Beer Blotter

Latest polls has I-1183 at a split.

***This post was originally published on Brewery Law, a blog authored by Seattle attorney Douglas Reiser. Doug provides regular legal commentary for BeerBlotter.com***

A couple of weeks back, I dropped a line on Washington’s newest liquor initiative. The results of the first Elway Poll have already surfaced and my expectations have prove true: Washingtonians are split right down the middle.

Washington’s Initiative 1183 (I-1183) calls for privatization of the liquor system, relaxation of beer and wine sales restrictions and licensing of private vendors. Last year, I-1100 lost by a narrow margin (53-47). It appears that I-1183 will be a hard fought battle for both sides of the initiative.

According to the Seattle Times, the Elway Poll showed that 50% support it, 38% oppose it and 12% are undecided. Well, it cannot get much closer that that. Each of the voters in that 12% undecided group can get ready for a firestorm of political ads and campaigns to help sway your vote.

The newest article also shows that the opposition group, Protect Our Communities, recently received $4 Million in funds. Those coffers will allow the opposition to go toe to toe with big spender Costco, who has pushed the passage of this initiative.

Stay tuned for more. This won’t go away until November; or as last year showed, until it actually passes.

Private liquor stores in WA!? Nope, but maybe at your local Costco.

We can all curse it – we can all love it. The fact of the matter is that another voter initiative is here and its hoping to break liquor from the controls of the state. Will this new one be bringing additional changes to the current alcohol regulation scheme? Yep.

Last year, I-1100 took Washington by storm. That voter initiative that was funded primarily by Costco and was the topic of conversation on this blog and many others for a matter of months. In the end, I-1100 lost by a fairly narrow margin of 53-47.

This year’s initiative took a different approach – scale back the “open market” approach, raise money for the state and file late.

I-1100 was an open market proposal aimed at pulling all sales restrictions on all products. That proposal drew the ire of the Washington Beer Commission who feared wholesale discounts for out of state producers, less shelf space and the emergence of tied-houses. I-1183 heard that disdain and decided not to mess with prohibitions against shelving deals, credit sales and other wholesale discounts.  Convenience stores are not going to have the opportunity to sell liquor under the new initiative – only specially licensed stores with adequate (10,000) square footage.

The Washington Beer Commission has not made their position public, but I suspect they will have a different response. The law simply doesn’t raise as many flags as last year’s proposal.

Perhaps the most helpful to this year’s movement is its focus on putting money in the state’s pockets. According to supporters, I-1183 puts close to $200 Million in the state’s pockets over the first two years, allowing it to finance healthcare and alcohol control programs. Making the state money without having to make it work? That might sound appealing to most voters – well, at least those who aren’t employed at state liquor stores.

Finally, I-1183 benefits from its late arrival. By waiting until the final days to both file their initiative and file their signatures, I-1183 prevented a competitive piece of legislation from arising and distracting voters. Last year, I-1105 was filed by booze distributors and was blamed for distracting voters. This year – I-1183 stands alone on the ballot.

The problem is that distributors made a different type of stance this year – through the legislature. Senator Mike Hewitt (R-Walla Walla), a former booze distributor, pushed a bill through the legislature that allows the state to entertain offers to lease the liquor sales system to a private distributor. Many were angered when Gov. Gregoire signed the law this summer, but I wonder whether it will actually have an effect on what the state does going forward. In order for the law to have an effect, the state would have to find a suitable bidder to lease the entire monopoly and have the legislature approve it, all before the voters pass I-1183. In doing so, the state would have to find a bidder willing to make an offer with the risk that it will be embroiled in a contract dispute with the state if the initiative passes. If it seems like a mess – it is.

As of this week, Costco had committed to donating over $2.2 Million and Trader Joe’s had pumped in $50,000.00. The Washington Restaurant Association and the Northwest Grocery Association are also publicly behind the initiative. Early reports are that small winery groups are going to support it, while larger outfits will oppose it.

While we await the formal position of the Washington Beer Commission, take some time to review the new initiative in its entirety. While a thrilling read (joke), you might be more interested in the condensed version of key facts provided by the initiative’s writers.

Get ready for another politically charged year of booze battles. Here we go again.

The law books will have to wait for a change. I-1100 has been defeated.

Well, its over. Both of the private liquor initiatives have failed to win the hearts of Washington voters. Even though there are still some votes to count, the battle is over.

But why did voters not embrace this initiative?

This year the elections were charged by an eagerness to reduce taxes and eliminate the government stranglehold on business. Nationwide, voters made it clear that they felt that big government had failed.

With voters looking to reduce taxation and governmental control, you would think that an initiative to eliminate Washington’s monopoly over liquor sales would prevail, right? How about an initiative that, as both sides would argue, would reduce the costs of beer and wine sold in Washington state? Hole in one, eh?  Nay.

Washington voters listened to the issues and voted with their brains, and not their hearts. I firmly believe that Western Washington’s love for its communities, defeated these measures. They listened to the local businesses that they support and decided that I-1100 was not for them and their families. (Note: I-1105 was defeated roundly). The massive amount of money that was dumped into this initiative appears to have been put to good use, as public education significantly assisted the “No” campaign.

