Stoel Rives attorneys Susan Johnson and Jim Shore will be part of the faculty for a one-day Law Seminars International conference on June 11 regarding Washington's Initiative 502 that legalized the recreational use of marijuana. Susan will serve as co-chair of the conference, while Jim will present on I502 implications for employer policies and procedures.
The seminar will examine the challenging legal, regulatory and business issues arising from the creation of Washington's new commercial cannabis industry. Panelists will discuss the Washington State Liquor Control Board's efforts to develop a "first in the Nation" regulatory scheme for the commercial cannabis marketplace, the effect those regulations may have on prospective business interests (including land use, commercial real estate, and employment law issues), the state and federal dichotomy regarding the legalization of marijuana, and other legal challenges that may result from the passage of Washington's I-502.
The seminar will conclude with an engaging discussion of ethical issues facing attorneys who provide advice to clients despite the clear conflict of state and federal laws.
For more information, visit http://www.lawseminars.com/detail.php?SeminarCode=13POTREWA.
With the initial draft rules implementing Initiative 502 (I-502) (PDF) issued just last week and still fresh on the public’s mind, Seattle Times reporter Bob Young and three I-502 experts held a live chat today to answer specific questions about the new rules. State Liquor Control Board Deputy Director Rick Garza, ACLU of Washington drug-policy director Alison Holcomb, and dispensary owner John Davis joined Bob Young, a reporter on marijuana and I-502 issues, to offer their views on how the marijuana legalization regulations are shaping up.
Questions ranged from how the State intends to address enforcement issues to whether the Federal government will be issuing a position statement in the near future to how licensed marijuana retailers will compete with an existing black market for the sale of marijuana to the producer licensing process. You can read the full transcript from the live chat HERE.
Watch for our I-502 draft rules cheat sheet, coming soon!
The wait is officially over, folks. Yesterday, the Washington State Liquor Control Board (WSLCB) met its projected mid-May deadline to issue initial draft rules implementing Initiative 502 (I-502) (PDF), Washington state’s recently enacted marijuana reform law. The 46-page proposed addition to the Washington Administrative Code gives the public a glimpse into how the WSLCB will potentially regulate such areas as from marijuana product testing, growing licenses, advertising, and package labeling.
For instance, the Board is proposing a number of security requirements on licensed marijuana growers, processors, and retailers. According to the draft rules, (1) marijuana production must take place within a fully enclosed secure indoor facility or greenhouse with rigid walls, a roof, and doors, (2) all employees in any licensed premises must display an identification badge at all times while in a licenses premises, (3) each licensed premises must have a security alarm system on all perimeter entry points and perimeter windows, (4) the licensed premises must have a complete video surveillance and recording system for control areas, and (5) all marijuana licensees must have a traceability mechanism to track the marijuana from seed to sale.
In addition to security and public safety requirements, all marijuana licensees will be responsible for keeping records that clearly and accurately reflect the financial condition of the business and the business’s operations. Specifically, the following records must be kept and maintained on the licensed premises for a three year period and must be made available for inspection if requested by an employee of the liquor control board: purchase invoices, bank statements, accounting and tax records, records of all financial transactions related to the licensed business, employee records, records of each daily application of fertilizers, pesticides, herbicides or any other chemicals, batch records, inventory records, and quality test results.
Some other highlights from the initial draft rules are as follows:
- RETAIL SALES – Similar to liquor sales, marijuana retailer licensee will be permitted to sell useable marijuana, marijuana-infused products, and marijuana paraphernalia 20 hours a day, 7 days a week between the hours of 6AM and 2AM. A single retail transaction is limited to 1 ounce of useable marijuana, 16 ounces of marijuana-infused product in solid form, and 72 ounces of marijuana-infused product in liquid form for persons 21 and older.
