ABC Call to Action

Call to action

The ABC Board is at an impasse regarding distilleries. Their next action will be to consider and adopt new regulations. We have no idea what will be proposed in the regs package. This is the time to take action to help your local distillers!

I am going to give out a lot of contact information, then about 2,000 talking points you can pick through. Please be polite and patient and clear if you choose to comment. Mailed comments are more effective than emailed ones. Phone calls are always good too.

 

Contact the ABC Board and AMCO Director – The draft regulations haven’t been published yet, but preemptive comments can only help. You can make your opinion known on any matter using the second link. We are not enemies of the ABC Board or AMCO at all. We all want to find a solution. We will be working with them long into the future, so making accusations won’t help now or in the long run. I don’t think they are inherently against us serving cocktails, but the AAG has been pushing them hard.

AMCO.regs@alaska.gov (email comments on draft regulations)

Alcohol.licensing@alaska.gov (email address for general comments)

https://www.commerce.alaska.gov/web/amco/ (mailing and phone contact info at bottom of the page)

 

Contact State Legislators – These guys can alter the statute language. You will get the best response from the ones in your district, but I used a shotgun approach and did everyone nearby.  I would aim my correspondence at explaining the issue, and suggesting some solutions like: 1) clarify the language of the statutes so that their meaning is explicit, or 2) reduce the number of available distillery licenses by proportion of population. I like #1 better, but #2 might solve the problem. More and better answers might also exist.

http://akleg.gov/senate.php

http://akleg.gov/house.php

 

Contact the Governor’s Office – The administration has direct power over a lot of stuff and likes to be able to help out with problems. I would target them with info on the general issue and the poor way that it has been handled. The Governor doesn’t control the Board but we might have luck getting possible solutions heard through this channel that are ignored in our teleconference meetings.

https://gov.alaska.gov/contact/

 

 

Talking Points

[Too Long, Didn’t Read Version]

On 13 September the ABC Board voted to uphold the following memo: “Please regard this Advisory Notice as Enforcement’s directive to cease selling or giving as samples drinks that are made by mixing your distilled product with other ingredients that are not produced on the licensed premises.”

Response

  • We responded by modifying our menu to comply with the memo as we understand it.
  • Complaints continued.
  • The memo was found to be vague and difficult to enforce. A special meeting was held and the Board was split. We are continuing to follow the memo as we understand it.

Impacts

  • If we are reduced (as the Asst. Attorney General wants) to selling only shots of vodka, tasting room business would drop an estimated 100%. Without tasting room income, the production cost per bottle (and the retail sale price) would be unrealistically high.
  • I predict all or nearly all distilleries would fold within a year. Obviously, my investment would be lost.
  • Downstream effects: laid off employees, grain farmers lose out on sales, livestock farmers lose out on our free spent grain, and lots of potential tax money is lost.
  • Distilled spirits are poised to be a substantial export commodity. Building a successful brand takes time. Without tasting room revenue, it is difficult to imagine.

A plain reading

  • The discussion largely got hung up on “a plain reading” of the tasting room statute (HB309).
  • The AAG argued that the statute can only means that we may sell 3 oz of our product (vodka) and nothing else.
  • The AAG further argued that her interpretation was the only valid interpretation and that it was the only one that the Supreme Court would uphold. Dictating a future court decision is absurd rhetorical flourish. It was intended to impress some Board members, but it is only an opinion.
  • I said nothing because all distillers were muted out of the conversation by that time.
  • The language in the statutes is not used very consistently. In the distillery section “alcoholic beverages” means bottles of liquor. In the bar section “alcoholic beverages” means mixed drinks, and it’s the only thing mentioned that they are allowed to sell. The term can not mean the same thing in both sections.
  • When there is so much uncertainty in the meanings of terms, any definitive “plain reading” is absurd.

