Business & Professions Subcommittee — Meeting Packet: Florida's Alcoholic Beverage Laws (October 16, 2019)
Summary
Meeting packet for the Business & Professions Subcommittee of the Florida House of Representatives Commerce Committee, Wednesday, October 16, 2019, in Webster Hall (212 Knott), chaired by Heather Fitzenhagen with Jose Oliva as Speaker. The agenda is a discussion of Florida's Alcoholic Beverage Laws. A Division of Alcoholic Beverages and Tobacco presentation says that in FY 18-19 the Division administered approximately 50,000 alcoholic beverage licenses, collected over $300,000,000 in excise tax and performed over 52,000 alcoholic beverage and tobacco inspections. Pamela S. Erickson, President/CEO of Public Action Management, presents The Alcohol Regulation Dilemma, and a craft beer deck by Josh Aubuchon covers franchise reform and self-distribution.
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Business & Professions Subcommittee
Wednesday, October 16, 2019
12:30 AM - 2:30 PM
Webster Hall (212 Knott)
Meeting Packet
Jose Oliva Heather Fitzenhagen
Speaker Chair
Committee Meeting Notice
HOUSE OF REPRESENTATIVES
Business & Professions Subcommittee
Start Date and Time: Wednesday, October 16, 2019 12:30 pm
End Date and Time: Wednesday, October 16, 2019 02:30 pm
Location: Webster Hall (212 Knott)
Duration: 2.00 hrs
Discussion of Florida's Alcoholic Beverage Laws
NOTICE FINALIZED on 10/09/2019 3:45PM by Rigas.Amanda
10/ 09/ 2019 3:45 :06PM Leagis ® Page 1 of 1
The Florida House of Representatives
Commerce Committee
Business & Professions Subcommittee
Jose Oliva Heather Fitzenhagen
Speaker Chair
AGENDA
Wednesday, October 16, 2019
Webster Hall (212 Knott)
12:30 PM - 2:30 PM
I. Call to Order & Roll Call
II. Welcoming Remarks
III. Discussion of Florida's Alcoholic Beverage Laws
IV. Adjournment
303 House Office Building, 402 South Monroe Street, Tallahassee, Florida 32399-1300
(850) 717-4873 Fax: (850) 413-0419
Alcohol Regulation in Florida
Alcohol Regulation in Florida
Division of Alcoholic Beverages and Tobacco
House Business and Professions Subcommittee
October 16, 2019
do~r
lorida
De artment of Business
&~ofessional Regulation
Introduction
• Division Overview
• Beverage Regulation in Florida
• Licensing Information
• Excise Tax Collection
• Compliance Activities
• Revenue Distribution
do~r
lorida
De rtment of Business
&~fessional Regulation 2
Division Overview
The Division of Alcoholic Beverages and Tobacco licenses the
manufacture, distribution, sale and service of alcoholic beverage
and tobacco products in Florida.
Licensing Auditing Enforcement
• Processing license • Collecting and • Conducting routine
applications and auditing of the compliance
renewals. excise tax due to inspections.
the state.
• Verifying an • Conducting minimum
applicant's • Conducting age of purchase
qualifications for compliance audits surveys.
licensure under the to ensure
Beverage Law and compliance with • Conducting criminal
chapters 210 and 569, special licensing and administrative
Florida Statutes. requirements. investigations.
49 FTE Positions 84 FTE Positions 188 FTE Positions
do~r
londa
De rtment of Business
&~fessional Regulation 3
Beverage Regulation in Florida
Florida is a Licensing State
• Predominant regulatory model
• The State of Florida is not in the business of distributing or selling
alcoholic beverages.
Florida's Beverage Law Creates a Three-Tier Licensing System
• Originated from efforts to prevent pre-Prohibition practices that
caused a proliferation of manufacturer-controlled saloons with
aggressive marketing tactics, commonly referred to as "tied
houses."
• The term "tied house" comes from a practice in England where a
bar is "tied," by ownership links or contractual obligations, to a
specific manufacturer.
• Tied house legislation was intended to prevent vertical integration of
ownership and, in turn , prevent intemperate consumption.
do~r
londa
De rtment of Business
&~fessiona\ Regulation 4
Beverage Regulation in Florida
Prohibitions on Tied House Evil
• No manufacturer, distributor, importer, primary American source of supply, brand owner
or registrant, broker, sales agent, or sales person shall have any financial interest, directly
or indirectly, in the establishment or business of any vendor licensed under the Beverage
Law, nor assist any vendor by any gifts or loans of money or property of any description
or by the giving of any rebates of any kind whatsoever.
• No licensed vendor shall accept, directly or indirectly, any gift or loan of money or
property of any description or any rebates from any such manufacturer, distributor,
importer, primary American source of supply, brand owner or brand registrant, or any
broker, sales agent, or sales person thereof.
• Industry members are prohibited from furnishing, supplying, giving, renting, or lending, to
a vendor, any equipment, fixtures, furniture, furnishings, signs, supplies, credit, money,
compensation, rebates, accumulated rebates, fees of any kind including slotting fees,
services, property, or other thing of value of any description not included in the
exceptions specified by rule or specifically authorized by statutes to vendors or their
employees or agents acting within their scope of employment. Vendors are similarly
prohibited from accepting such
do~r
lorida
De rtment of Business
& tfessional Regulation 5
Beverage Regulation in Florida
Exceptions to Three-Tier System
• Licensing of manufacturers and distributors as vendors and of vendors as manufacturers;
conditions and limitations.
Manufacturers of Wine:
Authorized to own, manage, operate, or control no more than three vendor's licenses
in the state.
Manufacturers of Malt Beverages:
Authorized for up to (8) eight vendor licenses at a brewery /vendor properties
consisting of a single complex divided by no more than one public street or highway
Authorized to transfer malt beverages to a licensed facility in an amount up to the
yearly production at the receiving facility (subject to limitations in law).
• Distilleries and craft distilleries
Craft Distillery (Manufacturer of Distilled Spirits Producing 75,000 or fewer gallons per
calendar year):
Authorized to sell to consumers, at its souvenir gift shop, branded products distilled on
its premises in factory-sealed containers that are filled at the distillery for off-premises
consumption
do~r
lorida
De artment of Business
& ~ofessional Regulation 6
Beverage Regulation in Florida
Local Government Authority
• The Florida Constitution states that the status of a county with respect thereto shall be
changed only by vote of the electors in a special election called upon the petition of
twenty-five per cent of the electors of the county, and not sooner than two years after
an earlier election on the same question . Where legal, the sale of intoxicating liquors,
wines and beers shall be regulated by law.
• The standards and procedures for local option elections are established in Chapter 567,
Florida Statutes.
• Nothing contained in the Beverage Law shall be construed to affect or impair the power
or right of any county or incorporated municipality of the state to enact ordinances
regulating hours of business, location of place of business, sanitary regulations, type of
entertainment and conduct permitted (consumption on premises) of any licensee under
the Beverage Law within the county or corporate limits of such municipality.