- LABELING – Labels affixed to the container or package containing marijuana-infused products sold at retail must include information similar to that seen on processed food product labels: the name of the business and the UBI number for all licensees, lot and batch numbers, manufactured date, best by date, serving size including total milligrams of active THC, net weight, ingredients list any allergens, the Washington State icon logo, and several cautionary statements such as, “May be habit forming” and “this product unlawful outside of Washington State.”
- PRODUCT WARNINGS – Both useable marijuana and marijuana-infused products will be required to be sold by the retailer with certain accompanying materials that contain several warning statements to the consumer such as “There may be health risks associated with consumption of this product;” “For use only by adults 21 and older. Keep out of reach of children;” “Products containing marijuana can impair concentration, coordination, and judgment. Do not operate a vehicle or machinery under the influence of this drug;” etc.
- ADVERTISING – The Board intends to limit each retail licensed premises advertising to one sign no larger than sixteen hundred square feet identifying the retail outlet by the licensee’s business name or trade name that is visible to the general public.
- QUALITY ASSURANCE TESTING – Marijuana licensees are required to conduct quality assurance testing for any usable marijuana or other marijuana product, which testing must be performed by an accredited third party testing lab.
- WASTE DISPOSAL – Marijuana solid and liquid waste must be stored, secured and managed in accordance with the applicable state and local statutes and regulations and disposed of in compliance with the Washington Departments of Ecology and Health and local codes and ordinances.
It is important to note, that these rules are still in the very early stages of development. In an interview with the Seattle Times, Alison Holcomb, primary author of I-502 and the drug-policy director for the ACLU of Washington, noted that many rules seem to beg further clarification. The article in this morning’s issue of the paper quoted Holcomb as stating, “This is literally just a preview of where they are right now. And they’re intentionally doing this to give the public an opportunity to provide meaningful input.”
By releasing these initial draft rules before filing the formal draft rules the WSLCB intends to solicit public comment before starting the official draft rule process in mid-June. Vetting the rules with stakeholders will allow the Board to adapt and refine the draft rules based on the input received. Stakeholders are encouraged to review the draft rules and send comments and suggestions to firstname.lastname@example.org or the following mailing address no later than June 10, 2013:
Liquor Control Board
P.O. Box 43080
Olympia, WA 98504-3080
The complete draft rules are available for download on the WSLCB’s website here: http://www.stoel.com/files/Initial-Draft-Rules-05-16-13.pdf (PDF). Stoel Rives attorneys will be further analyzing the draft rules in the coming weeks. As always, continue to check this space for more on I-502 implementation progress.
Movie theaters with restaurant-style food service will reach a broader audience with the recent signing into law of a bill passed by the Washington State Legislature allowing service of food and alcoholic beverages to their patrons. The law as currently written allows some service of alcohol in movie theaters, but requires exclusion of minors from the premises. The new law will create a new, more family friendly, beer, wine and spirits license for theaters. The license will allow minors if certain conditions are met and approved by the Washington State Liquor Control Board, such as submission of an alcohol control plan outlining the methods to prevent minors from obtaining alcohol, similar to plans that are required for clubs and show venues that host all‑ages concerts. Theaters will also be required to meet food and service requirements, similar to restaurants, to qualify for the license. (Senate Bill 5607 as Passed by Legislature)
When the new license goes into effect this summer, not only will it provide an opportunity for luxury theaters to expand their market in the competitive entertainment industry—as more families and groups combine dinner with watching first release films—but it has the potential to create new outlets for Washington’s craft breweries, wineries and distilleries that are likely to promote their products and services to venues that offer up-scale in-theater dining options.
Stoel Rives, LLP had the pleasure of working with our client iPic Entertainment to craft and support passage of this new class of Washington State liquor license.
It looks like the Washington State Liquor Control Board (WSLCB) is on track to meet the first of several milestones in the implementation of Initiative 502 (I-502), Washington State’s recently passed marijuana reform law. According to a tweet earlier today from I-502 Implementation (@I502implement), we can expect to see the first draft of I-502 implementing regulations next week.