Legislative intent

  • Some legislators responded that the Board has no statutory authority to try and manage anything but alcohol.
  • Eight of them wrote a letter explicitly stating that the distilleries intended to be able to sell mixed drinks, and that that was absolutely the intention of the statutes.
  • The AAG declared that input from individual legislators or groups of legislators can not be taken into account. I can not begin to try to explain her logic.
  • Mixed drinks were served at the signing ceremony for HB309.
  • One former director is reported to have consumed a mixed drink in a tasting room.
  • The singing statement for HB309 states that tasting rooms were being established for, among other things, enable Alaskan distilleries to compete with low-cost imported goods. The selling of alcohol (and thereby competing with bars to our limited extent) was absolutely intended.
  • Tasting room sales help offset the high cost of manufacture in Alaska. This allows us to price our product in a range that is reasonable for sales and brand-building.

De facto bars

  • This is where we get to the nub. When pressed, mixing cocktails isn’t really what anyone is worried about. It is distillers using their licenses as de facto bar licenses.
  • This issue arises not because of the dangers of serving mixed drinks, but to protect the financial interests of bars.
  • Bar licenses can cost a lot, although not compared to setting up a distillery. All licenses are limited to a certain number depending on the population of the town they reside in. Bars appear to be worried that dozens of new distilleries could pop up and take all the bar business.
  • The HB309 signing statement addresses this. The restrictions on closing time, entertainments, and other things are explicitly there to prevent distillers from being bars. Any competition within our restrictions is simply business as intended.
  • It isn’t the Board’s job to protect the value of a bar owner’s investment. I believe the Board’s job is described as managing alcohol to protect the public health, safety and welfare.
  • If protecting investments is on the agenda then they should also be protecting my investment. Mine is very high compared to a lot of bars, and comes with a lot more risk.

Conclusion

  • The Board got wound up on semantic issues because they let the AAG direct the discussion. Along the way it became impossible to actually focus on the real problem and real solutions to it.
  • The solution that they have found so far makes no one happy and solves nothing. My menu is messed up and a lot of my time is wasted. Bars haven’t stopped us from making cocktails. The various government entities are losing out on tax revenue.
  • The process would benefit from stepping back and getting a broad picture and trying to find a solution that does what people want.
  • I suggest a solution like this:
    • That the State limit the number of distillery licenses to a number somewhat less than 1 in 3000. I can’t suggest an exact number.
    • It would greatly reduce the rising threat that bar owners feel if they knew 10 more distilleries can’t pop up behind every corner.
    • It wouldn’t be a deathblow to the budding distilling industry.
    • I am not sure I like this anti-competition solution, but at least it avoids any irreparable harm to those who have already invested enormously in creating the Alaskan distilling industry.

 

 

LONG VERSION

 

Current Events

The ABC Board upheld the Advisory Notice (referred to as the “memo” from here on) from 02 Aug which states, “Please regard this Advisory Notice as Enforcement’s directive to cease selling or giving as samples drinks that are made by mixing your distilled product with other ingredients that are not produced on the licensed premises.”

We have followed the memo by mixing only ingredients produced in house to make drinks. When outside ingredients are called for, we only use them to make virgin drinks. We often sell our vodka separately to customers who request a “virgin chaser”.

The original complainer (The Narrows, a bar in Juneau) has continued to file complaints.

The Enforcement office finds the memo difficult to enforce, and requested that the Board clarify it’s intentions and/or the meaning of the memo.

The Board met in special session on 16 Oct to clarify. In that meeting the Board was split 2:2 on imposing further restrictions, so no action was taken. One member abstained because of conflict of interest. The result is that they are continuing to enforce the memo without clarifying any definitions. They won’t take enforcement action against tasting rooms who follow the memo as we understand it, but they aren’t saying that it’s okay either.

The next Board meeting is on 13 Nov in Anchorage. It is expected that the Board will begin reviewing a regulations change that will be proposed by the AMCO office. The proposed regs should be available for review at least a week before that meeting. I have no idea what they are likely to say, but they will be subject to public comment and we’ll be depending on all our supporters at that time.