• No tax on the manufacture, distribution, exportation, transportation, importation, or sale
of such beverages shall be imposed by way of license, excise, or otherwise by any
municipality, anything in any municipal charter or special or general law to the contrary
notwithstanding. However, a portion of state license tax revenue is returned to the
county or incorporated municipality where collected.
do~r
londa
De rtment of Business
&~fessional Regulation 7
Licensing Information
In FY 18- 19, the Division
administered approximately
50,000 alcoholic beverage
licenses, with a staff of 49 Tier Annual Fee Number of
dedicated Bureau of Licensing Range Licensees
employees across 11 district
offices. Manufacturer $500~$4000 453
In FYl 8-19, the Division collected Distributor $1 000-$4000 904
approximately $46,000,000 in
fees for the issuance or renewal
Vendor $25-$2500 48,926
of alcoholic beverage licenses
or permits. Licenses are
renewed annually. FY 2018-19 Growth Points:
Licenses are categorized by tier,
then further categorized, in most • 13% Increase in Malt Beverage
instances, depending on their Manufacturer Licenses
particular business model.
Licensing fees are generally • 16 % Increase in Distilled Spirits
based on the scope of the Manufacturer Licenses
activities permitted and the
population of the county where
the license is located.
do~r
londa
- De rtment of Business
&~fess1onal Regulation 8
Licensing Information
Quota Limitations on Liquor Licenses
Section 561.20(1 ), F.S., limits the number of licenses authorized for the
sale of liquor - by the package or for consumption on the premises -
to:
1 License Per 7,500 Residents (by county)*
Limitation by population does not apply to numerous specia.l license
types, including:
Hotels/ Motels Civic Center/Sports Arena
Condominium Performing Arts Center
Food Service Establishment Golf Clubs
Caterer Tennis Clubs
Culinary Education Program Fraternal Associations
Public Fair/Expo and others ....
do~r
lorida
De rtment of Business
&~fessional Regulation 9
Licensing Information
Quota Limitations on Liquor Licenses
Section 561.19, F.S., governs procedures for issuance of new licenses when
determined to be available by increases in county population:
1 License Per 7,500 Residents (by county)*
Based on Population Estimates supplied by
Office of Economic and Demographic Research
Annual Entry Period - 45 days beginning on the third Monday in August
One entry per interested party per county - $100 fee per entry
2019 Drawing Entry Period
More than 24,000 entries for 51 quota beverage licenses in 27 counties.
Drawing date to be announced upon final validation of entries.
do~r
londa
De rtment of Business
&~fessional Regulation 10
Excise Tax Collection
Tax is collected at intervals of one
month, on or before the 1Oth of each Beer Wine Liquor
month, and the tax payment is
accompanied by the statutorily $0.06 Less than $2.25
Pints or Less per
required report of alcoholic each 17.259% ABV*
Gallon
beverages manufactured, sold,
imported or exported. $3.00
$0.12 17.259% 11.259% to 11 S6.5o
Quarts per 55.780% II per
each or more Gallon ABV* Gallon
Tax rates are dependent on the type
of alcoholic beverage being sold .
$0.48 Natural $3.50
Gallons per
each Sparkling
Tax is generally assessed on the Gallon
distributor tier at the time the
alcoholic beverages are sold to *ABV: Alcohol by Volume
$0.89
vendors for the purpose of retail sale, Cider per
unless otherwise specified by statute Gallon
to be assessed on a manufacturer.
In FYl 8-19, the Division collected over The Division maintains an electronic report filing
system .
$300,000,000 in excise tax on
alcoholic beverages, with a staff of 84
dedicated Bureau of Auditing • Approximately 90% of tax remitting licensees are
employees across 6 district offices. currently reporting electronically
do~r
lorida
De rtment of Business
& ~fessional Regulation 11
Compliance Activities
In FY 18-19, the Division performed over 52,000 alcoholic beverage and tobacco
inspections, with a staff of 188 dedicated Bureau of Enforcement employees
across 12 district offices.
• 107 FTE positions are sworn, and 81 FTE positions are non-sworn.
• Routine compliance inspections resulted in an approximately 64%
compliance rate at the time of inspection.
In FYl 8-19, the Division performed over 3,300 alcoholic beverage compliance
surveys to determine whether licensees were complying with minimum age of
purchase restrictions in Florida law.
Nearly 89% of the alcohol-related compliance surveys resulted in vendor
compliance.
do~r
londa
, De rtment of Business
&~fessional Regulation 12
Revenue Distribution
/
Alcoholic Beverage License Fees:
8 % Service Charge to General Revenue, after payment the balance is distributed as follows:
• 38% of each license fee to the city where the license is physically located;
• 24 % of each license fee to the county where the license is located; and
• The remaining balance to the ABT Trust Fund .
Catering (13CT) License Fees:
First $300,000 in fees collected is deposited in the DCF Operations and Maintenance Trust Fund to be used only
for alcohol and drug abuse education, treatment, and prevention programs;
All fees in excess of the initial $300,000 collected is deposited in the Hotel and Restaurant Trust Fund .
New Quota License Fee:
• $10,750 fee deposited in DCF Operations and Maintenance Trust Fund to be used only for alcohol and drug
abuse education, treatment, and prevention programs.
Alcoholic Beverage Excise taxes:
• 2% of the excise taxes on alcoholic beverages and the tax on alcoholic beverages, cigarettes , and other
tobacco products for passenger vessels is deposited in the ABT Trust Fund to meet the division 's appropriation
for the state fiscal year;
• 50% of excise tax on domestic wine is transferred to the Department of Agriculture's Viticulture program;
• The remainder of the excise taxes collected on alcoholic beverages and for passenger vessels are deposited
into the General Revenue Fund.
The unencumbered balance in the ABT Trust Fund at the close of each fiscal year may not exceed $2 million. These funds
shall be held in reserve for use in the event that trust fund revenues are unable to meet the division's appropriation for the
next fiscal year. Any unencumbered funds in excess of reserve funds shall be transferred unallocated to the General
. Revenue Fund by August 31 of the next fiscal year.
dofi:)r
londa
De rtment of Business
&~fessional Regulation 13
Department of Business
& Professional Regulation
Contact Information
Gabe Peters
Legislative Affairs Director
gabe.peters@myfloridalicense.com
850-487-4827
do~r
londa
De artment of Business
& ~ofessional Regulation 14
The Alcohol Regulation Dilemma
The Alcohol Regulation Dilemma:
Maintaining Public Health and Safety as
the Overarching Priority While
Accommodating Business Needs
Pamela S. Erickson, President/CEO Public Action Management and former Director of the
Oregon Liquor Control Commission
Before the Business and Professions Subcommittee, Commerce Committee, Florida House of
Representatives, Tallahassee, Florida.
October 16, 2019
Alcohol regulation is a difficult and
complex task.
~ To regulate a product that is potentially dangerous, your
regulations must be tight enough to curtail practices that
can increase harm, but loose enough to allow large and
small businesses to be profitable.
