Alcohol Law Changes Test Public Policy Balance

By Arielle Albert and Brian Fink
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Law360 (April 8, 2021, 2:44 PM EDT) --
Arielle Albert
Arielle Albert
Brian Fink
Brian Fink
Legal reform is a slow process, especially for the highly regulated alcoholic beverage industry. But during the COVID-19 pandemic, states are moving at breakneck speed to transform their alcoholic beverage laws. The temporary solutions to prop up the struggling hospitality industry are maturing into long-term legislative reforms. 

This article explores the changing landscape of alcohol beverage laws resulting from the COVID-19 pandemic, the benefits of such reform for the industry and the potential difficulties states will face in their enactment. 

An Age-Old Tale

As laws across the country continue to expand the rights of restaurants, bars and package stores to address a post-pandemic reality — by allowing bars and restaurants to sell to-go and package stores to sell curbside — and to authorize increased delivery rights, we should not lose sight of the policies and experience underpinning the limitations once in place.   

Before Prohibition, bars, referred to at the time as saloons, served as the primary source for alcohol consumption, both for on-site and to-go. Bars stayed open day and night, seven days a week. They offered customers free or cheap lunches, drinks on credit and other incentives to promote increased consumption.

Many felt that overconsumption and other perceived evils emanating from consumption became an unhealable wound for their communities. Prohibition was enacted to eradicate these and other problems.

At the repeal of Prohibition, the states, newly empowered by the 21st Amendment, kept these social ills in mind when implementing alcoholic beverage laws.

Many states aimed to shift consumption from bars to the home, hoping consumers would drink more moderately. This shift was accomplished by allowing bars and restaurants to sell alcohol for on-premise consumption while package stores were permitted to sell for off-premise consumption.

The separation of privileges between on- and off-premise establishments also achieved another objective — to make purchasing alcohol more difficult, less routine and reserved for adults. Consumers now had to visit a package store or state-run liquor store to buy alcohol. Alcohol for home consumption was no longer an incidental purchase while shopping at the food market or dining at a restaurant or bar with children.

Additionally, state limitations on items package stores could sell deterred frequent visits to the store by children. For example, New York restricts the items a package store can sell to alcohol and its accoutrements, like ice, wine glasses and gift bags, which substantially reduces any need for minors to patronize the store in search of candy and other enticing products they could legally purchase. 

Shifting Tides

In spring 2020, out of concern for public health amid the COVID-19 pandemic, states across the country prohibited or restricted indoor and outdoor service by restaurants, bars and other businesses seeking to promote social distancing. To offset the losses resulting from these actions and to keep restaurants and bars alive, governors and legislatures swiftly instituted emergency measures allowing them to sell alcohol to go, a privilege long unavailable to these establishments.

Restaurants and bars seized this lifeline, pivoting from their core business to selling food and beverages to go. Restaurants from New York to California were now selling premixed drinks to go, pursuant to executive orders and corresponding agency guidance. While these privileges were consequential to the survival of on-premises establishments, they also tested the long-standing policy of separating on-premises consumption from off-premises sales.         

As the COVID-19 pandemic dragged on, many sought to make these emergency measures permanent. What emerged is becoming a national trend. In June 2020, Iowa became the first state to make to-go sales of cocktails and mixed beverages a permanent privilege for restaurants and bars.

The next month, Colorado and Michigan followed. By the end of 2020, Oregon and Ohio permitted to-go sales of alcoholic beverages by on-premises licensees and, on March 15 and March 17, respectively, Kentucky and New Mexico joined their peers. At least 18 other states[1] have pending similar legislation.

In summary, the new or amended laws tend to fall into three categories. First, some states, like Michigan, apply only to alcoholic beverages filled by the retailer, such as cocktails, wine and beer poured into sealable cups, but do not permit the sale of alcohol in containers sealed by the manufacturer. Privileges proposed in Wisconsin fall into this category.

Second, other states, such as Kentucky and New Mexico, primarily limit to-go sales to containers sealed only by the manufacturer. Proposed legislation in Pennsylvania and Washington includes similar limitations.

Finally, states like Iowa allow restaurants and bars to sell alcohol mixed and poured at the licensed premises and containers of wine, beer or spirits sealed by the manufacturer. Pending legislation in Maryland and Oklahoma follows suit.   

While the laws and pending legislation differ across the country, many share common features. Perhaps the most widespread similarity is a requirement to purchase food with to-go alcohol.

Some of the benefits to this requirement, whether intentional or not, promote safe consumption by encouraging consumers to eat while drinking alcohol, limiting bar culture in favor of social distancing, and safeguarding package stores from encroachment by on-premises establishments newly equipped with similar rights to sell off-premises.

This safeguard may also be a nod to the package stores in recognition of the compromise they made post-Prohibition: to limit what they could sell in exchange for the mostly exclusive right to sell alcohol for off-premises consumption. Kentucky and Oregon both added this requirement to their laws, and proposed legislation in Arizona, California, Nebraska, New Hampshire and Texas did, as well. 

Other safeguards implemented or included in pending legislation in support of safe consumption include caps on to-go sales and specifications regarding the amount or type of food purchased with alcohol. For instance, S.B. 57 in Wisconsin would limit delivery sales that included alcoholic beverages to 50% of a retailer's annual sales.

The new law in Oregon limits the number of alcoholic beverages sold with each "substantial food item" to two. Similarly, Kentucky's new law limits the quantity of alcoholic beverages sold in each order to quantities that a reasonable person would ordinarily purchase with food.