The other next potential resolution will come if the legislature takes up the issue and clarifies their intent in statute next regular session. This will also be a critical opportunity for the public to get involved.

 

A Plain Reading

The AAG took a strong hand in attempting to guide the Board. She was aggressively anti-mixing and pushed very hard for a “shots only” ruling.

The argument revolved around what the AAG called “a plain reading” of the statues. In her opinion, a clear reading means that straight (i.e. neat) alcohol was the only drink we were permitted to serve. Shots of vodka in my case.

She went on to state that the supreme court would only uphold her interpretation. That’s a laughable claim. If lawyers could so accurately predict the courts, we wouldn’t have lawyers or trials. But she stated it with authority and it seemed to hold a lot of weight with some Board members.

Here are the statues that pertain to distillery license. This is from HB309. Sections (d) and (e) are the tasting room parts:

Sec. 04.11.170. Distillery license.

(a) A distillery license authorizes the holder to operate a distillery where alcoholic beverages are distilled and bottled or barreled for sale.

(b) A distillery license authorizes the holder to sell alcoholic beverages in

(1) quantities of not more than one gallon a day to a person who is present on the licensed premises for consumption off the premises;

(2) any amount to a person who is licensed under this title or in another state or country.

(c) The biennial distillery license fee is $1,000.

(d) The holder of a distillery license may permit a person to sample small portions of the distillery’s product free of charge unless prohibited by AS 04.16.030.

(e) Unless prohibited by AS 04.16.030, a holder of a distillery license may sell not more than three ounces a day of the distillery’s product to a person for consumption on the premises if

(1) the distillery does not allow live entertainment, televisions, pool tables, dart games, dancing, electronic or other games, game tables, or other recreational or gaming opportunities on the premises where the consumption occurs;

(2) the distillery does not provide seats at the counter or bar where the product is served; and

(3) the room where the consumption occurs is not open before 9:00 a.m. and serving of the product ends not later than 8:00 p.m.

 

Her argument centers on the fact the statutes say “the distillery’s product” in reference to tasting rooms. While this term is actually never defined, she feels it means our pure product with no mixing is allowed. I.e. she says it must be read with an implicit “and nothing else”.

Well that is certainly disputable in my opinion. My plain reading to mean that we can sell up to 3 oz of alcohol per person. The fact that non-alcohol mixers aren’t mentioned doesn’t mean that they are forbidden.

In fact the AAG confirmed many times that the Board has no statutory authority over anything but alcohol. She claims authority over the way alcohol is served. This becomes a pretty strange place to draw the line, which leads me to the next point.

A plain reading of (a) and (b) above clearly refer to “alcoholic beverages” as distilled spirits bottled for sale. Yet in the bar license statutes the only reference to any sort of drink uses that exact term. Yet bars are clearly expected to sell mixed drinks, beer and wine.

My point is that the language of the statutes is not used in a consistent way, nor are many important terms clearly defined. Despite this, the AAG would have us believe that her “plain reading” is the only way that statutes can be interpreted.

In the end half of the Board appeared to agree with her and half did not.

 

Legislative Intent

After the memo was sent out, I and others contacted many State legislators. The response was overwhelming in our favor, and mostly sounded like this:

  1. The ABC Board doesn’t have statutory authority over non-alcohol issues, and shouldn’t be attempting to regulate this, and
  2. “We can assure you there has been no misinterpretation of the statute by the distillers and they are acting in accordance with the Legislature’s intentions. Considering that many of the products sold by the distillers are intended to be mixed with other ingredients before consumption, it was assumed any sales or free samples would likely be mixed with other ingredients as well.”

That second was from a letter signed by eight legislators. The statues (HB309) was passed in 2014.

The AAG took the position that the letter has no legal weight and must not be taken into consideration by the Board. I can’t say what legal weight it has, but I’m guessing it should carry a lot more than the opinion of the AAG.