The draft rules will first be sent to stakeholders for comment in mid-May. Later in mid-June, WSLCB will then file a Proposed Rule-Making Order (CR-102) which is the notice used to publish the text of the proposed rule and also informs the public that they may participate in the rule-making process. Should the draft rules need substantial changes after submitting for comment, the WSLCB is required by law to resubmit the CR 102.
Resubmitting the CR 102 could move the license issuance date to late December 2013. According to WSLCB’s current timeline, the Board intends to begin issuing Producer, Processor and Retail licenses to qualified applicants by December 1, 2013. So far, the agency appears to be on track to meet that deadline.
Check back here next week for further updates on WSLCB’s I-502 draft rules and implementation progress.
This week, the Washington State Liquor Control Board (WSLCB) held the first two of six public forums it intends to host across Washington State regarding the implementation of Initiative 502. The first forum was held at the WSLCB Headquarters in Olympia on Tuesday night. According to news reports, hundreds of people flocked to the event to not only provide comments, but to be part of history. Board members were surprised to see that there was standing room only at the event. WSLCB Chair Sharon Foster opened the forum with one word, “Wow!” The Board admitted that they had underestimated how many people would attend the public forums.
Last night’s I-502 public forum in Seattle had a similar turnout. As an article in this morning’s Seattle Times put it, “They came in suits and cowboy hats, with cropped gray hair and long ponytails, and they filled one room at Seattle City Hall and spilled into another, about 400 strong.” At the beginning of the forum, Board members took time to briefly explain the new law to attendees and describe the steps in the rulemaking process that WSLCB will take over the coming months to implement I-502. They also emphasized the importance of public input.
Following that introduction, there were comments directed specifically at the taxes the new law intends to impose. Some urged that the 25% excise tax that will be applied at each level of the licensing system that will eventually be created – producer to a processor, processor to a retailer, and retailer to the customer – is too high. Others countered that the tax was necessary. WSLCB officials noted that they do not have the authority to change the taxes that were voted for by the public. Instead, a change to the tax structure would have to come from the legislature. During the first two years a change to the initiative would require a two thirds majority.
Others expressed concern over the competition a licensed and highly regulated distribution market will face against the black market. Individuals noted that the price must remain competitive and there must be close attention paid to supply and demand. After attending the event, Seattle Times reporter Bob Young wrote, “Consumption estimates are crucial for the state in determining how big the system should be, how many growers it will need, and how many plants each will need to produce.” WSLCB officials explained that the Office of Financial Management fiscal impact statement has placed a price estimate of a $3 per gram producer price, a $6 per gram processor price and a pre-tax $12 per gram average retail purchase price. The agency also indicated that it is seeking proposals for marijuana consulting services to assist with the issue of supply and demand, among other things.
Of course the lingering question on everyone's mind is what course of action the federal government will take. How the federal government will respond to both Washington's Initiative 502 and Colorado’s Amendment 64 is presently unknown. Marijuana remains a Schedule I Controlled Substance under the Federal Controlled Substances Act of 1970. In fact, just this week, the U.S. Court of Appeals for the D.C. Circuit upheld the dismissal of a challenge over the government's classification of marijuana as a Schedule I drug, the most restrictive category. Accordingly, Washington State residents involved in marijuana production, processing, or retail could still be subject to federal prosecution. The Department of Justice is currently analyzing the new laws in Washington and Colorado and will be providing guidance to both states sometime in the near future.
