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Posts from the ‘MD DLC’ Category

Montgomery County Council Contemplates DLC Reform

Montgomery’s unique government-owned liquor distribution and retail system is once again in the cross-hair of reformers. Montgomery County Councilman Hans Riemer is the newest addition to a long list of politicians, as well as non-governmental campaigners who attempted to change, or abolish the system altogether.  Mr. Riemer is worried about the competitiveness of the alcohol monopoly of the Montgomery County Department of Liquor Control (“DLC”).  In an era where consumers’ selection of wines and beers is becoming more and more diverse due to the rise of micro-brews and family-run wineries, Mr. Riemer is concerned about the structural impediments that keep the DLC’s inventory limited to only the largest and most ubiquitous brands.  

Mr. Riemer’s sentiments are shared by many hospitality entrepreneurs who do business in Montgomery County.  One restaurant owner complained that under the current system, he must keep at least $20,000 tied down in inventory due to the slow speed of the DLC’s order fulfillment, as well as its limited selection.  For example, the DLC only fulfills orders once per week, even for the most popular beer and wine brands, when most orders placed elsewhere to private enterprises get filled the next day. Moreover, because the DLC places the burden of introducing new items to its inventory on the brewers and distillers themselves, many boutique brewers do not bother to navigate the complex bureaucratic process to place their items on the DLC inventory—and these items are therefore not stocked in the DLC warehouse.  For orders of these esoteric brands and distilled liquor, the DLC resorts to a “special order” system that outsources fulfillment to third-party agents at the cost of a markup that reaches 35% of shelf price, as well as wait periods of as long as two months.  These obstacles force restaurateurs and bar owners to invest in large inventories to anticipate the increasingly diverse preferences of customers.

Consequently, alcohol in Montgomery County is both harder to find and costs more than elsewhere.  This increased cost hurts businesses as well as consumers, and, given that Montgomery County is trying to attract more millennial settlers, who favor microbrews and craft-cocktails, to replace its graying tax-base, its restrictive alcohol policy is unlikely to do itself any favors.  Many who recognize these problems, whether they are local politicians or entrepreneurs, tried to either reform the most cumbersome parts of the DLC system or abolish it altogether in favor of the private market.  Yet, their attempts have been all thwarted so far.  The DLC lobby is quite powerful both in the county and in the statehouse in Annapolis, and successfully withstood these challenges for about twenty years.

The lobby is powerful for a multitude of reasons.  First, the union United Food and Commercial Workers, which counts 350 DLC employees among its members, remains a steadfast supporter of the status quo, though it recently warmed to the idea of reforms that will both make the existing system more efficient and keep the wages and benefits of DLC workers intact.  Second, the Montgomery County government is still a strong supporter of the DLC, because the latter contributes over $20 million a year to the county’s revenues.  These revenues are unlikely to be replaced should the DLC be privatized, according to the county government.

Therefore, the current reform proposal by Mr. Riemer does not attempt to dismantle the DLC altogether.  Instead, it seeks to make the DLC more efficient and more responsive to the needs of its customers.  Some of the key recommendations of the proposal are:

  • Develop an educational Patron Responsibility Program.
  • Utilize the Alcohol Beverage Advisory Boardto study and make recommendations regarding special orders, product placement, and customer service for the Department of Liquor Control.
  • Formalize the Department of Liquor Control Early Assistance Team and CountySafetyAlliance.
  • Expedite completion and implementation of the Department of Liquor Control Warehouse Management system in order to effect immediate improvements to selection, ordering, and delivery processes.
  • Support an Office of Legislative Oversight study, in conjunction with CountySTAT and other agencies as appropriate, to better understand how the Department of Liquor Control can improve its services and efficiencies in support of its nighttime economy.
  • Extend the hours of operation for venues with beer/wine/liquor licenses to 2 am on Sundays through Thursdays, and to 3 am on Fridays, Saturdays, and the Sundays before Monday federal holidays.
  • Expedite the creation of a social venue license, and modify the current alcohol to food ratio under the Class B beer/wine/liquor license from 50/50 to 60/40, to reflect the change in increased demand for higher quality, higher priced alcoholic beverages and to encourage establishment and operation of venues that host live music and other events.