~ Enforcement is key to ensuring that regulations will be
effective in ensuring public health and safety.
~ The best regulatory systems, according to the World
Health Association, are those that use scientific evidence
" ... and multiple policies are implemented in a systematic
way. Complementary system strategies that seek to
restructure the total drinking environment are more likely
to be effective than single strategies."
~ Measures should be in place to prevent local markets
from domination of large, out-of-state businesses. A brief
history lesson will help explain this.
U.S. alcohol regulation was designed to prevent the market conditions
which created major public health and safety issues before
Prohibition.
~ Before Prohibition, national alcohol
companies dominated sales in local markets
by owning saloons which was the only place
alcohol was usually sold.
~ 70% ·were vertically integrated Tied Houses
and they saturated local communities.
~ They used aggressive sales, inducements,
and illegal activity to boost sales. Often
workers would "drink up their pay check"
leaving the family in dire straits.
~ These companies were "absentee owners"
who took profits out of state and cared little
about community problems they
engendered.
When states were given the primary responsibility for alcohol
regulation via the 2ist Amendment, the objectives were designed to
prevent both local market domination by large companies as well as
curtailing business practices which promote over-consumption.
.... Because corporations are made up of investors, the priority is invariably
The problem of the "absentee
profits, not public health and safety. Therefore, some regulations were
designed to reduce the adverse impacts of "the profit motive" such as owner" (Justice William 0. Douglas
price wars, incentives to consume in high volume. comment):
.... Reduce the opportunity for local market domination by preventing
"vertical integration" or financial arrangements which tied manufacturers
to retailers .
.,.. Curtail public order problems created by saloons by outlet density
restrictions, limits on days/hours of sale and measures to encourage less
drinking in public .
.,.. Greater restrictions on high alcohol content products; make "lighter "Local leadership is diluted. He who
alcohol content" products more widely available. By making light beer
more available, it encouraged the drinking public to consume less potent was a leader in the village becomes
products. dependent on outsiders for his action
and policy." (Standard Oil Co. v. U.S.,
.,.. These things worked and they still work today although there are efforts to 337 U.S. 293 (1949)
tear the system down and allow alcohol to be sold in a " free market. "
.,.. Most of these measures have now been confirmed to be effective based
on the results of credible research .
The U.S. alcohol regulatory system is organized into three tiers with
various requirements for each tier to be independent. All states and
the federal government have similar systems.
Three tier laws prevent a form of monopoly known
as vertical integration by prohibiting ownership, financial
dependence, exclusive arrangements between tiers .
Trade practice laws provide an even playing field
so small and large companies can operate . They also +
increase competition since products are not pushed on
customers, but succeed if the customer likes them. Distributors/
Examples of trade practice laws are those that
prohibit financial ties, exclusive contracts, commercial The
3-Tier
.- +
Wholesalers
b ribery and consignment sales . (Many of these
practices are legal in other countries and in the U.S. for Regulatory
other commodities.) System
Each tier has tax collection duties (federal tax,
state excise tax and sales tax) and the middle tier tracks
all bottles and cans allowing for safe products and rapid
recall when necessary.
But does alcohol regulation really work? We only
need to look at the UK to see what can happen
when alcohol is deregulated.
lill- At one time, the UK had a model regulatory system. But, they
deregulated over 50-60 years.
lill- Big box grocery chains are "vertically integrated" and
dominate local markets with cheap alcohol available 24 hours
a day, 7 seven days a week.
lill- The UK experienced a major increase in consumption and
"out-of-control" bar sales that reached epidemic proportions
with high rates of underage drinking, public drunkenness and
over 1 million alcohol related hospital admissions.
lill- Three of the four recent prime ministers have proposed a major
strategy to address this issue only to be thwarted by a strong
industry that opposes the population-based "strong strategies"
preferring "personal responsibility" measures.
Strong policies make a difference
according to the first study of multiple
policies.
IJll> Dr. Tim Naimi, Boston University, and
colleagues created an alcohol policy
score and ranked each state based
on their policies.
IJl > "We found that states with stronger
and more effective alcohol policies
had less binge drinking than states
with weaker alcohol policies."
The Public is With You!!!
A recent survey indicates high levels of support for alcohol regulation. When asked
about setting alcohol policies, the results show a strong priority for public health
and safety. Source: Center for Alcohol Policy 2017 survey.
- .
8.3
The question: "As you R~duc ing drunk driving -
may know, states do
Protecting health and public --~ 7% 8.1
safety
regu late alcohol by
crafting ru les that are
0%
. underage drinking - ______ ·_.
7.4
unique to their state . Reducing
Sometimes changes are Encouraging moderation
- ~62%
considered. The fo llowing 7.1
is a list of co ncerns some 2%
people say that Creating more jobs* 6.8
lawmakers should 8%
consider when se tting Increasing economic development/\ % 6 .5
alcohol regulations. Using 2
a scale of Oto 10, p lease
indicate how important
Giving consumers more c hoices 8% 5.4
each of these
considerations should be Lowering prices for alcohol 2% 4.7
when de c iding a lcohol
regulations: 10 is very *N=538
462
Allowing more busin esses to produce % 49
important, 0 is not at all " N= and sell alcoholic products 9 ·
important and 5 is a
neutral rating."
~ The US alcohol manufacturing sector has experienced a gargantuan change: In 1961 there were
230 breweries in the US, now we have over 7,000 plus over 9,000 wineries and 1500 distilleries. The
vas t majority are tiny operations.
~ Small suppliers want to operate outside the three-tiered system to retail their product and self-
distribute. Many states have allowed exemptions, but only for small operators (based on volume
produced). This requires a separate tax collection process, different types of licenses , new
enforcement tasks, and does not result in tracking products.
~ Some states have granted small suppliers retail privileges that include food and beverage service
without the requirements placed on regular on-premise licensees. In states where licenses are
bought and sold, on-premise licensees have raised the issue of financial unfairness.
~ More states and local jurisdictions are granting more alcohol licenses, some in non-traditional
locations, as more businesses want more profits. Yet, at the macro level there is no new demand
for alcoholic beverages. According to economist, Lester Jones, "The pie is not growing, just
shared across more occasions, more outlets and more products." This presents potential public
safety problems as research has shown a relationship between high outlet density and problems.
In addition, it dilutes enforcement resources .
~ There is a demand for home delivery of alcohol by small suppliers, by large chain liquor
companies and by connoisseurs of fine wine. Many states allow home delivery, especially for
wine ... but th ere seems to be a general lack of compliance with requirements . Enforcement of
safe-guards for home delivery are very difficult to enforce.
Ill> Remember that public health and safety is the priority when considering changes to
alcohol regulation . The deaths, injuries and social problems affect a substantial portion of
Florida's citizens.
Ill> Your effort to invite prevention and public health officials to brief you periodically on
progress with alcohol problems should continue. Prevention programs have been
successful in reducing underage drinking and drunk driving and should be continued and
strengthened.