The WSLCB emphasized this week that these forums are an opportunity for interested citizens to meet WSLCB staff involved in implementation, be updated on implementation and to provide input to the Board for it to consider as it develops rules. The following is a list of the upcoming public forums:
- 2/7: Clark College, Vancouver, Foster Auditorium, 1933 Fort Vancouver Way, Vancouver, WA 98663
- 2/12: Spokane City Hall, Council Chambers, 808 W Spokane Falls Blvd, Spokane, WA 99201
- 2/19: Skagit Valley College, Mt. Vernon, Theater, 2405 East College Way, Mount Vernon, WA 98273
- 2/21: Yakima City Hall, Council Chambers, 129 North Second St, Yakima, WA 98901
An audio recording of the public testimony from Tuesday night’s public forum in Olympia is now available online. Yesterday's forum in Seattle was streamed live. The links for both parts can be found below:
Part 1: http://www.seattlechannel.org/videos/video.asp?ID=6346
Audio from future public forums will be posted on WSLCB’s website as soon as it becomes available.
Continue to follow the Stoel Rives Alcoholic Beverages Law Blog for more updates on I-502 and the WSLCB’s rulemaking process.
The Washington State Liquor Control Board (WSLCB) announced its tentative timeline for implementation of Initiative 502 (I-502) yesterday. WSLCB developed this timeline in order to keep the public informed and to identify significant milestones in the implementation process.
Rulemaking began in early December with the filing of CR101 for the Producer License, a notice of proposed rulemaking. WSLCB is still accepting public comments to this notice until February 10, 2013.
According to the timeline, beginning in late January, the WSLCB will begin holding forums in regions around Washington to allow public comment on aspects of the law, which will be followed by public hearings on the draft rules.
WSLCB expects to begin issuing Producer licenses to qualified applicants sometime in mid-August. Processor and Retailer licenses will likely be issued sometime in November. For the complete I-502 timeline, visit the I-502 implementation page of the WSLCB website at www.liq.wa.gov.
In Part I of our “Understanding Washington Initiative 502” (“I-502”) series, we described how I-502’s licensing regime is scheduled to go into effect late next year. There is no question that I-502 legalizes possession of certain amounts of marijuana under Washington law, and the state licensing structure aimed at regulating the production, distribution, and retail sale of marijuana reflects this fact. But as a Schedule I drug subject to the federal Controlled Substances Act (“Act”), possession and sale of marijuana remains illegal under federal law. I-502 does not change this basic fact, regardless of whether the Washington State Liquor Control Board succeeds in establishing the rigorous regulatory regime envisioned by I-502.
I-502 intends to establish a well-regulated market that will allow Washington state to tax a commodity that had been pushed into the underground economy. Achieving that goal depends on capital investments in the regulated marijuana market in Washington State. But will investors be willing to fund a marijuana start-up if federal law diverges significantly from state law – particularly when federal law includes criminal sanctions? That will depend on the federal government’s response to states like Washington and Colorado that have chosen to de-criminalize marijuana.
The federal government has not yet explained how it plans to react to I-502. Jenny Durkan, the U.S. Attorney for the Western District of Washington (the most senior federal law enforcement official in the federal district encompassing Seattle) issued a statement on December 5, 2012, noting that the U.S. Department of Justice (“DOJ”) “is reviewing the legalization initiatives recently passed in Colorado and Washington State” and that the DOJ’s “responsibility to enforce the Controlled Substances Act remains unchanged.” She warned that regardless of I-502, “growing, selling or possessing any amount of marijuana remains illegal under federal law.” The New York Times reported on December 6 that the Obama Administration “has been holding high-level meetings since the election to debate the response of federal law enforcement agencies to the decriminalization efforts.” Although some officials are pushing for a harsh response, such a reaction might come with a hefty political price.
The Administration’s response starts with a political decision. Should it enforce federal law on this issue or not? If it decides to suspend enforcement of federal law, Washington state law will govern the issue – at least until the Administration changes its policy or the Administration itself is changed.
If it decides to enforce federal law, what are its options? Federal prosecutors cannot enforce every act that constitutes a federal crime; there simply is not enough time or money to do so. Historically, the federal government has relied on cooperation from state and local law enforcement to prosecute smaller marijuana cases under state law. After I-502, that option no longer exists in Washington State. Instead, as Charlie Savage of The New York Times points out, the federal government has a number of options to choose from as it balances the federal interest in enforcing the Congressionally enacted Controlled Substances Act against the political reality that Washington voters approved I-502 by a significant majority. These options assume that the federal government’s goal is to obtain a federal court ruling that federal law trumps I-502 or, at a minimum, to overturn the initiative.