Mr. Riemer also emphasized his commitment to DLC employees.  However, others prefer the complete privatization of the DLC.  Maryland’s State Comptroller Peter Franchot, a resident of Takoma Park, just recently urged Montgomery County’s business community to push for privatization.  He promised to conduct a feasibility study of privatization, and he believes the losses to the county’s revenue can be made up through increased economic activity, as well as Montgomery County customers returning to the county to do their shopping.  He also believes his plans can succeed if the business community and the public join him. Many entrepreneurs also see privatization as the best outcome.

Maryland Legislative Update – New laws to take effect July 1, 2012

These new Maryland state laws take effect today, July 1, 2012.

Senate Bill 994: All beverage alcohol sold to consumers (by retail stores, restaurants, caterers, bars, etc.) in Maryland will be taxed at the new sales tax rate of 9%.

Senate Bill 755 : Allows an individual in a restaurant, club or hotel with a Class B or Class C alcoholic beverages license to consume wine not bought from or provided by the restaurant or facility under certain conditions.

House Bill 690: Repeals the prohibition in Montgomery County on the issuance of Class H beer and light wine licenses in Damascus and submits the law to a referendum of the voters.

Virginia, Maryland Breweries Now Allowed to Sell Pints to Customers

Thanks to recently passed Virginia Senate Bill 604 and Maryland Senate Bill 579, each state’s craft and microbreweries are now allowed to sell beer for on-site consumption.

The Virginia bill, signed by Governor Bob McDonnell, grants Virginia state breweries the ability to sell their beer for on-premises consumption.  A House amendment added language clarifying that breweries could only sell beers they own for consumption at the brewery.  Previously, breweries could only give away free one-ounce samples, sell beer “to-go”, or add a restaurant (brewpub) where the beer could be sold.

The bill’s success can be attributed to a concerted lobbying effort from the state’s breweries and beer enthusiasts who argued that the bill would have many positive effects including making Virginia a more attractive hospitality destination for a growing population of craft beer lovers, would make it easier for small breweries to start-up and expand, and, because there is little-to-no automation in smaller breweries and the brewing process is so labor intensive, would create jobs.  After the bill signing the governor helped unveil a new logo for craft beer from the Virginia Tourism Commission “Virginia is for craft beer Lovers.” Virginia currently has 44 licensed breweries.

Maryland’s new law will become effective on July 1st, 2012 and Maryland’s law establishes a “Class 8 Farm Brewing License” which bestows on the license-holder many of the privileges held by the state’s wineries (except, notably, self-distribution).  To qualify, despite the bill’s moniker, the brewery does not have to be on a farm.  The brewery does, however, have to have a maximum output of 15,000 barrels a year and use Maryland-grown grains, hops, or fruit in their beers.  The law does not specify a minimum percentage of Maryland-grown ingredients required.

The license-holder can then sell or give away beer—up to six-ounces per brand—for onsite consumption.  Furthermore, they can sell prepared foods to guests and beer “to-go.”  Like Virginia, the breweries may only sell their own beer.  But unlike Virginia, the Maryland breweries can apply for up to 12 special-event permits per year that will allow them to host festivals where they may feature beers from other breweries.

The Brewers Association reports that in 2012 the United States became home to over 2000 craft breweries, the highest number since the 1800s.  In fact, the New York Times reports that craft brewing is one of the fastest growing industries in the state of Colorado.

For more information please contact Rosemarie Salguero or Andre Barlow in our Hospitality Practice Group, at info@dbmlawgroup.com or (202) 589-1834.

Maryland General Assembly Approves Alcohol Tax Increase

The Maryland General Assembly voted to increase the state’s sale tax on alcohol from 6 percent to 9 percent.  The increase is expected to generate $85 million in revenue in its first year, $15 million of which will go to programs for the disabled. Remaining funds will go to schools and school construction.