Ill> Businesses of all sizes need to be able to operate profitably, yet not contribute to alcohol
involved harms. To strike the right balance, the current system curtails the chances for
local market domination and bans/limits business practices which can lead to abuse.
These benefits are worth maintaining.
Ill> Go slow when considering marketplace regulation changes as it is very hard to predict
the impact and reversing the change is extremely difficult. It is also important to consider
the harm that might occur for current licensees and the needs for effective enforcement.
or more information: contact Pamela Erickson,
pam@pamaction.com or visit website
www.healthyalcoholmarket.com.
Website has:
• Monthly newsletter, educational pieces,
PowerPoint presentations from conferences.
(These are free!)
.._ Recent reports available: "Special Rules for
Small Brewers, Wineries and Distillers" and
"Fair Trade Practice Regulations." (Free
download)
.._ Issue Briefs has simple explanations of alcohol
regulatory issues as well as citations for
research and more information.
Economics Perspectives on
Alcohol Beverage Industry
Economics Perspectives on
Alcohol Beverage Industry
Lester Jones
Chief Economist
National Beer Wholesalers Association
Alexandria, Virginia
Market Availability of Brands In
One Single Florida Retailer
• Beer • Wine • Spirits
Source: FBWA and NBWA, 2019
Alcohol Permits Grow Across All Segments
Total U.S. 2010 to 2018
Brewery Permits Distillery Permits
11,000 3,500
10,000
9,000 3,000
8,000 2,500
7,000
6,000 2,000
5,000 1,500
4,000
I I
3,000 1,000
I II I I I
2,000
500
1,000
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
Winery Permits Total Permits
16,000 30,000
14,000
25,000
12,000
10,000 20,000
8,000 15,000
6,000
I I II
10,000
4,000
2,000 5,000
0 0
•
2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: NBWA and U.S. TTB, 2019
610Z
810Z
L10Z
910Z
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TTB Permitted Brewery Count
10,887 Total Permits June 2019
State Count State Count State Count
Alabama 55 Kentucky 86 North Dakota 26
Alaska 51 Louisiana 47 Ohio 377
Arizona 146 Maine 165 Oklahoma 55
Arkansas 53 Maryland 141 Oregon 386
California 1,236 Massachusetts 230 Pennsylvania 472
Colorado 500 Michigan 510 Rhode Island 33
Connecticut 124 Minnesota 239 South Carolina 94
Delaware 38 Mississippi 19 South Dakota 35
DC 13 Missouri 168 Tennessee 140
-
lorida 386 ]Montana 108 Texas 387
Georgia 121 Nebraska 60 Utah 46
Hawaii 38 Nevada 50 Vermont 90
Idaho 87 New Hampshire 106 Virginia 328
Illinois 338 New Jersey 146 Washington 540
Indiana 234 New Mexico 124 West Virginia 32
Iowa 125 New York 532 Wisconsin 303
Kansas 64 North Carolina 387 Wyoming 44
Source : NBWA and TTB, 2019.
More Suppliers, More Places, More Products
2010 vs 2018
Permitted Alcohol Suppliers Count of Alcohol Retailers Count Label Approvals
30,000 700
VI 350
26,681
-
""O
645 c 298
25,000 650 ~ 300
::J
0
..c
-- 600 - I- 250
-
20,000
200
550 536
15,000
-
150
500
10,000
100
5,000
0
••
450
400
••
• 2010 • 2018
so
0
• 2010 • 2018
• 2010 • 2018
Source: U.S. TTB Source: TDLinks™ Source: U.S. TTB
•
US Demographics
Legal Drinking Age Adults (21 +ILDA)
Total Legal Drinking Age Adults LDA Share of Total Population
245 74.0%
240 73 .5%
235 - -
·•··•- •. 73.0%
=
~
Vl
c
0
230 ·-.. ... • 72.5%
225 1.- 1-1-1 I I I 72 .0%
220 71.5%
215 71.0%
210 70.5%
0 .-I N ('(') o::t" LI') \.D r-,.. 00 0 .-I N ('(') o::t" LI') \.D r-,.. 00
.-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I .-I
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
N N N N N N N N N N N N N N N N N N
US Fertility Rates Have Plummeted Into Uncharted Territory. 60.2 babies were born in 2017 for every 1,000
women of 'childbearing' age (15-44) - a low not seen in the US since officials began charting.
Source: Compiled by NBWA from U.S. Census Bureau 2018
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2018
2019
Growth in ABV for Beer and Liquor
2010 vs 2017
Average Weighted ABV Beer Average Weighted ABV Liquor
4.72 38.6
4.70
38.4
4.68
4.66 38.2
4.64
38.0
4.62
4.60 37.8
4.58
37.6
4.56
4.54 37.4
2010 2017/18 2010 2017
Source: NBWA, Industry Affairs - Calculated on average weighted ABV across top 100/150 brands
Total U.S. Ethanol Per Capita
2010 to 2018
3.0
@
<C 2.0
0
.....J
~
Q)
Cl.. 1.5
Vl
c
0
l9 1.0
1.34 1.3 1] 1.31 1.30 1.30 1.30 1.29 1.26 1.25
0.5
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Beer • Wine
Source: Compiled by NBWA from TIB, Discus and BIG, 2019 (2018 wine volume s estimated by NBWA) BB
Florida Ethanol Per Ca pita
2010 to 2018
3.0
2.8
2.5
2.3
<C 2.0
0
_J
~
18
.
QJ
~ 1.5
c
0 1.3
ro
l9 1.0
0.8
0.5
0.3
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018
Beer • Spirits • Wine
Source: Compiled by NBWA from Beer Institute, Discus and BIG, 2017
Texas vs Colorado
Total Per Capita Ethanol Consumption
Texas (TABC) Colorado (Dept of Revenue)
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
• Beer • Ale • Liquor • Wine • 3.2 Beer • Repeal Beer • Cider • Liquor • Wine
&IH
2018 Economic Impacts
Florida Beer, Wine and Spirits Industries
Florida Jobs Wages Output/Impact
Direct Impact 170, 771 $5.426 Billion $14.549 Billion
Supplier Impact 55,834 $3.936 Billion $14.540 Billion
Induced (multiplier) 87,142 $3.936 Billion $12.540 Billion
Total Impacts 313,747 $3.673 Billion $10.937 Billion
Business Taxes (Licenses, Property, FUTA, SUTA) $5.610 Billion
Consumption Taxes {FET, SET, Sales Taxes) $2.610 Billion
Source: John Dunham & Associates: New York, 2019
'
'The Current Three Tier System for Alcohol Beverages maintains an orderly and
effectively regulated market for all industry players
• More choice and variety.
