in any other type of license. The purpose of this separation is to prevent the vertical integration of ownership which supported intemperate consumption.
Now, the Beer Guys believe that this so called separation has not inured to the benefit of small brewers. In fact it has strengthened the position of large brewers and allowed them more muscle to control and consolidate the market, and therefore many of these laws are anachronistic. But we'll save that for another blog.
The real issue here is the Beer Guys' ability to make more beer. We have a small brewery/restaurant that makes some great, interesting, unique beers and we just want to be able to make more of it to meet demand. We don't have enough space at our existing location to either increase our brewing or expand our operation. So we're trying to expand into a larger brewing facility off-site. The problem is licensing. For four months we have been paying a small army of attorneys and ABC (California department of Alcoholic Beverage Control) consultants to sort through what we can and can't do, all because the existing restaurant owns a retail license (allowing us to sell alcohol to customers). This retail license prevents us from obtaining the new small beer manufacturers license that we will need to expand our production. One day we live, the next we're dead. The ABC says we cannot do it. Then we find a new approach, it looks promising, we live! Then the ABC shoots it down and we're dead.
The aforementioned former Chief Counsel to the ABC used the "It Lives! It's Dead" line when he was describing some of the absurdities of the California alcoholic beverage code and how it needed to be amended. In closing, after a lengthy illustration of a current licensing application, not dissimilar to the ups and downs we've experienced in our contact with the ABC, he said, quote:
Hey guys, we just want to make more good beer and get it into the hands of people who like it. We're not trying to overturn society!
As an epilogue, after the hearing, Assemblyman Dominic Cortese sponsored a bill that would give discretionary powers to our state ABC, so that situations like ours could be administratively resolved when it was apparent that public "welfare and morals" would not be harmed. The bill died before it even got out of committee, and no other legislation is pending.
SO where are the Beer Guys now? stay tuned.....
What is the problem? Tied-house laws.
Tied-house laws are laws that regulate how alcoholic beverages are marketed and how the various tiers of our industry interact. The name comes from a
practice in England where a bar may be tied, by ownership links or
contractual obligations, to a specific manufacturer. Prior to Prohibition,
this practice was allowed in America, and it resulted in marketing practices
that encouraged intemperance. (Tied houses in the U.S. would offer "free
lunch" to promote business and heavily encouraged the consumption of their
brand of beer to defray the cost of the give-away meal.)
The most fundamental purpose of tied house laws was the creation and preservation of a three tier distribution system of manufacturer, wholesaler, and retailer. An owner of any one of those three types of licenses cannot have any interest, directly or indirectly in any other type of license. The purpose of this separation is to prevent the vertical integration of ownership which supported intemperate consumption.
Now, the Beer Guys believe that this so called separation has not inured to the benefit of small brewers. In fact it has strengthened the position of large brewers and allowed them more muscle to control and consolidate the market, and therefore many of these laws are anachronistic. But we'll save that for another blog.
The real issue here is the Beer Guys' ability to make more beer. We have a small brewery/restaurant that makes some great, interesting, unique beers and we just want to be able to make more of it to meet demand. We don't have enough space at our existing location to either increase our brewing or expand our operation. So we're trying to expand into a larger brewing facility off-site. The problem is licensing. For four months we have been paying a small army of attorneys and ABC (California department of Alcoholic Beverage Control) consultants to sort through what we can and can't do, all because the existing restaurant owns a retail license (allowing us to sell alcohol to customers). This retail license prevents us from obtaining the new small beer manufacturers license that we will need to expand our production. One day we live, the next we're dead. The ABC says we cannot do it. Then we find a new approach, it looks promising, we live! Then the ABC shoots it down and we're dead.
The aforementioned former Chief Counsel to the ABC used the "It Lives! It's Dead" line when he was describing some of the absurdities of the California alcoholic beverage code and how it needed to be amended. In closing, after a lengthy illustration of a current licensing application, not dissimilar to the ups and downs we've experienced in our contact with the ABC, he said, quote:
"One might well be tempted to ask how any of this promotes the economic
well-being of the state or the state's policy interests in promoting temperance,
providing an orderly market, preventing vertical integration of the market and
the abuses of tied houses.
"I can only hope that the Legislature will find the magic sword to
cut this Gordian knot."
Hey guys, we just want to make more good beer and get it into the hands of people who like it. We're not trying to overturn society!
As an epilogue, after the hearing, Assemblyman Dominic Cortese sponsored a bill that would give discretionary powers to our state ABC, so that situations like ours could be administratively resolved when it was apparent that public "welfare and morals" would not be harmed. The bill died before it even got out of committee, and no other legislation is pending.
SO where are the Beer Guys now? stay tuned.....
