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Deal or No Deal – That is the Question.

January 27, 2016

AJC reporter Aaron Gould Sheinin broke the news to the public today about a proposed “deal” between Georgia wholesalers and the governor’s office on one side and the Georgia Craft Brewers Guild on the other.   (see AJC article)

Let’s put aside our emotions for just a second, and take an objective look at the proposed “deal.”  I use quotation marks because rest assured this is no deal, as such would entail mutual benefit and the obtaining of something that one would not, but for the deal, otherwise obtain.  All of the items offered by the governor’s office and wholesalers are items to which Georgia breweries are already legally entitled.  Unfortunately, politics has deprived the breweries of these privileges.

The governor’s office and the wholesalers are offering the following in exchange for the Georgia Craft Brewers Guild withdrawing and foregoing any legislative push this year:

  • Allow brewers again to sell brewery tours at variable prices based on the kind of beer offered.
  • Allow special events at breweries and distilleries.
  • Let brewers, distilleries and wholesalers use social media to alert the public about where to buy their products or advertise special events.
  • Allow third parties to sell tour tickets.
  • Let breweries and distilleries sell food on site.

I want to discuss the first two.

  1. Allow brewers again to sell brewery tours at variable prices based on the kind of beer offered.

As we all know, the Department of Revenue came out with a policy bulletin that prohibited variable pricing based upon the brand or volume of beer.  Per the Department, “a Policy Bulletin is intended to provide guidance to the public and Department personnel. It is a written statement issued to apply principles of law to a specific set of facts or a general category of taxpayers, superseding all conflicting documents and oral directives previously issued by the Department. A Policy Bulletin is the Department’s position on the law and is binding on agency personnel until superseded or modified by a change in statute, regulation, court decision, or subsequent Policy Bulletin.”  (Emphasis supplied.)

On what basis will the Department justify the one-eighty that would be required by the governor’s and wholesaler’s proposal (which would actually complete the full 360 degrees)?  Over and over again, the Department has said it is firm in its position and reading of the law.  The law hasn’t changed.  No legal action resulting in a court decision has been brought. What will have changed (from a legal perspective) to justify an amendment to the bulletin that would revert the Department’s policy to the pre-bulletin days? It is one thing to retract the bulletin (which I don’t believe is being proposed, but could be justified); it seems an entirely different creature to amend or supplant it when nothing has changed.  Whatever the Department comes up with will clearly be a charade and an effort to disguise political subservience to the wholesalers and politicians as true legal reasoning and policy making.

What also really sucks about this is that there are many good folks at the Department … many hardworking, honest folks whom I respect greatly.  But the Department, like the Guild, is being manhandled by a bunch of bullies.

  1.      Allow special events at breweries and distilleries.

From a legal perspective, this one is even more difficult than amending the bulletin.  You see, O.C.G.A. 3-5-38 (the codified version of SB 63) states in part, “no alcoholic beverages may be sold on the licensed premises for which a permit has been issued.”  Everyone knew that this provision was intended to solidify that a brewery may not make retail sales; it was not intended to apply to third parties.  Nevertheless, the Department, in either its eagerness to kiss the ring of the wholesale crown or with its arm twisted behind its back while screaming uncle, went the extra step of stretching this provision so as to apply to third parties. And, thus, making it so no third party, including a special event permittee, is allowed to sell alcohol on a brewery’s premises, i.e., no special events.

During the public comment period for the proposed regulations implementing SB 63, including the “third party” regulation, I wrote to the Department and stated the following with respect to special events:

“SB 63 was passed as a means to generate revenue for small businesses and to promote tourism in the State of Georgia.  The following language in section 560-2-7-.01(7) of the proposed rules detracts from these purposes, and is contrary, or at least inapposite, to the legislative intent behind the enactment of SB 63, and should be removed:

 No Alcoholic beverages shall be sold on any licensed premises for which a permit has been issued pursuant to Code Section 3-5-38. Such limitation shall be applicable to the licensed brewery as well as any third party utilizing the licensed premises.