The AAG repeatedly stated that the statutes don’t mention mixed drinks. Nor are they mentioned specifically anywhere else in the paperwork that she has chosen to review. My answer to that is, “so what?” Why would the unregulated mixers be mentioned? The statute is about how much alcohol we can sell (which is also the only thing they can regulate).

In the signing ceremony for HB309 (the above quoted statutes) mixed drinks were provided by Alaskan distillers to all participants and consumed without question. A previous Director is reported to have been served a mixed drink in one tasting room.

The following paragraph is from a letter from the Director on behalf of the Board:

Finally, please note that the Board takes seriously their statutory duty to “adopt regulations governing the manufacture, barter, sale, consumption, and possession of alcoholic beverages in the state that are consistent with this title and necessary to carry out the purpose of this title in a manner that will protect the public health, safety, and welfare.”

So how does attempting to regulate mixed drinks uphold the mission to protect health, safety and welfare? It doesn’t, but it brings up my next issue.

 

Protecting Investments

This whole issue came up because of complaints from a bar about the distillery next door. It is really about competition, and the ruling is made to favor bars.

According to the sponsor’s statement that accompanied HB309:

“…The ability to retail in-house allows a distillery to subsidize a visitor-friendly gift shop or hospitality room and increases the marketability of tours. This will help promote Alaskan-made products and enable this new local industry to compete with imported goods.”

This is very important. The cost of production in Alaska is very high, distilleries are small, and when we sell bottles through a distributor we keep less than half the shelf price and foot all the fixed costs like rent and heat and raw materials. The tasting rooms were created by HB309 to allow limited sales to offset the cost of production.

But the complaint is that we are in competition with bars. My answer to that is yes, that is only natural. We sell the same products as bars so competition is inherent. The same goes for brew pubs, bowling alleys, and some restaurants.

The fact is that times change, and so do tastes. Our customers largely aren’t drawn from people who spend time in bars. Distillery tasting rooms are clean, comfortable environment where someone can try some artisanal cocktails at reasonable prices and check out a distillery! Tourists love it. We have our own search category (along with breweries) on most tourist information sites.

But I digress. The point is that it isn’t up to the Board to regulate the prices of licenses or protect anyone’s investment. Nothing about the recent actions has anything to do with “…protect[ing] the public health, safety, and welfare.”

Further, if they are trying to protect bar license investments, why are they not equally concerned with my investment? Why are they picking favorites? I have paid a lot more than the cost of a license to set up my distillery.

 

De Facto Bars

We have been accused to using a distillery license as a de facto bar license. Bar licenses are expensive only in that there are a limited number of them available so the only way to get one is to buy it from someone who already owns one. I keep hearing numbers like $200,000 and above. Like anything, the value goes up and down.

The Sponsor’s Statement referred to earlier addresses this clearly (it references sections(d) and (e) in the statutes quoted above):

(d) Allow distillers to give samples free of charge.

(e) Allow distillers to sell three ounces of product or less for consumption on the premises. This

subsection also lays out provisions to ensure that distilleries cannot act as de facto bars.

The statute is intended to let us sell 3 oz of alcohol, with restrictions so that we aren’t de facto bars. The restrictions are: we have to close at 8:00 PM, we can’t have stools at the bar, we can’t have pool or darts or television, nor live entertainment or dancing.

We actually like our restrictions, and so do most of our customers. Our tasting room is a completely different environment than most bars. I like being able to go home early.

I like that no one gets drunk in my establishment. Our customers feel the same. Our online following is overwhelmingly (70-80%) female and our safe environment is referred to in many of our reviews.

 

Impacts

If the statutes end up being followed according to the AAG’s plain reading, Alaskan distillers will be limited to selling shots of neat liquor and nothing else. By my projections, that will bring a 100% drop in tasting room sales.

