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HB790 Legislation Explained

April 5, 2013

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MBDA provides an overview of the liquor privatization legislation

House Bill 790 and Liquor Privatization

As most citizens are aware, the Pennsylvania House of Representatives passed a liquor privatization bill in late March that incorporates sweeping reforms to Pennsylvania's system of controlling liquor sales.

While there are elements of the plan that are appealing to Pennsylvania's beer distributors, such as six-pack sales and first rights at becoming full-fledged package stores, there are other components of the House-passed plan that could be devastating to our 1200 family-owned and operated beer distributors, such as the expansion of beer sales to every grocery, convenience and big box store.

This overview of the legislation does not attempt to take sides or promote positions for or against the legislation, but rather lays out the simple facts of the legislation as it was passed and is now before the State Senate for consideration.

House Bill 790 - (P.N. 1246) These are the specific details of the legislation.

1,200 Distributors could opt to sell, along with beer, unlimited wine and spirits (W/S license).

  • Fee $37K to 97K, depending upon county population, payable over 4 years at 5%.
  • Interior connection with non-licensed business with board approval.
  • $1,000 renewal every two years.

The state could issue additional W/S licenses (600 plus those not used by Ds) evenly distributed based on population. Fee 5.5 times higher than that paid by a D per county.

  • Interior connection permitted with a licensed premises and allowed with LCB approval with an unlicensed premises.

The current 11,000 retail -- R, E and H -- licensees would become eligible with payment of a small fee:

  • Sell 6 bottles of wine (half case) and an open bottle of spirits.
  • Sell up to 24 containers of beer, but not in a "case".
  • Sell gasoline.
  • Maintain an interior connection with a licensed or unlicensed premises, but with an interior connection to an unlicensed premises it cannot sell wine to go.

600 State stores would be phased out.

Supermarkets wanting an interior connection would enjoy these options:

  • Acquire from the state one of the 820 "G" licenses and sell up to a case of wine; or
  • Purchase an "R" license to sell up to 24 twelve oz containers of beer; or
  • Acquire from the state a W/S license not used by a D or out of the pool of 600 and sell unlimited wine and spirits, but not beer; or
  • Combine an "R" license (for beer) with either a "G" (for wine) or W/S and sell all three.

Big box stores with an approved interior connection could acquire:

  • A "R" license and sell beer; or
  • A "W/S" license and sell wine and spirits, or
  • Both

Distributors (Wine and Spirits License/W&S)

  • 1,200 Wine and Spirit Licenses issued by county/no fewer licenses than D licensees/ allocated on a per capita basis
  • "D" has an exclusive one year "option" to a purchase a W&S license. D can own a total of five stores, with a limit of one per county (1,500 sq. ft. of retail space to qualify).
  • "D" with a W&S license is only outlet permitted to sell beer, wine and spirits from the same location. Others can have an interior connection with board approval.
  • Importing Distributor (ID) can obtain a W&S license as long as it does not possess a Wine and Spirits Wholesale License
  • Separate license fees to sell wine and spirits
  • One-time license fees for "D" wine and spirits license by class of county (Wine/Spirits):
    • Philadelphia and Allegheny: $30K / $52K $82K
    • 2nd Class A and 3rd Class: $37.5K/ $60K $97,5K
    • 4th and 5th Class $22.5K / $45K $67.5K
    • 6th and 7th Class $15 K / $37.5 $53.5K
    • 8th Class $7.5K / $30K $37.5K
    • Renewal fee is $1,000 (every 2 years)
  • "D" can purchase one or both licenses. If purchasing one, can later purchase second license at prescribed fee.
  • D purchasing license to sell wine, spirits, or both can pay license fee(s) in 48 monthly installments plus a 5% fee
  • At least half of shelf space shall be for malt and brewed beverages.
  • Restriction on selling gasoline and alcohol at the same location is eliminated.
  • The board determines other items that may be sold by a D acquiring a W/S retail license
  • D's hours of operation are extended until 2am every day
  • ID's and D's may, but are not required to, accept credit card payments from licensees.

