Chris Gautz/Crains
A major fight is brewing in Lansing over the way the state handles liquor licenses, as well as a variety of alcohol regulations that supporters say will make it easier on small businesses and allow the growing craft beer industry to expand in Michigan.
Some of the changes included in Senate Bill 216, sponsored by Sen. Howard Walker, R-Traverse City, would speed up the time it takes to transfer a liquor license, allow liquor license transfers between adjacent counties, give small breweries the same ability as wineries to sell their product to retailers and customers directly without using a wholesaler, and allow more gas stations to sell alcoholic beverages.
“There is no question that right now, I think that the rules and regulations we have in place are a hindrance to market access,” Walker said. “The thrust of this is to allow more access for more entrepreneurs to produce more Michigan beer, wine and spirits. And provide that product to Michigan consumers.”
Wholesalers, some of the most powerful lobbyists in Lansing, oppose the bill. Retail groups are split, depending on their area of business.
Mike Lashbrook, president of the Michigan Beer and Wine Wholesalers Association, was unavailable for comment, but in a statement said “these proposals may hurt the very businesses they claim to want to help, especially small independent businesses that will struggle to compete against larger businesses.
“Because of these diverse concerns, a large and growing number of people are rightfully speaking out against these attacks on common-sense regulations that protect people and promote business growth,” Lashbrook wrote.
Small brewers, meanwhile, view the legislation as a helping hand to growth.
Scott Graham, executive director of the Michigan Brewers Guild, said there have been a lot of small startup brewers “who couldn’t get a distributor to take a serious look at them.
“It could be huge for the development for small brewers,” he said.
While some of the larger brewers aren’t interested in the distribution business, making the change for the smaller ones would help them grow their brands to the point where they would then want or need to become customers of the wholesalers.
Walker’s 147-page omnibus bill amends 33 sections of the liquor code. While there is more widespread support for pieces of it, such as conditional license approval for new owners of bars or restaurants, other changes are more controversial, such as the direct beer sales.
Auday Arabo, president and CEO of the Midwest Independent Retailers Association, said he has reservations about such wide-ranging alcohol changes being grouped into one law.
“An all-or-nothing bill is not the right way to go on something involving alcohol,” he said.
Size matters
Walker’s bill would tweak the system so that small brewers, defined as those who produce fewer than 30,000 barrels per year, or 930,000 gallons, would be able to sell their beer without being forced to contract with a wholesaler.
“I think allowing microbreweries to do a limited amount of direct shipping is important,” Walker said. “It’s not trying to replace the three-tier system. We are trying to allow startup companies and entrepreneurs more access to that industry and the producing side of the industry.”
The exception for craft beer makers would be a departure from Michigan’s three-tier system. Aside from a few exceptions, such as for wineries, a business can only be in one tier. A wholesaler can only be a wholesaler, and the same is true for manufacturers and for retailers.
“That would be a significant change in the law,” said Michael Brown, partner with Lansing-based Carlin Edwards Brown PLLC, who was also a member of an advisory committee that made recommendations to the state for changes to the state’s liquor laws.
Easier permission
If only one thing is approved in this entire package, it should be the idea of a conditional liquor license, says Patrick Howe, a liquor license and hospitality attorney with Royal Oak-based Howard & Howard Attorneys PLC.
Under the current law, when someone purchases a bar, the transfer of the liquor license typically takes months longer than all the other paperwork. So in order for the new owner to be able to sell alcohol before the license is transferred, a participating management agreement has to be set up and the previous owner has to stay on as owner, and the business has to stay open under the original owner’s name.
Sometimes that process can take anywhere from a few months to a year. With the Walker bill, a conditional liquor license would be issued within 20 business days.
Jay Lambrecht, owner of Detroit-based Bookies Bar & Grille and another member of the advisory committee on the proposed legislation, had to create a management agreement when opening the new Bookies.
“We need to make it more streamlined so people are not trying to find loopholes to open,” he said.
When Lambrecht opened Fountain Bistro in Campus Martius Park without a license, he had to wait to get one, and when he received it, sales increased 150 percent.
Rep. Ray Franz, R-Onekama, is moving forward with his own legislation on conditional licenses separately. He introduced similar legislation last session.
Franz’s bill, House Bill 4277, would allow the issuance of a conditional license in 30 days following the completion of the application, which includes a background check. Franz has had personal experience and frustration with the length of time it takes to receive a license. Several years ago, he sold his grocery store, and it took a year for the transfer of the license to go through.
Later, when the new owner couldn’t make the payments, Franz took it back under forfeiture of a land contract. Even with a court order, it took seven months for him to receive his former liquor license back.
“The cooler was empty,” he said. “We couldn’t sell anything.”
Filling up
The bill would also permit more gas stations in the state to sell alcohol. Under current law, gas stations are not supposed to be able to do so, but of the roughly 5,000 in the state, about 1,500 do because they are located in rural communities or after gaining the ability through loopholes in the law, were then grandfathered in.
To qualify for a liquor license under the Walker bill, a gas station has to have inventory of non-alcohol and non-gasoline products of more than $50,000.
Arabo, whose organization represents gas stations, is opposed to the change, to protect current members from additional competition. He said allowing as many as 3,500 more gas stations around the state to start selling alcohol would be a mistake, because the market would be oversaturated.
In contrast, John Griffin, executive director of the Associated Petroleum Industries of Michigan, said that group supports the change.
He said gas stations that spend several million dollars to build a new facility should be treated the same as dollar stores which have the ability to sell beer in the state.
County to county
The new legislation would allow inter-county liquor license transfers between contiguous counties.
Howe said that in Wayne County, a liquor license usually goes for about $20,000, because there is an overabundance in escrow. In the three counties that touch Wayne, demand is higher than supply, and licenses go from $40,000 to $60,000.
Right now, there are 191 Class C liquor licenses in escrow in Wayne County compared to 68 in Oakland County and 12 in Washtenaw County. Macomb has 45 Class C licenses in escrow and Livingston has five.
The inter-county transfers and other changes are seen by the Snyder administration as removing unnecessary bureaucracy from the process. The bill is based largely on an Office of Regulatory Reinvention report recommending changes.
Snyder spokesman Kurt Weiss said in a statement that the administration applauds the bill, adding that it “will make it easier for business owners to succeed and grow, removing outdated and unnecessary regulations.”
Chris Gautz: (517) 403-4403, cgautz@crain.com. Twitter: @chrisgautz
