HB 69 - ALCOHOLIC BEVERAGE CONTROL BOARD Number 1806 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 69, "An Act relating to the Alcoholic Beverage Control Board; and providing for an effective date." He commented he would entertain a motion to adopt the proposed committee substitute (CS), Version G, for discussion. Number 1868 REPRESENTATIVE HARRIS made a motion to adopt the proposed CS for HB 69, labeled version 1-LS0354\G, Ford, 2/19/99, as a work draft. There being no objection, Version G was before the committee. Number 1898 JANET SEITZ, Legislative Assistant to Representative Norman Rokeberg, Alaska State Legislature, came forward to explain the proposed CS, as aide to the House Labor and Commerce Standing Committee. She stated Version G adds some language about limited liability companies (LLCs) and limited liability partnerships (LLPs), referred to as limited liability organizations. This is at the request of the board [Alcoholic Beverage Control Board (ABC Board)], because they were having some problems with licensing in that area. That language is in Sections 1 to 3, 5 to 8, 10, and 11. Section 4, on page 3, makes amendments so that brewpub licensees are allowed to sell their manufactured beer, not only on the licensed premises where the beer is made, but at other licensed premise of that same licensee. Section 9, beginning on page 4, adds a corkage clause to the statute, which means that you can bring a bottle of fine wine, for example, into a restaurant and the restaurant will charge a fee for the stemware and costs. She noted one of the proposed amendments [G.2] would make this corkage option subject to the agreement of the licensee. Section 12 extends the termination date of the ABC Board to June 30, 2002. That is the only bill section with an immediate effective date, all the other sections have a July 1, 1999, effective date. Number 2021 REPRESENTATIVE MURKOWSKI commented she was unaware of any state besides Utah with a corkage fee, and wondered what the reason is for inserting the corkage clause into the bill. CHAIRMAN ROKEBERG responded that it is a common practice in most states but existing Alaska Statute prohibits corkage. He noted it also a very customary ability throughout the world. REPRESENTATIVE HALCRO commented that in some countries, such as Japan, you can actually buy a bottle of Scotch [whisky] and leave it at the restaurant for the every time you come in. He asked, "Is this what you're envisioning?" Number 2060 CHAIRMAN ROKEBERG indicated having one's own wine bin on a premise has been known to happen. The chairman said the bill represents a good deal of what was in the prior legislation from the last legislature - a significant part of the language, and the limited liability organizations. He pointed to both LLCs and LLPs in the definition section. The chairman continued that Section 4 would probably be the section in question today. For the committee's reference, he briefly described the different types of alcoholic beverage licenses: 1) The beverage dispensary license, allowing the sale of cocktails [hard liquor]. 2) An endorsement, allowed by the Alaska Statutes, to a beverage dispensary license to be a brewpub; a brewpub has to be a beverage dispensary licensee to get an endorsement to be a brewpub. 3) The grandfathered brewery-restaurant or GBR, in the chairman's words, also known as taverns. Chairman Rokeberg commented there was a period about four years ago when the legislature allowed these, and then another bill he sponsored disallowed these. The chairman stated there were only four [five] of those licenses grandfathered in Alaska, commenting one of those had gone out of business and that testimony would be heard from two others today. He noted one of the problems resolve around these unusual licenses. 4) The brewery license itself, which is separate from the brewpub or the grandfathered brewery restaurant license. He stated he wanted to take up amendment G.1 [labeled 1-LS0354\G.1, Ford, 2/23/99] and hear testimony on that. The chairman noted there was also another amendment before the committee [labeled 1-LS0354\G.2, Ford, 2/24/99]. Number 2224 MARY JACKSON, Legislative Assistant, Senator John Torgerson, Alaska State Legislature, came forward to testify on the proposed G.1 amendment. She stated that the amendment before the committee relates to package store licenses. Last year there was a bill, SB 138, and many portions of that bill were supported by the ABC Board, including this amendment which was in SB 138. She noted SB 138 had died in the Senate Finance Standing Committee the previous session. Ms. Jackson commented Senator Torgerson felt very strongly about this amendment and she stated, "A little over a year ago, we had a contact by constituents, and their request was that they 'piggyback' on some of the economics boom of the cruise ship business. ... What they wanted to do then was supply bon voyage gifts of flowers and candy and champagne, and order to do that, of course, they needed to have the ABC Board get involved. What we did, as an office, and Senator Torgerson actually personally, worked with these people. We took it to the ABC Board; the ABC Board reviewed it, they considered it, and they thought it was actually a pretty darn good idea, too. They worked with us, and we in turn, worked with Senate Bill 138 language and inserted the language that you see before you now as an amendment. I have reviewed this amendment language and it is the exact same language as was in old Senate Bill 138. I also spoke, just today ..., with Director Griffin of the ABC Board; they supported all of these amendments." REPRESENTATIVE HALCRO asked, "The package store, meaning the liquor store, can sell to a florist, who then puts the bottle of wine or champagne in a basket and takes it to the ship?" MS. JACKSON responded, "That's correct." REPRESENTATIVE HALCRO asked, "Now the florist has to have -- I mean, according to this, the delivery ... has to be made by somebody who has undergone the server training." MS. JACKSON replied that is her understanding too. REPRESENTATIVE HALCRO asked, "If I have gone under the server training, what am I doing working in a florist shop?" Number 2335 MS. JACKSON responded, "I believe the only reason you're working there is to make money, and so you're going to do whatever your boss tells you to do, and that included delivering to a cruise ship with a bottle of champagne, and if part of your job is to have this license so that you can do that. More than likely, though, honestly, I suspect that it would be the owner of the