Drop by drop: Changes in state alcohol law create new opportunities

On June 19, Gov. Pat McCrory signed a bill that takes a small step toward reforming the state’s alcohol laws. H909 sailed through the House on a 79-32 vote, most likely because of its outright ban on the controversial powdered alcohol, which attorney Derek Allen of Ward and Smith calls “a terrible idea [that] might as well just say, ‘Please snort me’ on the bag. Having that clause in there makes it really difficult for the governor not to sign this bill.”

Allen, who represents many Western North Carolina breweries, has been pivotal in the industry’s fight for reform of what it sees as overly restrictive laws. But much more remains to be done to bring the state’s alcohol laws into the 21st century, advocates say.

“We have some of the highest excise taxes in the country, and lowering that is crucial to the industry,” Allen says. “Many of those who oppose changing these rules are afraid of the fact that when you start acknowledging and questioning the fallibility of one rule, you have to acknowledge that all of the rules can be changed.”

Loosening restrictions

When the new law was first introduced, it was listed as the Sale of Antique Spirituous Liquor bill, before several other important reforms were added into it.

For high-end bars, stocking classic, vintage bottles of rare liquor has become a bit of a collectors’ game. But in North Carolina, this wasn’t allowed, since state law required that all spirits be sold through the Alcoholic Beverage Control Commission and its stores. The new law changes that.

“You take the bottle to ABC and say, ‘Hey, I want this in my bar.’ And they sell you the stamps to show that you paid the taxes for it,” Allen says.

Temporary regulations governing antique spirituous liquor have to be in place by Sept. 1, and rules concerning on-site sales must follow by Oct. 1.

Perhaps the law’s most celebrated effect so far has been the provision that allows distillers to sell their product directly to customers. Previously, they could sell only to ABC stores or out-of-state customers — and they had to buy back their own product in order to pour it at tasting events or other functions.

“That’s kind of a big deal, although you do only get [to sell] one bottle per person, per year,” says Allen, adding that just how the state intends to enforce that limit isn’t yet clear. “Think about your point-of-sale and how you would have to keep track of that,” he says. “Figuring that out, that’s way above my pay grade.”

“The scare was that this would undermine the state control system and state-controlled stores,” he continues. But in fact, “This was just about getting tourists to the distilleries and letting the distillers sell their own product.”

Still, as Hayley Wells, another brewery law attorney at Ward and Smith, jokes, “You only get one bottle per year, now, so don’t come visit a lot!”

Under contract

Among the bill’s most significant changes is establishing rules for off-premises brewing.

Biltmore Estate, for instance, has been brewing its own beer since 2007, using Highland Brewing Co.’s equipment. But until now, such alternating proprietorships weren’t legal.

“It just wasn’t being enforced,” Allen says.

The bill also allows contract brewing, such as when The Omni Grove Park Inn has Oskar Blues Brewery custom-design a beer for it.

“Last year, we were working with a client who wanted to do some contract brewing, and it got to a point where the ABC said, ‘Well, hey, you know that’s not permitted, right?’” Allen recalls. “And we had to say, ‘Well, hey, you know this is going on all over the state, right?’ But it was a matter of it not really being a priority and there only being so many [Alcohol Law Enforcement] agents.”

Both practices, notes Wells, “have been permitted at the federal level for years.” But North Carolina has a history of staying several paces behind the nation in its approach to alcohol. It wasn’t until 1935, two years after the 21st Amendment ended federal Prohibition, that the state permitted alcohol sales in certain areas, and many of the laws drafted then remain unchanged to this day.

A major hurdle for brewers is the cost of the equipment needed to brew beer in large quantities. “At the start, it’s often an issue of creating demand for your product, but you can’t do that unless you have the equipment,” says Allen. One option is investing in small-scale equipment and upgrading as demand increases, but this is expensive and may not be feasible for beers that are already popular at the current production level. Yet spending buckets of money on large-scale equipment and just dumping excess product until the demand catches up is even more costly and offers a slower return on investment.

Alternating proprietorships, says Wells, “allow new businesses to create the demand for their product before they invest in their own equipment.”

More changes needed

Meanwhile, many key concerns remain untouched by these recent reforms. For example, the state requires breweries producing more than 25,000-barrels a year to sell through a distributor. But for small-scale operations whose beer is in demand, this can mean running out of product before they can make the next batch.

“There have been ideas floated to exempt on-site sales or self-distribution in the immediate area,” from the 25,000 barrel cap, says Allen.

Having just one set of rules, adds Wells, “would make life easier for the folks on the ground. Now, there’s a set of rules for wine, a set of rules for beer and a set of rules for spirituous liquor.”

Those rules were written and revised at different times, often without reference to one another. Cider and wine, for example, have always been covered by the same regulations, meaning a brewer who also wants to make cider must get two different licenses.

And though the latest legislation represents a significant step forward, advocates say North Carolina’s alcohol laws need a comprehensive overhaul, rather than continued piecemeal tweaks.