Wine and Spirits License (Other than D Licensees)

  • Any of the 1,200 W&S licenses not sold to distributors will be made available to others after 1 year, including R licensees. Non-D licensees can maintain an interior connection if approved by the LCB. Grocery, pharmacy and big box stores would qualify.
  • License prices are about 5.5 times higher for non D licensees purchasing a W&S license (except R licensee fee identical to the D fee)
  • Operating Hours: 9:a.m-11 p.m. (Mon-Sat)-9 a.m.-9 p.m. (Sun. w/$1,000 annual permit).
  • Any entity can own up to 5 W&S licenses/no more than one per county
  • License Renewal every 2 years at $1,000

Additional Wine and Spirits Licenses Issued

  • An additional 600 wine and spirit retail licenses may be issued by the LCB in the future as LCB stores are eliminated. Licenses issued on a county basis
  • D Licensees get first opportunity to purchase during first year.
  • After the first year, other entities could purchase remaining licenses
  • License fees remain the same.

Distributor (D License) Package Reform Permit/Multiple Stores

  • Allows sale of 12-packs, 6-packs or smaller packages prepared for sale by the manufacturer / but not less than 60 oz. (Break the Bulk, no 18-packs)
  • Allows the sale of filled growlers.
  • Annual permit fee is $1,000
  • A person may not possess more than five (5) D licenses total, or more than one (1) D license in a county.

Grocery Stores License-"G" License

  • New Grocery Store ("G") license created, which can be owned with an R.
  • G licensees must be at least 10,000 sq. ft. and primarily sell food for off premises consumption
  • Quota on G Licenses: One per 15,000 of population per county (minimum 2 per county), or approx.. 820 state-wide.
  • Can sell up to 12 bottles of wine in any one sale and cannot charge a membership fee ("Club" stores qualify by not charging a fee to purchase alcohol)
  • License fees range from $97.5K to $187K by class of county. Renewal fees are $2,000 or $4,000 based upon county.
  • Operating Hours: 7 a.m.-11 p.m. (Mon.-Sat.)-9: a.m.-11 p.m. (Sun. w/ &1,500 annual permit)
  • G stores must buy wine from the board, a W/S wholesale license or a winery licensed by the Commonwealth and may not sell wine at a price less than its underlying cost.
  • Maximum of ten (10) foot wide interior connection does not apply to a G license.

"R" Licenses (Including Grocery and Convenience Stores)

  • Restriction on selling gasoline and alcohol at the same location is eliminated.
  • Can obtain an R license with all privileges, including sales from a common cash register.
  • "Eating Place" (E) License can upgrade to R License for a one-time fee of up to $30K.

Retail Licensee Package Reform (R-E-and Hotel (H))

  • Allows sale of beer up to 384 ounces in no more than 24 original containers (in 12-packs, 6-packs or smaller packages prepared for sale of distribution by the manufacturer). This means the equivalent of "cases" of beer in grocery and convenience stores with and R.
  • Annual permit fee is $500.

Wine-To-Go Permit (R and H Licensees)

  • R and H licensees can purchase a permit to sell up to 6 bottles of wine and theunconsumed portion of a bottle of spirits (sip- and- go) for off-premises consumption
  • R licensees with an interior connection to another unlicensed business (Licensed grocery and convenience stores) would not qualify for the permit.
  • Annual permit fee is $500.

Closure of State Stores

  • Gradual phase down of 600 existing state liquor stores.
  • Phase-out conducted by county. When the number of W&S licensees and G licensees in a county equal the number of state liquor stores, one liquor store may be closed.
  • When the number of W&S licensees and G licensees in a county equal 2 times the number of liquor stores, all liquor stores in the county must be closed.
  • Upon the time when less than 100 liquor stores are operating state-wide, all liquor stores in the state must then be closed.
  • LCB wholesale system privatized.

Other Provisions

  • Range of fines for citations increases from $50-$1,000 to $250-$5,000(for unenhanced violations) and $1,000-$5,000 to $5,000-$10,000 (for enhanced violations).
  • Mandatory suspension for sales to minors or VIP's of at least 2-consecutive weekend days for 2nd offense and at least 7-consecutive days of operation for 3rd or subsequent offense.

Summary: If every distributor exercised its option, and if, as predicted, every supermarket would feel competitive pressure to get into selling at least beer and wine, we would expect the market to look as follows:

  • 1,200 Ds selling beer, wine and spirits.
  • 820 supermarkets selling beer and wine with a "G" and "R" combination.
  • 600 supermarkets (or big box) selling beer, wine and spirits as a "W/S and "R" combination.
  • 10,000 retail establishments (including convenience and other grocery stores) selling beer by the case and wine by the half-case (thousands of grocery and convenience stores that would be forced to compete by buying an "R" but only selling beer).
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