Finally, while many states have made these rights permanent, a handful of laws contain sunset provisions, which will automatically repeal the new laws without further legislative action. Laws in Illinois and Oregon are set to expire in June, and another in Maine is set to expire Sept. 10, 2022.

Off-premises licensees are seeing changes to their industry, as well. In the past year, Arkansas, Georgia, Ohio and Oklahoma have all passed laws that permit package stores to deliver alcohol, with Mississippi and Alabama close to implementing similar laws.[2]

Such privileges may be seen as an concession to package stores, now sharing their right to sell for off-premises consumption in many states, but are more likely indicative of a trend in place before the pandemic, as states have been passing delivery laws for the last several years.

Where Do We Go From Here?

These legal and regulatory changes test the extent to which states can obtain a policy balance between modern convenience and the safe, moderate consumption of alcohol. Open-container laws, drunk-driving laws and requirements that to-go sales be made in manufacturer-sealed containers act in tandem to promote these policies.

In assessing what changes will help restaurants, states must continue to balance convenience and temperance.

Though rooted in public health to minimize the spread of COVID-19, sale of wine and spirits by restaurants clearly blurs the sharp line between on- and off-premises licensees and may be viewed as part of a larger trend.

Since 2019 when the U.S. Supreme Court published Tennessee Wine and Spirits Retailers Association v. Thomas,[3] which held that a durational residency requirement for a Tennessee liquor-store license violated the commerce clause of the U.S. Constitution, licensees and other interested parties have challenged alcoholic beverage laws as similarly discriminatory.

Many of these legal challenges come from out-of-state sellers questioning the validity of a law that apparently benefits their in-state coequals. Their arguments often rest on the presumption such laws are anti-competitive or detrimental to consumers. The details of these ongoing challenges are mixed, but the tide moves in the same direction.

Most recently, on March 24, in Sarasota Wine Market LLC v. Schmitt,[4] the U.S. Court of Appeals for the Eighth Circuit denied a Florida wine retailer's request for rehearing and en banc review of a case involving an out-of-state alcoholic-beverage retailer's challenge of a Missouri law that prohibits shipments of alcohol from out-of-state retailers.

The Eight Circuit affirmed the opinion of the U.S. District Court for the Eastern District of Missouri, noting that Tennessee Wine does not gut a state's right under the 21st Amendment to license and regulate the alcohol industry within its borders.

The Eight Circuit grounded its post-Tennessee Wine analysis, in large part, on the U.S. Court of Appeals for the Sixth Circuit's reasoning in Lebamoff Enterprises Inc. v. Whitmer,[5] concluding that a Michigan law permitting only in-state retailers to deliver wine to its residents unconstitutionally discriminated against out-of-state retailers. The Supreme Court denied certiorari for this case on Jan. 11.

Thus, state legislatures and state and federal courts are increasingly confronting modern policy rationales that, at least on their face, contravene traditional policies that have shaped alcoholic beverage laws for nearly a century.

New to-go privileges for one set of in-state retail licensees localize these battles. Consumers and industry members have become more comfortable with these new channels for alcohol sales and distribution. As the patchwork of alcoholic-beverage regulation becomes more engrained in the marketplace, legislatures will not be able to simply sever them from their books.

Some of the safeguards states are crafting could inhibit the on-premises industry down the line. In the short term, capping to-go sales may be an effective safeguard against encroachment into sales traditionally made by off-premises licensees.

Delivery of beer, wine and liquor in manufacturer-sealed containers from package stores has boomed in the last decade and a cap like this could maintain the competitive balance between off-premises and on-premises retailers.

But long-term, this may test the viability of on-premises operations designed around delivery. With the rise of food and grocery delivery, this cap could prevent restaurants and other on-premises retailers from innovating with the market.

Conclusion

Can any legislation provide a suitable balance between convenience, profits and the core values of responsible adult consumption? Only time will tell. Nevertheless, these nationwide changes to alcoholic-beverage regulation are likely here to stay.

It may be years before restaurants, bars and other on-premises retailers recover from the economic hardships wrought by COVID-19, and these new to-go privileges are a lifeline for them. 

As these changes entrench themselves in the regulatory framework of alcoholic beverages, states will likely face opposition from other licensees, whether in-state or out-of-state. But if such laws are successful, more reforms are sure to come, supporting all who argue that "Prohibition is over" and calling for more modern regulation within the industry.



Arielle J. Albert is a partner and Brian Fink is an associate at Danow McMullan & Panoff PC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[1] Arizona, H.B. 2773; California, A.B. 1242; Colorado, H.B. 1027; Florida, S.B. 148; Georgia, S.B. 236; Kansas, S.B. 257; Maryland, H.B. 1152 & H.B. 1241; Missouri, H.B. 547; Nebraska, L.B. 72; New Hampshire, S.B. 66; New Jersey, A.B. 4719; Oklahoma, H.B. 2122; Pennsylvania, H.B. 772; South Carolina, S.B. 524; Texas, H.B. 983, H.B. 1024 & H.B. 1779; Washington, S.B. 5394; West Virginia, S.B. 347; Wisconsin, S.B. 57.

[2] Arkansas on March 1; Georgia on Aug. 3, 2020; Ohio on Dec. 22, 2020; and Oklahoma on May 21, 2020.

[3] Tennessee Wine and Spirits Retailers Association v. Thomas , 139 S. Ct. 2449 (2019).

[4] Sarasota Wine Market LLC v. Schmitt , Case No. 19-1948 (8th Cir. 2021).

[5] Lebamoff Enterprises, Inc. v. Whitmer , Nos. 18-2199/2200 (6th Cir. 2020).

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