• Adapting to economic and demographic change
• Provide meaningful jobs, wages and tax benefits
BR
Federal Unfair Trade Practices & the
Three-tier System
Federal Unfair Trade Practices and the
Three-tier System: Framework of a
Federal and State Partnership and 2018-
19 Investigations Approach Under the
Federal Alcohol Administration Act
Robert M. Tobiassen, President, National Association of
Beverage Importers, Inc. (NABI), Washington, DC and
Former Alcohol and Tobacco Tax and Trade Bureau Chief
Counsel, United States Treasury Department
Subcommittee on Business and Professions
Florida House of Representatives - October 16, 2019
Alcohol Beverage Law Trade Practices
The National Association of Beverage In1porters,
Inc. (NABI) was founded in 1935 and is the
leading public policy advocacy group in
Washington, DC for the importers of distilled
spirits, wine, and beer/n1alt beverages.
Men1bers of NABI operate within the traditional
three-tier systen1 and fully support that systen1
which ensures consun1ers receive authentic
brands of the alcohol beverages. NABI fully
supports enforcen1ent of unfair trade practice laws
to ensure a level playing field in the distribution of
these products.
Alcohol Beverage Law Trade Practices
Historic Perspective
And
Goals of Federal Enforcement
In Partnership With the States
Alcohol Beverage Law Trade Practices
The Historical "Why" Background?
• Prevention of the recurrences of the "social and political
evils" giving rise to Prohibition. (S. Rep. No. 1215, 74th
Cong., 1st Sess., Federal Alcohol Control Act, pages 6 -7.)
• National regulation of interstate commerce where States
were unable or limited in regulation: "(W)e must do
something to supplement legislation by the States to
carry out their own polices. The liquor industry is too
big and the constitutional and practical limitations on
the States are so considerable that they alone cannot do
the whole job." (79 Cong. Rec. 12178.)
• Public Policy Goals: Prevent excess consumption;
protect the consumer; level playing field among industry
members; and prevent monopolistic control and undue
influence over retailers (and wholesalers in the areas of
commercial bribery and consignment sales).
Alcohol Beverage Law Trade Practices
Evolution of Federal Unfair Trade Practices:
• 1840s to 1918 - Social & Political Evils
• 18th Amendment - "the manufacture, sale, or transportation
of intoxicating liquors within, the importation thereof into, or the
exportation tliereof from the United States and all the territory
subject to the jurisdiction thereof for beverage purposes is hereby
prohibited"
• Prohibition Experience (1920 - 1933)
• Repeal (21st Amendment) in December 1933
resulted in concurrent jurisdiction at Federal and
State levels
Alcohol Beverage Law Trade Practices
Evolution of Federal Unfair Trade Practices
(cont.)
• Codes of Fair Competition under National
Industrial Recovery Act (NIRA) from 1933 to 1935 -
Self- regulation by industries via Presidentially
approved Codes for wholesalers, importers,
distillers, wineries, and breweries
• NIRA declared unconstitutional in May 1935 by
Supreme Court in Schechter Poultry Corp. v. United
States, 295 U.S. 495 (1935). Reason for detailed
interstate commerce language in FAA Act.
• Federal Alcohol Administration Act in August 1935
(same month as social security enactment)
Alcohol Beverage Law Trade Practices
27 U.S.C. 201 et seq. - Key Goals of FAA Act:
~ Keep criminal element out of alcohol industry using
basic permit system (Sections 203 and 204)
O
Regulate formulation, labeling, and advertising of
alcohol beverages (Section 205(e) and (f))
O
Regulate promotional and marketing trade practices
that might lead to corruption or excessive
consumption (Sections 205 (a) through (d)
0
"Pull" and not "Push" system of consumer demand for
retailer selection of brands of alcohol beverages
Alcohol Beverage Law Trade Practices
Importance of Three-tier System
• Federal trade practice provisions under the Federal
Alcohol Administration Act and regulation of the
alcohol beverage tax paying industry under the
Internal Revenue Code of 1986 do not mandate the
three-tier system but are structured to recognize its
existence under State law.
• The absence of the three-tier system in a State
would force TIB to revamp and reorganize its
administrative, investigative, and enforcement
models.
• Each tier is a check and balance on the other.
Alcohol Beverage Law Trade Practices
The Four 'ITB Unfair Trade Practices
Exclusive Outlet
Tied-house - Our Focus Today
Commercial Bribery
Consignment Sales
Alcohol Beverage Law Trade Practices
Tied-house (27 USC 205(b) and 27 CFR Part 6).
"To induce through any of the following means:"
1. Interest in license;
2. Interest in real or personal property;
3. Furnishing, giving, renting, lending or selling any
equipment, fixtures, signs, supplies, money, services, or
other thing of value SUBJECT to regulatory exceptions
in Subpart D of Part 6 of Title 27, CFR (including
recordkeeping requirements under section 6.81(b));
4. Paying or crediting for advertising, display or
distribution service ("slotting fees");
Alcohol Beverage Law Trade Practices
5. Guaranteeing any loan or repayment of financial
obligation;
6. Extending credit in excess of usual and customary credit
period prescribed by regulations (27 CFR sections 6.65 (30
days)-6.67);
7. Quota sale ("Tie-in sales")
• Retailer
• Exclusion, in whole or in part, of products sold or offered
for sale by others in interstate or foreign commerce.
("Primary Clause")
• One of three interstate or foreign commerce
jurisdictional clauses
Alcohol Beverage Law Trade Practices
Indirect Induceinents through Third Party
Arrangeinents (Section 6.42, Tied-house; Section
8.23, Exclusive Outlet)
• Ballparks, Stadiuins, Arenas (Industry Circular
75-16 (Septeinber 22, 1975))
h ttps: / / ttb .gov/ industry_circulars /archives/ 197
5/75-16.htinl
• Las Vegas Cases TTB Press Release 11-4 (May
10, 2011)
Alcohol Beverage Law Trade Practices
Sintilar State Law (Section 205(f) often referred to
as the penultimate paragraph)- In the case of malt
beverages (beer), there must be a similar State law.
O
Similar means similar, not same or identical
O
Broad interpretation of similarity
Is there any State law that applies to alcohol
beverages under which the State could take
action based on this set of fact?
Repeal of Tied-house law by Florida would
hinder Federal enforcen1ent for n1alt beverages.
Alcohol Beverage Law Trade Practices
"In the case of malt beverages, the provisions of
subsections (a), (b), (c), and (d) shall apply to
transactions between a retailer or trade buyer in any
State and a brewer, importer, or wholesaler of malt
beverages outside such State only to the extent that
the law of such State imposes similar requirements
with respect to similar transactions between a retailer
or trade buyer in such State and a brewer, importer,
or wholesaler of malt beverages in such State, as the
case may be. In the case of malt beverages, ... "
See also, Title 27, Code of Federal Regulations,
Section 6.4(b) - for expanded application of section
205(f).
Alcohol Beverage Law Trade Practice
Current TTB Trade Practice
Investigations and Enforcement
Across the United States in
Partnership with the State
Alcohol Agencies
Alcohol Beverage Law Trade Practices
Action Forcing Event: Appropriations for FY 2017 and 2018, now extended
through Fiscal Year 2019 (September 30, 2019)
"That of the amount appropriated under this heading, $5,000,000 shall be for
the costs of programs to enforce trade practice violations of the Federal
Alcohol Administration Act, (27 U.S.C. 201 et seq."