First, federal prosecutors could adopt a non-confrontational strategy focused on assuming the role played by local law enforcement prior to I-502’s enactment. Federal prosecutors would file charges against relatively insignificant marijuana users and wait for the criminal defendant to assert his or her right to possess and/or purchase marijuana under I-502. The federal authorities would then seek to obtain a court order ruling that federal law governs the issue regardless of contrary state law.
Second, the DOJ could proactively seek declaratory and injunctive relief from a federal judge, asking for a ruling that clearly states that I-502 is preempted by federal law and a judicial order preventing the State of Washington from establishing its regulatory and tax program.
Third, the federal government could threaten to withhold federal grants to Washington State unless the state legislature overturned I-502. This tactic could be used in conjunction with the first two options.
The ball is in the Administration’s court, but it is unclear exactly what the White House plans to do. I-502 authorizes a significant new market under Washington law—much larger than the existing Washington State medical marijuana market. A state fiscal analysis estimates that 363,000 consumers will use 85 metric tons of marijuana per year. The sale of those goods could generate as much as $560 million each year in taxes for the State of Washington. It is hard to imagine that the federal government will allow such a market to flourish when participation in the market plainly violates federal law.
In a sense, however, preemption is almost a side issue. The federal government always has the power to prosecute federal violations, regardless of Washington state law. And this threat could introduce enough uncertainty into the market so that significant investment is deterred and the market never comes to fruition. Whatever the Administration’s decision, one thing is certain. Now that I-502 is the law in Washington State, its legal challenges have only begun. The attorneys at Stoel Rives are monitoring this issue and will update this blog as the facts develop.
My colleague Wendy Goffe, a trusts and estates attorney in our Seattle office and a regular contributor to Forbes, wrote a fascinating article about Washington Initiative 502 (I-502), the marijuana reform law. As those of you who haven’t been sleeping under a rock already know, the initiative appeared on the November 2012 General Ballot and passed by a healthy ten point margin.
In her article, Wendy conducted several interviews to highlight some of the issues that have emerged following the initiative’s passage. Specifically, Wendy cautions that:
While publicly smoking marijuana has been part of Seattle’s DNA for some time, people still need to be careful about where they consume their legal ounce. Smoking in public continues to be illegal under state law, and possession of any sort is illegal under the federal Controlled Substances Act.
Wendy also describes the impact that the law may have on the workplace and employment policies, the response from the federal government regarding the initiative, and the potential for new mainstream business opportunities and entrepreneurship if and when selling marijuana becomes legal. You can read Wendy’s article here.
Today, the Washington State Liquor Control Board issued its notice of proposed rulemaking to inform stakeholders that the agency is in the initial stage of drafting rules to implement marijuana “producer” licenses and their requirements under Initiative 502. The Initiative was passed by Washington voters earlier this year. During this stage of the rulemaking process, the Liquor Control Board is seeking input on how the public thinks the licensing scheme should work and what type of regulations should come with it.
The Liquor Control Board is encouraging stakeholders to provide input on the marijuana producer license rules. According to the notice, the Rules Coordinator will set up at least two meetings to collect stakeholder input prior to drafting the proposed rules. The meeting schedules will be posted on the Liquor Control Board website once the dates are established. Following the comment period, the agency will send out and publish proposed rules on marijuana producer licenses, establish a comment period on the proposed rules, and hold at least one public hearing before rules are adopted.
