THE REPORT IS IN: COMMISSION RECOMMENDS SWEEPING CHANGES TO ABC LAW/LICENSING PROCESS
The Commission to Reform the Alcoholic Beverage Control Law (the “Commission”) was created, to vote on whether to recommend changes to the New York State Alcoholic Beverage Control Law (the “ABC Law”) to among other things, assist the New York State Liquor Authority (the “SLA”) with processing applications faster, as well as general industry reform and modernization proposals. The Commission was first convened in August 2022 and issued its final report on May 1, 2023.
One issue discussed by the Commission was whether or not to implement a “control state” model. Currently, New York operates under the “license” model, whereby distribution of alcohol is handled through licenses issued by the SLA to private sector manufacturers, wholesalers and retailers. Control states, by contrast, have a state-run monopoly over the sale at retail and/or wholesale of some (or all) alcoholic beverages. One such state is Pennsylvania, wherein all wine and liquor stores are owned and controlled by the state, with beer sold under separate, privately held licenses. Ultimately, the Commission voted not to implement such a system in New York and to retain the current model.
Several of the topics addressed by the Commission included whether to make changes to the categories of alcoholic beverages sold under different license types. Currently, only package (wine and liquor) stores can sell wine and liquor, and grocery stores, drug stores and convenience stores can sell beer and “wine products.” The concept of allowing the sale of wine in grocery stores (“WIGS”) has been proposed several times, in recent history, but was greeted with outcry by alcoholic beverage retailers, and never implemented. Here too, the Commission voted against allowing the sale of WIGS, with 9 of the 16 Commission members voting against. The primary arguments against this concept are that it could lead to the demise of package stores, and would also primarily benefit the larger wine manufacturers, as the smaller, more esoteric labels would be unlikely to be sold in most grocery stores.
In addition to vetoing WIGS, the Commission also voted against allowing the sale of liquor in grocery stores, the sale of ready-to-drink cocktails in grocery stores, and the sale of beer in package stores; thus effectively maintaining the status quo of product distribution. They did, however, vote to expand the types of items permitted for sale in package stores. Currently, package stores are only permitted to only sell a limited range of non-alcoholic items, such as gift bags, glassware, corkscrews, ice, etc. There was no explicit statement as to what types of items should be allowed under the expanded rules, but past proposals have included more food options, non-alcoholic beverages and novelty items.
Another hot button issue tackled by the Commission was whether to overturn the current rule that allows an individual to have an interest in only one package store in the State. Though the Commission voted down the idea of an individual being permitted to have unlimited package store licenses, they did vote in favor of allowing more than one. While they did not vote on a prescribed number, it seems likely that most proposals would be for a maximum of three stores per person.
The Commission also made a somewhat nebulous recommendation to “loosen the tied-house laws.” The tied-house laws currently restrict individuals to holding an interest in only one “tier” of the alcoholic beverage industry-manufacture, wholesale, or retail. It is not clear how or to what extent the Commission envisions these rules being loosened, but the changes would presumably at the very least no longer restrict passive investments in multiple tiers.
Also in this vein, the Commission voted to allow on-premises licensees (restaurants, bars, hotels, etc.) to purchase from off-premises licensees (liquor stores, grocery stores, etc.) in limited quantities. Currently, on-premises licensees must obtain their products solely from wholesalers, If, for example, a restaurant on a Saturday night ran out of vodka, they are not legally permitted to send someone down to the liquor store to buy a few bottles to tide them over. This new law, if implemented, would do away with that restriction. Again, it is unclear how “limited quantities” will be defined, but it seems that the goal would be to allow such purchases in extenuating circumstances such as described above, while still requiring the majority of purchases to be made through wholesalers. The Commission also evaluated whether to allow cooperative buying among both on-premises and off-premises licensees, and ultimately voted against allowing either.