Fiscal Year 2020 Language - Pending
Evidences strong intent of Congress in trade practice enforcement to level
playing field among industry members.
Enforcement Activities
Joint State/TTB efforts in Florida, Illinois, and California based on Press
Releases. Activities in other States at least by TTB.
Florida ''Pay to play" - https://ttb.gov/news/ttb-florida-authorities-
conduct-joint-trade-practice-investigations.shtml
Illinois "Pay to play" - https://ttb.~ov/press/press-release-fy-17-09-
illinois-auth-conduct-Joint-tp-invest.s tml
California "Consignment Sales" - https://ttb.gov/press/press-release-fy-
18-03-joint-operation.shtml
Other States - TTB is conducting joint investigations without a press
release.
Alcohol Beverage Law Trade Practices
TIB Education Efforts
Sixteen trade practice seminars held in 2018 and 2019 in eight cities around
the United States.
Themes from seminars:
• Joint investigations with State alcohol enforcement agencies are essential
component of an effective and efficient trade practice investigation,
especially State authority over retailers.
• Industry ignored previous enforcement efforts in 2009 and 2011, plus more
recent OICs
• Stronger sanctions are appropriate to get the attention of the industry
• Higher dollar value OICs and administrative action against basic permits
for suspensions. No suggestion of revocations yet
• These are "real investigations," not like a tax audit or a product integrity
investigations (e.g., label integrity)
• Cadre of Special Operations Investigators (SOis) recruited from Tobacco
Smuggling and Diversion criminal investigations.
Alcohol Beverage Law Trade Practices
Alcohol Beverage Law Trade Practices
• TTB Accepts Record $900,000 Offer in Compromise for Trade
Practice Violations
• FY-18-06
• Washington, D.C. - The Alcohol and Tobacco Tax and Trade Bureau (TTB)
has accepted a oo ooo offer in com romise from Warsteiner Im orters
Agency Inc. for alleged violations of the trade J?ractice provisions o the
Federal Alcohol Administration (FAA) Act. This is the largest single offer in
compromise for trade practice violations accepted by TTB to date.
• Warsteiner Importers Agency Inc. is alleged to have engaged in Tied House,
Commercial Bribery, and Exclusive Outlet violations that either J?laced, or
had the potential to place, the retailer's inder,endence at risk. This offer in
compromise was suomitted to settle all possible alleged violations.
• TTB remains committed to actively enforcing the trade practice provisions
of the FAA Act so that consumers can continue to enjoy a wide selection of
products and that industry members can compete for those consumers in a
fair and open marketplace.
• Please visit www.ttb.gov for additional information on prohibited trade
practices or to see this and other offers in compromise that have been
accepted.
Alcohol Beverage Law Trade Practices
TfB Accepts $325,000 Offer in Compromise for Tied House
Violations
FY-19-04
Washington, D.C. - TIE has accepted a $325,000 offer in compromise from
Elgin Beverage Co., a wholesaler in Bartlett, Illinois, for alleged violations of
the tied house provisions of the Federal Alcohol Administration Act
(FAA). This case developed out of the joint operation that TIE conducted
with the Illinois Liquor Control Commission 1n September 2017.
Specifically, TIE alleges that Elgin aided and abetted another industry
member in the use of a third party to pay retailers to carry and promote their
products to the exclusion of competing products, which gave Elgin an unfair
advantage over law-abiding competitors and ultimately limited consumer
choice,
TIE remains committed to putting an end to anti-competitive practices that
hurt law-abiding businesses and prevent consumers from enjoying a wide
selection of products.
Please visit www.ttb.gov for additional information on prohibited trade
practices or to see this and other offers in compromise that have been
accepted.
Alcohol Beverage Law Trade Practices
TTB Accepts $1.5 Million Offer in Compromise for Trade Practice Violations
FY-19-09
Washington, D.C. - TIB has accepted a $1.5 million offer in compromise from QAC,
LLC (d/b/a Eagle Brands), a wholesaler in Miami Florida, for alleged violations of
the trade practice provisions of the Federal Alcohoi Administration Act (FAA). This case
developed out of thlloint operation that TIB conducted with Special Agents from the
Florida Division of coholic Beverages and Tobacco (ABT), Miami District Office,
targeting_ alleged "pay to play" schemes in the greater Miami area. This is the largest
single offer in compromise that TIB has ever accepted, surpassing the Warsteiner case,
which also resulted from the Miami joint operation.
Specifically, TIB alleges that Eagle Brands paid retailers to carry and promote its
products to the exclusion of competing products and hid those payments as banquet
events, credit card payments for rebates, or consumer samplings. TIB also alleges that
Eagle Brands employees provided retailers with draft systems that were to be used
exclusively for Eagle Brands products.
This case serves as an example of the types of unlawful activity that TIB highlighted in
Industry Circular 2018-7. TIB remains committed to putting an end to anti-competitive
practices that hurt law-abiding businesses and prevent consumers from enjoying a wide
selection of products.
Please visit www.ttbfteov for additional information on prohibited trade practices or to
see this and other o ers in compromise that have been accepted.
Alcohol Beverage Law Trade Practices
TTB Trade Practice Investigation Results in Permit Suspension
FY-18-07 (August 23, 2018)
Washington, D.C. - On August 21, 2018, Modus Operandi Cellars, LLC, a bonded winery in
St. Helena, California, served a one day suspension of its basic permit. This latest
enforcement action clearly demonstrates TTB's determination to put an end to anti-
competitive practices that hurt law-abiding businesses and prevent consumers from enjoying
a wide selection of products.
Specifically, over the course of almost two years, Modus Operandi Cellars, LLC, engaged in
consignment sales of wine to wholesalers who were not obligated to pay for the wine until after
it had been sold to retailers. Consignment sales arrangements, like other unlawful trade
practices, are used to gain an unfair advantage over law-abiding industry members and
ultimately limit consumer choice.
The Modus Operandi Cellars, LLC, investigation was part of the joint operation that TTB
conducted with the California Department of Alcoholic Beverage Control in March 2018.
TTB remains committed to actively enforcing the trade practice provisions of the Federal
Alcohol Administration Act. TTB will continue to assess ways that enforcement actions can
encourage voluntary compliance and discourage noncomphant industry members from
treating those enforcement actions as a simple cost of doing business.
Alcohol Beverage Law Trade Practices
Thank you
Modernization in the Craft
Distilling Industry
House Business & Professions Committee
October 16, 2019
The Testimony of Robert Cassell,
Advisory Board Member-American Distilling Institute,
President-PA Distillers Guild,
Co-Founder of New Liberty Distillery,
Co-Founder-Connacht Whiskey Co. (Ireland)
Modernization in the Craft Distilling Industry
Good afternoon Representative Fitzenhagen, Representative Newton and distinguished
members of the House Business and Professions Committee.