(Emphasis supplied.)

These last ten words unnecessarily and improperly prohibit what could otherwise be a safe and income-generating activity for Georgia breweries – an activity that would help small businesses, including dozens and dozens of Georgia non-profit organizations, and increase tourism – that is, renting out brewery premises to third parties that want to host special events on the premises of a brewery.

SB 63, in its amendment to O.C.G.A. § 3-5-38, states, “No alcoholic beverages shall be sold on the premises for which a permit has been issued pursuant to this code section” (the “Provision”). This sentence was intended to reinforce the prohibition against breweries selling alcohol to consumers, not against third parties.

The Provision was not intended to prevent third parties from renting the premises of a licensed brewery to host events in which alcohol is sold.  Each statutory provision should be read by reference to the whole act. Nowhere in SB 63 does it reference third parties.  At no time during the legislative session were third parties ever even discussed. Taking the statute as a whole, the Provision clearly was intended to apply to breweries only.  By making third parties subject to this prohibition, the Department legislates via rulemaking, and thus the application of such an interpretation is ultra vires.

Under the Department’s approach, an equally plausible interpretation of the Provision would be that it prohibits a brewery from selling alcohol even to a wholesaler.  But that would be absurd; no more of a stretch, however, than interpreting the Provision so as to apply to third parties.  Additionally, if the legislature had wanted to include third parties in the prohibition, it could have done so easily – just as the Department has done so in the proposed rule.”

*******

I even threw in a theory by which the Department could allow special events, despite the third party language:

Theory of alternating proprietorship

“An ‘alternating proprietorship’ is a term the Alcohol Tobacco Tax & Trade Bureau (the “TTB”) and the State of Georgia use to describe an arrangement in which two or more people take turns using the physical premises of a brewery.  The State of Georgia allows an alternating proprietorship.

Generally, the proprietor of an existing brewery, the ‘host brewer,’ agrees to rent space and equipment to a new ‘tenant brewer.’  The tenant brewer qualifies as a brewer by applying for and obtaining the proper permits and licenses from the TTB, the state, and the local jurisdiction.  The theory is that the license/permit of the tenant brewer temporarily supplants the license/permit of the host brewery – that is, the premises of the host brewery temporarily become those of the tenant brewer.

Presumably, the Provision also governs tenant brewers.  Clearly, given that tenant brewers are brewers, the legislature did not intend for tenant brewers to escape the prohibition outlined in the Provision.  Therefore, during the time in which a tenant brewer occupies, and operates within, the premises of the host brewery, such premises are the premises of the tenant brewer.

Similarly, in the case of special events, the Event Host would use the physical premises of a brewery, yet only the non-manufacturing portion thereof.  Just as the tenant brewer pays the host brewery a fee for use of the host brewer’s space and equipment, the Event Host would rent space, at fair market value, from the brewery.  Further, just as the tenant brewer must be properly permitted, the Event Host would be properly permitted by virtue of having obtained a special event permit from the State and local jurisdiction. In the case of the Event Host, the premises of the host brewery would become those of the Event Host for the duration of the special event.

Using the concept of an alternating proprietorship, the Provision – No alcoholic beverages shall be sold on the premises for which a permit has been issued pursuant to this code section – would not apply during the time frame in which a non-brewer Event Host controls the premises pursuant to a rental agreement and its special event permit because the subject premises would be those of the Event Host, not those of the brewery ‘for which a permit has been issued pursuant to [O.C.G.A. § 3-5-38].'”

******

But the Department dismissed my comments, and extended the scope of that certain provision in SB 63 by stretching it to apply to third parties and ignoring my alternating proprietorship theory.

Now, at the behest of the wholesalers and governor’s office, the Department is apparently willing to perform another one-eighty maneuver; this time, however, contradicting its own statutory interpretation and its own regulation.