The Commission was tasked with voting on a number of items designed to shorten and simplify the licensing process. The Commission voted overwhelmingly in favor of eliminating the 200-foot and 500-foot laws, both of which are relics of the post-Prohibition era when the ABC Law was enacted. The 500-foot law prohibits the SLA from issuing an on-premises liquor license to any premises which is within 500 feet of 3 establishments with on-premises liquor licenses, unless the Authority makes an affirmative finding that it is in the public interest to issue the license. This requires that the applicant undergo what is known as a 500-foot hearing before an Administrative Law Judge and adds significant time and expense to the application process. Further, the SLA cannot approve a Temporary Permit unless and until the applicant receives a favorable outcome for the 500-foot hearing. In many downtown areas, any new licensees have to go through this process, since a single block can contain 3 or more restaurants.
Similarly, the 200-foot law prohibits on-premises liquor licenses and off-premises wine and/or liquor licenses from being issued if the location of the establishment is on the same street and within 200 feet of a building that is used exclusively as a school, church, synagogue or other place of worship. The Commission noted that the required 30-Day Notice, and the timing of the application process itself gives the municipality or Community Board sufficient ability to weigh in on new license applications, and to veto any that are perceived as being too close to a school or place of worship without placing further, undue barriers to businesses.
Also, as a means to shorten the licensing process, the Commission voted strongly in favor of allowing applications to be submitted to the SLA simultaneously with the delivery of the 30-Day Notice to the municipality. This generally will allow licensees to simultaneously resolve any issues with the municipality while the SLA reviews the application, rather than requiring notice before submission. As several Commission members noted, the SLA processing time is far greater than 30 days, so there is almost no risk to communities that licenses will be approved before they have the opportunity to weigh in.
Another issue that will be extremely helpful to existing licensees is the Commission’s vote to allow changes to corporate structure prior to SLA approval. Currently, a licensed business that wishes to, for example, bring on new investors or sell the equity in their business, cannot do so until the SLA approves an “Application for Approval of Corporate Change.” This approval can take upwards of 7 months from the date of submission. Many states allow businesses to consummate the change, and then subsequently notify the liquor authority of the change, so as to not impede the transaction. A switch to this model will be much more conducive to business.
Another significant recommendation by the Commission is a change in the standard for the granting of package store licenses from whether the granting of the license “serves the public convenience and advantage” to whether there is “good cause for disapproval.” This would shift the burden off of the applicant which previously had to articulate good reasons to grant the license to any opponents, who would now need to affirmatively show that there are good reasons not to approve the license. This change is in line with the goal of both the Commission, and the SLA of supporting and encouraging new business, as it should mean that more businesses will be approved unless there is a specific reason not to.
Finally, the Commission was tasked with evaluating whether to expand direct to consumer (“DTC”) shipping. DTC shipping is currently only permitted for NY wineries and allows them to sell their products directly to consumers rather than through wholesalers or retailers. Typically, online stores are utilized where consumers go can browse products and make their purchases. For New York cideries, breweries, menageries and distilleries with a manufacturing license, sales must take place in person at the licensed premises, as they do not have the same right to sell their products via the DTC sales channels as wineries. Those in favor touted the benefits to NY producers, and their ability to have their products reach a much larger audience. Those against noted that this would strike at the heart of the three-tier system and be potentially detrimental to both wholesalers and package stores. The Commission’s vote was evenly split, with 8 voting in favor and 8 against; resulting in the proposal being disapproved, as a majority of 9 votes was required for an affirmative outcome.
Similar commissions formed in the past have had little to no impact, with the majority of their recommendations not being enacted. While the current Commission’s recommendations will require legislative action prior to implementation, it is clear that there is finally an appetite for change, and legislators have promised swift action, with at least one, Senator James Skoufis, promising to introduce a bill in the coming weeks to institute the Commission’s recommendations, which he hopes will pass during the current legislative session, set to end June 8, 2023.
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If you have questions regarding the operation of your existing New York licensed business or are contemplating applying for a new license, don’t hesitate to get in touch with Alexandra Becker by e-mail (firstname.lastname@example.org) or phone (518.487.7725) to see how the Alcoholic Beverage Team at Whiteman Osterman & Hanna may be able to assist.