I am grateful for the time and opportunity you have granted me to discuss the craft
segment of the Distilled Spirits Industry, and the impact of modernization on our business
models.
The manufacturing segment of the distilled spirits industry has seen exponential
growth of federally licensed distilleries in the craft segment in the last 15 years. When I
opened one of the early US craft distilleries in 2005, there were approximately 40-50
licensed facilities in the entire country. That number is now closer to the 2,000 mark and
continues to climb. The trend we are seeing mimics the same growth trajectory previous
seen in the craft beer movement. All being part of the greater trend of consumers seeking
and supporting artisanal purveyors, and the expectation of an experience at the point of
manufacture. While these trends and consumer interest abound, the capital-intensive
nature and route to markets create a unique risky challenge to a small business owner in
the spirits industry.
As part of this growth the segment is booming in job creation. Statistically, the trend
of craft distilling has also triggered a growth in Full Time Employee jobs by 50% over three
years. Approximately 66% of these jobs are created from the production facility and
tasting room staff. Statistically a craft distillery gets 34% of their total sales from direct
to consumer activity through their tasting rooms, etc. These tasting rooms have the dual
purpose of brand home, and sales channel. In this capacity it allows the business owner to
provide the consumer with a brand-centric experience in their facility. Providing the
unique platform from which to create consumer champions of your brands through
focused communication of your points of differentiation. This is an imperative marketing
tool for small craft spirits companies. At the end of the consumer experience, the business
needs the means to convert that experience to a sale. This sale represents the contribution
a distillery can bring to agricultural tourism.
The spirits industry has a proud heritage and symbiotic ties to the agricultural
industry, and on a Federal Department of Agriculture level are recognized as "agricultural
processors". The effect of the micro-distilling trend is an agricultural asset, and a key
component of the value-add supply chain. As agricultural processors, we are proving to be
an economic engine of regional agriculture. We create our product differentiation through
the feature and use of local ingredients. This results in a small farmers crop being
purchased at prices benefiting both the farmer and the distiller: defining the value add
supply chain. With the thousands of acres of crops turned into spirits, distillers are
supporting and showcasing each respective states beautiful agricultural diversity and
terroir.
Behind all of this excitement and potential lies a heavily regulated sector. Federally,
a distiller in the United States in monitored and each product vetted through a series of
submissions, standards, and testing. A federally licensed distillery is required to monitor
and report all aspects of it spirits production to the hundredth of a gallon (0.01 gallons/
37mL). All our products are dictated by the Code of Federal Regulations, subject to formula
approval through the federal government as well as label approvals. Ingredients used must
comply with US Department of Agriculture GRAS standards (Generally Recognized As Safe).
As a distilled spirits manufacturer you are required by law to submit three separate
detailed operational reports each month demonstrating your raw material usage rates,
yields, in progress inventory, finished goods inventory, and removed from bond spirits
(Taxable spirits). In short, product safety and tax liability are being continually monitored
by the federal government. Before a bottle ever gets filled or a label applied, it has been
thoroughly vetted by the Federal Government and held to well established published
standards. Upon completion of the licensing and approval processes, a distiller is now able
to bring a product to market.
A small business in the distilling industry is not much different than many other
small consumer goods businesses looking to sell their products. We look to test market our
products in a small area with minimal capital exposure, and upon success, scale the
business and our outlets and means for sales opportunities. Traditionally, that has been
the three tier means of distribution. The three tiers consist of the producer, distributor,
and retailer. This model can work, and has worked. But as with anything, times change.
Lets explore the current three-tier marketplace, from the small producers perspective.
A distributor acting as the middleman can serve many key roles to the producer.
They have sales team covering large geographic regions, buyer relationships at the retail
accounts, as well as strong logistics systems. All of this being dependent on your
distributor taking on your brands, and your means of access to that sales force. Gaining
mindshare of those sales representatives is key to scaling your business in the 3 Tier
model. Consolidation and vast portfolios has made access through the three tiers
challenging for an upstart distillery. As of Monday October 14th, Southern-Glazers Florida
segment of their website shows they carry 14,538 SKUs. The people who own and work at
that company are hard working people, but that is a lot of SKUs to take care of. They can't
support the needs of a small in state craft distiller when they have that many SKUs, most of
ground level sales people can't even keep track of that many products. The inventory levels
they need to carry to support possible sales of those SKUs are staggering. And adding
another small brand to the mix, is a nettle in the haystack but with a financial burden of
purchased inventory. Frankly, the owners of these houses are right not to focus sales
forces on a small, emerging, and unproven brands, because it makes fiscal sense for their
respective companies. Wholesalers and retailers can't afford the excess inventory of an
unproven, unknown brand. It represents one of the most common reasons for a retailer or
wholesaler to not take on a new brand. When given the option, as business owners, we
have to have to ability to make smart fiscal decisions, but decisions require options.
However, that is also more reason why existing codes need modernized to permit a proof
of concept business model before entering the three-tier marketplace.
As in any business, the ability to demonstrate a successful proof of concept is
imperative to the ultimate success of the business as well as determining the full capital
requirements to scale the business in a meaningful manner. Due to the capital required in
equipment, regulatory environment, and tax structure, the spirits industry has many
barriers to being able to demonstrate Proof of Concept. An established proof of concept
mitigates financial risk for all parties involved. It also allows a brand owner to convey to
their wholesale partner where and to whom the brand can work. Together with this
information, they can best identify the potential market share and targets for success.
This direct to consumer capability is a key sales channel for a startup company in
any industry, and the craft spirits industry is no different. In some states, like my home
state of Pennsylvania, we have been fortunate to see modernization take hold and allow for
this to be possible. We have been able to test brands and products within our brand home
before bringing to market. Not having to do workarounds of constant new label creations
but instead focusing efforts on meaningful brand elements.
As distillers and brand owner, once we have established financially sustainable
proof of concept businesses, we need the traditional 3-tier system. As mentioned earlier,
the system then provides a means to scale a brands distribution, sales, and logistics
footprint. Ultimately a distillers brand success is measured by it ability to have product
that works through the 3 tier system. All of this begins with a successful proof of concept.
In my home state of Pennsylvania we have been granted many of the liberties that
small breweries and wineries have, with some exceptions. Within my state, we call a craft
distillery a "Limited Distillery" defined as and permitted the following:
-produce and sell up to 100,000 gallons
-sell direct to consumer on site by the glass, cocktail, and bottle (9am-llpm)
-ship direct to consumer within the commonwealth via licensed carrier
-sell PA made beer & wine, by the glass
-5 satellite locations permitting us the same abilities as our Tasting Room
-limited to 50,000 gallons of sales direct to on premise
-ability to setup and sell at farmers markets
-exposition permits up to 30 days
-10 store listing, upon request
-pay a 6% sales tax, as well as 10% drink tax in Philadelphia & Allegheny counties
-all licensing capabilities are non-transferrable and contingent on the manufacture of distilled
spirits occurring on-site.