By biggest concern right now is that the Department won’t be in a position to reverse course, legally speaking, as would be required by the wholesaler’s and governor’s proposal, and by the time everyone realizes such, session will be over or it will be too late in the game to put forth any legislation.  And, thus, we will be exactly where we are right this moment…which, I imagine, keeps the wholesalers smiling ear to ear.

I work closely with Guild leadership, and I can tell you that they are smart, passionate, and honest folks who genuinely want what’s best for the craft beer industry as a whole in Georgia.  But they are up against one of the most powerful lobbying networks in the state, if not the country.  I am sure taking this “deal” is a major kick in the groin for them, but they have to think about their constituency as a whole.  I am sure everything in them is wanting to give the bird to the deal, and push forward with legislation yelling, “Once more unto the breach, dear friends, once more.”  But alas, they also have to be practical and think long term.

Ugh…what an awful position to be in – envy is not something that comes to mind.

You know, going the legislative route is the civilized route, so to speak.   The Guild tried that last year, and you have seen how that turned out.  The Guild was willing to go the civilized route again this year – only advised by Speaker Ralston that if they don’t take the “deal,” future legislation proposed by the Guild will run into many hurdles for years to come.

Well, as I have said before, I think it is time to take the gloves off.  It is time to get many of these issues before a judge.  It is time to file lawsuits and declaratory judgments.  It is time to get these matters out of the hands of politicians.  And when the Department and the AG’s office is tied up in lawsuits (spending tax payer money), remember to kindly thank your neighborhood beer wholesaler and politician.

 

From → News

6 Comments
  1. Oliver B. permalink

    I disagree with the idea that the Guild had to grin and bear it. If indeed Speaker Ralston threatened to smack down any legislation this session they should be going public with that. There are plenty of beer drinkers in Blue Ridge and House seats only last two years. He, and any other elected official that had a hand in this, COULD have hell to pay if the Guild wasn’t telling its members mums the word.

    I do agree that a legal challenge is pretty much the only option left. Unfortunately the cash-flow situation for breweries isn’t particularly strong, as a matter of course, and it will take the big boys (I’m taking about Sweetwater here, and to a lesser extent Terrapin) getting their tasting rooms shut down for a year (possible if that fist quoted paragraph ends up happening) for them to be economically motivated for a legal challenge to all this bullshit.

    OF COURSE… I’m not privy to the back room dealings or the back channel communications so what the hell do I know?

  2. Larry H Scheinman permalink

    Ralston was threatening to block any bill? I thought he was on our side?

    • Larry – That’s word on the street. Ralston had said that he disapproved of the DOR’s bulletin, as it was not in line with the legislative intent of SB 63, and he was calling for a retraction. In that sense, he was/is on our side. That said, he wouldn’t go as far as saying that beer law reform was necessary…just that perhaps it is an issue that should be considered in the future. Look, anyone could have been up in arms about the bulletin and the inappropriate communications between the DOR and the wholesalers – because it was so egregious. Ralston loses no political capital by voicing his objection to the bulletin, and thereby supporting the two Blue Ridge breweries. But voicing objection to the bulletin should not be mistaken as true support for the Georgia craft beer industry. I do know this: for the Guild to back down from a legislative push, either the threat of consequences for not doing so or the benefit gain by doing so would have to be great. Well, we know the benefit gained isn’t much to talk about. Thus, we are left with the suggestion that the threat of consequences of not foregoing a legislative push must have been substantial, i.e., that future legislative pushes will be stopped in their tracks. Such a threat is the only threat that really justifies backing down at this point in the struggle.

  3. Michael D. permalink

    Great article and insight – bummed about the result. Thanks for sharing your expertise.

Trackbacks & Pingbacks

  1. Beer Town: GA Beer Laws website a grass-roots movement | Atlanta Restaurant Scene
  2. What’s the Deal? | John at Terrapin

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