The public must submit comments to the Liquor Control Board by mail, e-mail, or fax no later than February 10, 2013:
Liquor Control Board
P.O. Box 43080
Olympia, WA 98504-3080
By e-mail: email@example.com
By fax: 360-360-664-9689
As of today, the Liquor Control Board has only issued a notice of proposed rulemaking for marijuana producer licenses. Similar notices of proposed rulemaking for the “processor” and “retailer” licenses created by Initiative 502 are expected at a later date.
Co-authored by Susan Johnson and Stephanie Meier
Earlier this week, Washington Initiative 502 (I-502), a marijuana law reform measure which appeared on the November 2012 general ballot, won the popular vote passing by a margin of approximately 55% to 45%. As a result, beginning on December 6, 2012, the initiative that is now law will make it legal for persons aged twenty-one years and over to possess a limited amount of marijuana for recreational use.
Washington State was joined by Colorado in making history this week. On Tuesday night, Colorado voters passed Amendment 64, a measure seeking the legalization of marijuana for recreational use by adults, by 55% to 45%, a margin identical to Washington State’s. A similar measure in Oregon was not as successful. Measure 80, Oregon’s own measure to legalize possession and recreational use of marijuana, was rejected by voters.
The controversial new Washington law does more than simply legalize marijuana possession. It will also remove state-law prohibitions against producing, processing, and selling marijuana, it will subject producers, processors, and retailers to a licensing requirement and other regulation by the Washington State Liquor Control Board, and it will impose a 25% excise taxes on wholesale and retail sales of marijuana, earmarking revenue for purposes that include substance-abuse prevention, research, education, and healthcare. Additionally, laws prohibiting driving under the influence will be amended to include maximum thresholds for THC blood concentration.
Over the course of the next year, the Washington State Liquor Control Board will be charged with carrying out the will of Washington State voters. By December 31, 2013, the Board must develop a new framework of regulations to fully implement the new system.
I-502 was originally submitted to the Washington Secretary of State on May 10, 2011 by John McKay, the former United States Attorney for the Western District of Washington. By the end of December 2011, proponents had collected enough signatures to meet the 241,153 registered voter signature requirement. The measure was subsequently sent to the legislature. However, in April 2012, the Washington State legislature adjourned without action, and I-502 automatically advanced to the November 2012 general ballot.
Now that marijuana legalization measures have been approved in both Washington and Colorado, scholars, legislators, and policy makers are trying to determine how the law will work in practice due to the laws’ direct conflict with federal law. Marijuana is classified as a Schedule 1 controlled substance under the Federal Controlled Substances Act, making it subject to federal enforcement action. This week, Department of Justice officials reminded voters that federal law “remains unchanged.” The agency plans to review the Washington and Colorado legalization measures in the coming weeks.
Stoel Rives attorneys will continue to track the progress of I-502 implementation and intend to publish a multi-part series analyzing the new law over the course of the next few weeks. Keep an eye on your inbox.
This past week, Stoel Rives partners Chris Hermann and John McKinsey and associate Jake Storms all participated as panel speakers at the Best Practices for Owning and Operating a Winery conference, held at the Hyatt Vineyard Creek in Santa Rosa, CA. John also acted as co-host of the conference, which covered a wide variety of topics affecting wineries and vineyards, from siting and permitting and valuation to how to build a brand and protect trademarks.
Chris, Chair of Stoel’s Winery and Vineyard Management group, spoke on custom crush agreements and the pitfalls that can affect those who do not adequately protect themselves. John, California Co-Chair of Stoel’s Winery and Vineyard Management group, educated attendees on energy use and utilizing renewable electricity sources. Jake, an associate in the group, spoke on industry trends and California-specific legislative and project actions, including AB 605 and the California High-speed Rail.
The event was well attended, with over 40 stakeholders present at the two-day event. This marks the fifth year of the event, which was sponsored by Stoel Rives and Kennedy/Jenks Consultants, along with industry mainstay, Wines & Vines.