Of note, once a distillery exceeds the 100,000 gallon threshold, they lose the satellite
location right, but still maintain ability to sell direct to consumer at their brand
home/distillery. In working with the legislators, the goal of this was to allow a business
owner the runway to create a sustainable business in a proof of concept environment and
build the necessary capital to get into a 3 Tier distribution system with meaningful
consumer awareness. Our mutual goal was to create an environment to expose consumers
to our brands, tell them our story, and unique selling points. As would be standard in the
sales of any consumer product. The business's goal is to create brand champions who
would continue to buy in the regular 3 Tier marketplace.
While still emerging in years since this key legislation passed, we have seen the
fruits of our labor in Pennsylvania. By the means of quality legislation, and the industry it
created, the result was a ground swell of new skilled manufacturing and service jobs. I sit
here before you today to emphatically state we went from three to 134 licensed distilleries
in Pennsylvania in 7 years. The result was a creation of nearly a thousand new jobs, as well
as a value add to the local agricultural supply chain and tourism. As shown in the public
domain of the Pennsylvania Liquor Control Boards website, sales of distilled spirits within
the state have grown, not decreased, with the proliferation of these craft distilleries. With
the result being more tax revenue for the state and continued increased deposits into the
state's general fund.
In any debate on modernization, there is always the fear that change will be bad. As
we have demonstrated in Pennsylvania, by working with our brokers and stakeholders we
created a system that is mutually beneficial and granted the appropriate freedoms for a
business to incubate in a manner that is respectful and not taking revenue away from our
future distribution partners. Ultimately allowing a consumer to make the choice. For
example, in Pennsylvania a Limited Distillery could be exclusively an online retailer and
ship bottle by bottle to a consumer's doorstep, up to the 100,000 gallon limit. However,
that is unlikely to happen given the basic economics incurred by the consumer. While
shipping a bottle at a time is a means for us to get our unique offerings to a consumer, the
consumer is unlikely to continue purchasing in that manner due to the shipping cost
relative to the purchase price. This is not a long-term economically solid business model
for a distiller. While it permits proof of concept, a traditional retail footprint is necessary,
as this model does not permit volume due to the incremental shipping costs. It is at this
point, that fiscal sense would drive a distiller to have partners in the 3 Tier system, as
partnering with them and utilizing their robust logistics capabilities enables us to deliver a
better fully loaded price to the consumer and ultimately build a brand in the marketplace.
But it all starts with the ability to sell that first bottle, then graduating to the 3 Tier system.
The intent is not to undercut or to take business away from I view as my partners in
any state (the wholesalers, retailers, restaurants, and bars), and particularly here is Florida.
I feel this could turn into positive opportunity for the state to demonstrate its forward
direction and modernization of liquor code as it pertains to the manufacture and retail
sales of distilled spirits. Selling on site is a privilege and responsibility, which we take
seriously. As a distilled spirits manufacturer we strive to perform those actions in a
controlled and respectful manner as a business goal.
I thank the committee for its time and consideration today and am happy to take any
questions.
a,
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Florida Facts and Figures (2018) *
FLORIDA
$
ECONOMIC IMPACT
3,625
Million Economic Impact
(IAIIIS5lll)
222
Impact per Capita
(IAIIIS 44111
~
Craft Breweries
(IAIKS9TY)
-- I
PRODUCTION
\ 1,373,558
Barrels of Craft Beer Produced
per Year
(IAIIIS 5lll)
2.6
Gallons per 21+ Adult
(UIIIS2291)
NUMBER OF CRAFT BREWERIES OPERATING PER YEAR
1.7 Breweries per Capita*
300
200
100
(RAHS 44111) 0 -'-~~~~~~~~~~~~~~~~~~~~~~~~~~
"per 100,000 21• AM5 2011 2012 2013 2014 2015 2016 2017 2018
*Data from the Brewers Association
Holland & Knight 2
Self-Distribution -,
• What is it? • Currently, 37 states allow
- The ability of a brewery to some form of self-distribution:
sell and deliver beer directly - Texas: up to 125,000 barrels
to a licensed vendor without
- North Carolina: up to 50,000
the necessity of a distributor.
barrels
- Usually limited by either the
- Arizona: up to 40,000 barrels
production amounts of the
brewery or limited by the - Indiana: up to 30,000
amount which may be - Iowa: unlimited
distributed by the brewery. - California: unlimited
Beer Franchise Laws
• Found in Section 563.022, F.S. • Gives distributor's a 120-day
- Enacted in 1987. (Ch. 87-63, period for any noncompliance:
Laws of Florida) - 30 days to submit plan of
- Provides a brewery's rights corrective action.
may be sold, assigned, or - 90 days to cure.
purchased without
compensation to the brewery.
• In contrast, wine and spirits do
not have franchise laws similar
- Contracts are perpetual and
to beer.
· subject to the whim of the
distributor (they may • Termination by a manufacturer
terminate at any time). is extremely difficult.
- Requires exclusive territory • Breweries required to sign with
agreements. a distributor in order to get
their products into the market.
Franchise Reform I Free Market Distribution
• North Carolina (2019): Breweries producing less than 25,000
barrels can terminate with five day's notice and paying "fair market
value."
• Maine (2019): Breweries may terminate so long as they are less
than 3°/o of a distributor's sales, give 90 days' notice, and pay "fair
market value." (1x or 2x gross profits) ·
• Maryland (2019): Breweries producing less than 20,000 barrels
may terminate without cause after providing 45 days' notice and
paying "fair market value" and repurchase inventory.
Franchise Reform I Free Market Distribution
• Vermont (2018): Breweries may terminate so long as they are
less than 3o/o of a distributor's sales by volume, produce less than
50,000 barrels per year.
• New York: Breweries may terminate so long as they are less than
3°/o of a distributor's sales and produce less than 300,000 barrels
per year and pay fair market value.
,,.
• Washington: Franchise laws do not apply to breweries producing
less than 200,000 barrels annually; termination upon 60 days'
notice
• Currently, Alaska, the District of Columbia, and Hawaii do not
have beer franchise laws.
Craft Beer Modernization in Florida
• Self-Distribution • Free Market Distribution
- Permitted up to a certain barrel (Franchise Reform)
production. (50,000 to 120,000 - Termination with or without
barrels) cause.
- Territories determined by the Brewery must be under a
brewery. certain percentage of a
- May sign with a distributor in distributor's sales.
other territories. - Definition of "fair market value."
- May sell their distribution Franchise exemption for
rights. breweries below a certain
- Limited "hot-shot" delivery for barrel production amount.
breweries that have already - Prohibition on the sale,
signed with a distributor in a assignment, or transfer of a
brewery's home territory. brewery's rights without their
express consent; brewery
entitled to percentage of the
sales and right of first refusal.
Questions?
Josh Aubuchon
ioshua.aubuchon@hklaw.com
Thank you!
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