That will directly and massively increase per-bottle production costs, pricing me right out of the market. Relatively few bottles of over $30 vodka get sold in the whole state.

I predict that where nine or ten manufacturing facilities are now budding, there will be maybe one left within a year of closing the tasting rooms. Make no mistake- that is what this “shots only” action will do.

The effects will be felt down the line by our employees, the Alaskan farmers who grow our grain, the Alaskan farmers that take our spent grain for animal feed at no cost to them. It takes away one of the tourism draws that is part of the local variety that makes our city a destination of choice.

Furthermore, it curtails any potential export sales. Distilleries are better positioned to sell our products out of state (or even out of country) better than almost any other value-added product. The Alaskan name carries a lot of weight and romantic appeal. We distillers are in an optimal position to capitalize on that, or would be if we were allowed to have a chance.

 

Brand Building

The ABC Board appears to be pushing for distilleries to be manufacturers only. To make our products and then be subject to the whims of the antiquated 3-tier system of distribution. Proposed legislation calls for 80% of an Alaskan distillery’s sales to be wholesale. Wholesale sales do not come automatically. There is a lot of brand building that goes into being able to distribute a new product and get people to buy it.

I opened my distillery about nine months ago. I have recently begun to sell to a distributor who is making my vodka available statewide. My biggest hurdle at the moment is getting customers to know my vodka and ask for it by name. To do that, I have to make it available in bars, restaurants, and liquor stores. I have to get people to try it and taste the quality.

Then I have to get those sellers to promote my brand so that people notice it. Maybe use it in some specials. I have to pay for a lot of the promotion and advertising as well. These things all take time and a lot of ongoing effort. As the brand name gets more and more known, then I might hope for wholesale sales to bloom.

The tasting room is a critical component in brand building. It not only allows me to offset some fixed costs, but it also is the showcase for my vodka. This is ground zero in my brand building strategy. It is sine qua non that potential customers be able to try our vodka in the manner of their preference.

In the US vodka is drunk in mixed drinks in almost every case. It is essential that the customer try my vodka in a cocktail that he or she knows well, or to be able to suggest something special that they might enjoy.

 

Conclusion

The Board, or at least two members of it, got wound up in a bunch of semantic discussion around the plain reading of the statute. Since the language used in the statute isn’t defined and is vague, that amounted to trying to split hairs with a baseball bat. Discussion became muddled.

Our current solution isn’t making anyone happy. I’m not happy because my tasting room menu is ridiculously complicated and I waste a lot of time doing things like making my own tonic water. The bars can’t be happy because I am still serving mixed drinks. The City is getting a smaller tax cut since I am selling a lot of shots (taxable) and virgin chasers (not taxable).

So now everyone is unhappy and the problem still exists. I suggest that we focus on the problem and potential solutions that actually solve it.

The problem isn’t that we are de facto bars and unfair competition to the actual bars. We aren’t, but we are operating as intended.

The problem isn’t mixed drinks. Those were always intended from the conception of the tasting room statutes.

The problem is that the bars are worried that a bunch of distilleries could spring up, each with its own tasting room. This isn’t really as big a problem as they imply, but theoretically that is possible.

The limit on the number of distilleries in Alaska is set by population (the same way bars limited). There are a few towns that are small enough that they are limited out already with one distillery. Others could have many more. If it is one license per 3,000 population, then the City of Fairbanks could have a bunch. So could Juneau. Anchorage could be overrun.

But that number was set in a fairly arbitrary manner. What if it were changed to 1 per 5,000? Or 1 per 10,000? Then the option of bunches more popping up goes away. Then the threat to bars is capped, but consumers still have lots of nice options.

I don’t know how you decide on the number, but at least this solution solves the problem. All this flailing around trying to impose ludicrous rules on tasting rooms has so far utterly failed. If it ever does succeed it will be the beginning of the slow death of a new Alaskan industry that had a lot of promise

Vodka made by hand in Fairbanks, AK