On the list of California laws affecting the wine industry in the New Year is AB 605 – the Instructional Tasting Events License. Introduced in 2009 and signed into law September 23, 2010, AB 605 adds to the Business and Professions Code sections 23396.6 and 25503.56. The additions allow the ABC to issue a single “instructional tasting license” to any holder of an off-sale retail license, thus doing away with the need for retailers/suppliers to get a permit for every “instructional tasting” event. Retailers granted an instructional tasting license would be allowed to hold an “event for consumers on the subject of wine, beer, or distilled spirits, including, but not limited to, the history, nature, values, and characteristics of wine, beer, or distilled spirits, and the methods of presenting and serving wine, beer, or distilled spirits.” These events may include the consumption of alcohol.
The retailers may not conduct the events themselves. However, they may invite “authorized licensees” (i.e., holders of manufacturing or supply licenses) to conduct them. The retailer may hold the event if, among other things, the authorized license holder is unable to attend and the event has been advertised and scheduled. In addition, the retailer can’t supply the alcohol for the event; it must be supplied by the authorized licensees or purchased from the retailer by the authorized licensees at the going rate.
The events must be located at a cordoned-off section of the retailer’s premises. The law also sets stringent restrictions on servers and attendees (no one under 21), types of alcohol (wine, spirits, or beer but no combinations), charge (can’t have one), serving amount (one ounce for wine), and event times (between 10 am and 9 pm).
The new licenses are not permitted to be issued to any off-sale licensee at a location where gasoline is sold, unless the licensee operates a “fully-enclosed” off-sale retail space of at least 10,000 square feet (i.e., Costco, Walmart, Safeway, etc.). Nor can they be issued to licensees at locations “with a total of less than 5,000 square feet of interior retail space” unless yearly gross sales of alcohol at that location are at least 75% of total gross sales (i.e., liquor stores).
The fee for the new license is $300. Violations of the age limit are a misdemeanor and carry a penalty of $200 (for both the retailer and the minor). A violation of any section carries a penalty of suspension of the instructional license for the retailer and suspension of the privilege of conducting instructional tasting events for the authorized licensee for a period of six months to a year.
Amidst rising incidences of hospitalizations in college and teenage drinkers linked to consumption of alcoholic energy drinks, the Washington State Liquor Control Board banned their sale effective tomorrow, November 18, 2010. The move came on the heels of a request by Washington Governor Christine Gregoire, whose office stated in a November 10 press release that they were “…particularly concerned that these drinks tend to target young people.”
The Liquor Control Board placed the ban in an emergency ruling which will last for 120 days. During that time, the Liquor Control Board will move to make the ban permanent. Liquor Control Board Chairperson Sharon Foster stated, “[t]he Board is acting in the public safety…the Board is acting now to ensure these products do not contribute to a tragedy before the Food and Drug Administration or Legislature can act.” Earlier this year, the Liquor Control Board had lobbied for State legislative action to ban the sale of caffeinated malt beverages in Washington but those efforts were unsuccessful. A list of particular products affected by the Liquor Control Board’s ruling can be seen here.
Washington’s ban is merely the most recent action in an ever increasing movement by states to control the sale of caffeinated alcoholic beverages. The Oregon Liquor Control Commission Chairman stated in an October press release that, “…alcoholic energy drinks should be removed from the market until further research isdone.” The OLCC also stated that it is currently looking into possible regulatory efforts with the state legislature and is reaching out to community organizations to warn them of the dangers of the beverages.
While California’s Department of Alcoholic Beverage Control has not yet made a statement regarding the drinks, Connecticut announced Monday that it had reached agreements with state distributors to voluntarily stop shipments of caffeinated alcoholic beverages starting December 10, 2010. Michigan has banned one particular brand of caffeinated alcoholic beverage, Four Loko. New York has reached an agreement with Phusion Projects LLC, the manufacturer of Four Loko, to stop sales in the state until “…emerging science, regulatory developments or other relevant changes in circumstances arise." Utah and Oklahoma have followed Washington’s lead in banning the sale of any brands altogether. Massachusetts’ Alcoholic Beverage Control Commission stated that it will file an emergency ruling, similar to Washington’s, on Monday, November 22, 2010.