So, what’s next?

One thing is for sure, it was a close call. The I-1100 vote came down to the final votes. The dividing line is not too wide.

Secondly, many of the organizations that supported the “No” campaign, including the Washington Brewers Guild, are not against the concepts of liquor privatization and free markets. They simply do not want it to happen overnight.

The one sentiment that I believe most shared was that overnight deregulation could be disturbing for businesses in the industry. Most of these groups might have been willing to get behind a measure that built in gradual deregulation. Heather McClung, owner of Schooner Exact Brewing, stated that the Guild’s members favor “slow, steady growth in modernizing those laws.” So, its possible they would get behind some, better crafted, legislation.

Finally, this was a voter initiative and not a legislative measure. Public citizens drew up significant changes to Washington state law (called for the repeal of 26 state laws), and I believe that it frightened some people. If a more gradual measure was to pass through the legislature, it might have more footing.

In the end, I suspect that there will be a congressional push to get proposed legislation circulated in the legislature. In the next few years, the State of Washington will likely have some form of private liquor sales and a more deregulated alcohol business. I would take those betting odds.

Fish Brewing does not fear 1100.

Ok, so I lied. Well, kind of.

I know that last time I said that I would be done discussing I-1100 and I-1105 on this blog – and I am. Tomorrow is the big day and we can all put the debate to bed.

But, I received a letter penned by Fish Brewing Company’s Sandy Berry. Since I promised to kill talk of I-1100 on this blog, I shelved it. But with election day coming tomorrow, I thought I had an obligation to let a brewer speak his mind on the debate. This is especially true because this brewer takes the opposite position of many others.

Read the letter below, and remember to vote tomorrow:

Why this brewery does not fear I-1100

 

By Dr. Sandy Berry, Director of Fish Brewing Company in Olympia

“The Greatest Threat to the Washington Craft Brewing Industry in a Decade” is the well intentioned but misguided campaign of the Washington Brewers Guild against Initiative 1100, and is based on fear of the unknown. Get over it and remember your strengths: great beer.

 

The greatest strength of the craft beer revolution is the ability to connect the local beer consumer with the truly local small brewer. This was true early on, and the craft beer market is still at its foundation a brewpub revolution. It’s brewpubs operating as brewpubs – not as regional-bottling wannabes.

 

The craft beer market is immune to the fears of bottling distribution hassles: shelf-space, distributor attention and pay-to-play ploys. The ability of brewpubs and craft breweries to make and direct-distribute draft beer in local markets will remain intact under I-1100. You are still as likely to have a new brewpub open down the street and succeed because it is local and makes great fresh beer.

 

Dismantling direct liquor distributor control has not hurt California, which has a vibrant craft beer and small-wine industry.

 

The myth is that the three-tier system is a small brewery’s friend. All emerging small breweries or brewpubs have stories of underperforming distributors that they may be required to use to extend geographical reach. Distributorships are a protected business model, so they do not always service their customer: the beer producers.

 

Imagine under I-1100 that there were no territories, just the entire state, with anybody able to become a distributor. Only those who gave true value to their brewery producers would succeed.

 

The fear is the sky is falling and it will squash the poor little craft brewer. Guess what? It already has fallen, and the Washington craft brewers have prospered. Many taverns are what I call “yellow” beer taverns, and are purveyors of mega-brewery beers. The traditional beer factory syndicates have lost a generation of beer drinkers by not understanding the importance of craft beer.

 

Having more direct yellow taverns would not attract the craft beer drinker, who will continue to support taverns that have craft tap handles and have a very local flavor. Besides, we already have chain craft-beer establishments, which function like tied houses but are not legally tied houses – McMenamins, the RAM – and brewpubs remain successful.

 

The fear is craft brewers will lose shelf space to mass-produced beers. Please. The “safeguards” of the current system have been so often circumvented or rarely enforced that we may as well legally remove them. We make a better product, sold to loyal beer drinkers who like local, fresh and interesting beer.

 

Loss of shelf space to liquor is another false fear. Shelf space will remain in the larger grocery stores for craft beers, because it is high profit and high volume for the grocer.

 

The Washington Brewers Guild and all craft brewers should remember their strength: the public and most legislators support your success story. You have good political capital in Olympia. The Legislature will still likely have to look at the issues around beer, wine and spirits even after I-1100 passes.

 

It is at this point, after I-1100 becomes law, where I think the craft brewing community will have a voice in addressing the realistic concerns of our small businesses.

 

The unspoken fear from brewers: the upper side of the craft beer pyramid (bottling or regional craft brewers as opposed to the truly small and pub craft brewers) are loathe to offend the hand that they think feeds them: beer distributors.

 

They don’t wish to be seen in support of dissolving that same distributor business system, with whom many brewers are secretly frustrated.

 

It’s time for the industry as a whole to stop protecting one side from another, and instead support changes to the law that open the marketplace to competition and innovative free enterprise – the very mantra of the craft brewer.