At the federal level, the Food and Drug Administration (“FDA”) is currently reviewing whether caffeine is a safe additive to alcoholic beverages. A negative finding would essentially ban the sale of caffeinated alcoholic beverages nationwide. It is widely assumed the FDA will, in fact, reach a negative finding. NY Senator Chuck Schumer, who has been lobbying for a ban on the drinks, stated that the FDA decision “…should be the nail in the coffin of these dangerous and toxic drinks.” The FDA decision is expected within the week.
A recent legislative audit made several strong recommendations for reforming Utah’s liquor laws, in particular the quota system for granting alcohol permits. The audit echoes reports that the current shortage of alcohol permits is stifling economic development and does not reflect the state’s changing population.
Utah is in the small minority of control states that grant liquor permits based on population. Of the states polled, the audit commission found that only two other states, Pennsylvania and Idaho, use a state-wide quota for liquor permits. Idaho allows one permit per 1,500 people for clubs and restaurants and has no quota for beer and wine. Pennsylvania allows one permit per 3,000 people regardless of permit type. In contrast, Utah allows one permit per 7,850 people for clubs and one permit per 5,200 for restaurants.
According to the audit, quota numbers have not changed since 1990. In the meantime, the state’s population has increased by 22 percent with significant demographic changes. For instance, the percentage of the state’s population that were reported to be members of the Church of Jesus Christ of Latter Day Saints, whose observant members do not consume alcohol, has shrunk from 70% in 1989 to 58% in 2009. Further, alcohol consumption rose 54% from 2001 to 2009. The audit also reports an increase in the number of people who are eating out. These changes make the state appealing to restaurant and bar development. Many restaurateurs, including large chains, have, however, expressed reluctance to develop businesses in Utah given the uncertainty over obtaining a liquor permit.
The audit recommends increasing the number of overall liquor permits, and in particular restaurant permits. As previously reported, a bill to allow current permit holders to sell their alcohol permits is being considered for the next legislative session, which begins in January. Another proposal would allow resorts to obtain one license to cover the range of alcohol services provided rather than the current system that requires a separate permit for each service. This could free up numerous additional permits; one resort alone reportedly holds 17 permits to cover its restaurants, bars and other services.
In response, the Executive Director of the Utah Department of Alcoholic Beverage Control suporrted the audit’s recommendations. The Utah Restaurant Association and Utah Hospitality Association also embrace such reforms. It is still unclear, however, whether the state legislature will support any of the recommended reforms. Stay tuned for updates.
Senator John Valentine (R – Orem) has announced that he intends to introduce a bill in the next Utah legislative session that would establish a property right in liquor permits, allowing restaurants with current liquor permits to sell them. Use of any purchased permit would be conditioned upon approval by the state liquor-control board. The intended bill will also convert about 25 of the 50 unused tavern permits (which allow only the sale of 3.2 beer) into restaurant permits. Senator Valentine currently has no plans to make any changes to the state’s club permits.
Utah limits liquor permits based upon population and ran out of restaurant and club permits earlier this year. The proposed legislation may help alleviate the resulting logjam if existing businesses that are struggling elect to sell or if other restaurants elect to stop serving alcohol. Questions remain as to whether the bill will pass. Legislators have expressed reluctance to increase the number of permits granted, so the proposed legislation may create a work around. The Church of Jesus Christ of Latter Day Saints, a major stakeholder in Utah’s liquor policy, also has yet to weigh in on the proposed change.
The proposed change is likely to put small and start-up restaurants at a distinct disadvantage to well-funded chains. Senator Valentine is quoted in a Salt Lake Tribune article as acknowledging this issue and indicated that some permits could be set aside for small businesses.
Attorneys in our Salt Lake City office are closely following this issue. Please send us an email here if you would like to receive regular updates.