business that would provide that function." REPRESENTATIVE HALCRO stated that he thinks it is a great idea, but he indicated his concerns are with penalties to those without server licenses, enforcement, et cetera, for those requested to make deliveries by their florist employers. MS. JACKSON stated that she did not know the answer to that, but that she'd assume the responsibility would mainly be on the employer who directs the employee to do this knowing the employee does not have the license. Number 2380 REPRESENTATIVE BRICE asked, "Where does the responsibility fall if you have a couple of teenagers ... placing orders to get wine and champagne and how is that dealt with?" MS. JACKSON replied that she believes, as before, that the responsibility falls on the licensee, the owner of the florist shop, in this case. She noted there could be others, for example a candy shop that sold flowers and gifts. Ms. Jackson commented this is really a very interesting proposition to "piggy-back" on the thriving Kenai Peninsula tourism industry, at least in Homer and Seward from all kinds of Outside cruise ships. REPRESENTATIVE MURKOWSKI referred to Section 6(k), relating to the delivery of alcoholic beverages, seeking clarification on the term "responsible adult" and the phrase "the social event as defined by regulation of the board." MS. JACKSON replied that she was not sure of the definitions. She stated that her office had very little to do with the language of the bill as it was drafted. The bill was drafted by the ABC Board, they approved the language which works with all of their regulations. She offered to find the specific information. Number 2469 CHAIRMAN ROKEBERG commented the director of the ABC Board is online via teleconference. REPRESENTATIVE BRICE indicated his guess is the first sentence of Section 6(k) of amendment G.1 ["* Sec. 6. AS 04.11.150 is amended by adding new subsections to read: ... (k) A package store license authorizes the licensee to deliver alcoholic beverages between the hours of 8:00 a.m. and 5:00 p.m. to a responsible adult at the location of a wedding or wedding reception or ..."] probably refers to delivery to someone who is sober. REPRESENTATIVE SANDERS commented, "I kind of think the answer to that is farther down there where it says, 'They must provide acknowledged receipt of the alcoholic beverage in writing'. When they acknowledge the receipt, they are the responsible adult at that point." Number 2501 MS. JACKSON added, "Mr. Chairman, if I may too make note that much that is by regulation of the board, so..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] TAPE 99-15, SIDE B Number 0017 CHAIRMAN ROKEBERG asked if there were further questions on this amendment. REPRESENTATIVE BRICE indicated one of the provisions in Section 6(k) of the amendment that he did not see in Section 6(j) was the written acknowledgment of proof of age for the person receiving the alcoholic beverage delivery. He asked if there is any particular reason for that. Number 0044 CHAIRMAN ROKEBERG commented he thought it is because of the different fact pattern: subsection (k) refers to this gift package being delivered to a vessel and subsection (j) refers to a delivery being made to an entire wedding reception. He commented he did not think an underage person would go to an entire ruse to have a bottle of champagne with flowers delivered to him or her on a ship. REPRESENTATIVE BRICE asked, "Or to a hotel room, possibly?" REPRESENTATIVE HALCRO confirmed that specific hours, between 8:00 a.m. and 5:00 p.m., would be set for deliveries to weddings, but no times set for deliveries to ships. CHAIRMAN ROKEBERG said perhaps Mr. Griffin can make a distinction regarding Representative Brice's question. Number 0105 JIM ELKINS, Elkins Tatsuda Liquor; Board Member, Cabaret Hotel and Restaurant Retail Association (CHARR), came forward to testify on the proposed G.1 amendment on behalf of Elkins Tatsuda Liquor in Ketchikan, Alaska. He commented that he didn't believe CHARR has developed any opinions on this issue, but he has some. Mr. Elkins commented he thinks the flow of goods is wrong for security reasons. The candy, flowers, et cetera should go to the liquor store and be delivered by the licensee. He thinks there's a lot more control, that's where the liability for wrongdoing is anyway, and the staff are already trained. The one problem Mr. Elkins has with a cruise ship, from a security standpoint regarding delivery to minors, et cetera: nobody delivers anything past the main entryway of a cruise ship. He indicated the deliverer has no control over the delivery past that point. Mr. Elkins commented the committee might also want consider expanding it beyond floral and candy, especially when delivering to hotel rooms, to include crackers, cheeses and meats - something a grocery store might want to participate in. He also mentioned Christmas baskets. CHAIRMAN ROKEBERG asked Mr. Elkins if he was recommending that the chain of delivery on the hotel/cruise ship provisions under subsection (j) of the amendment would be that the package store would put this together and make the delivery. Number 0195 MR. ELKINS agreed, commenting it doesn't mean the florist shop couldn't sell the package. CHAIRMAN ROKEBERG referred to the absence of licensed florists and said that this would also give the package store the last opportunity to apply a mark-up. The chairman commented the committee would be holding HB 69 over and confirmed that concluded Mr. Elkins' testimony. MR. ELKINS said he would wait to testify on the bill itself. Number 0263 DOUG GRIFFIN, Director, Alcoholic Beverage Control Board, testified next via teleconference from Anchorage. The large part of the change the ABC Board wanted the committee to address was the entire question of dealing with limited liability companies allowed under state law several years ago, but not specifically addressed in Title 4 of the Alaska Statutes dealing with alcoholic beverages. He said, "This has created a lot of problems for my licensing staff, some problems for some of our customers, [and] frankly, some of the licensees. And we've been operating for several years under an attorney general's opinion that has not been quite as easy ... to implement as if we had a very clean law, which we think we have now in this bill, to be able to address this new type of business organization that is becoming very popular. ... A lot of this bill deals with that, ... and we can get into details and probably Linda Kesterson, the assistant AG [attorney general] to the ABC board, is probably the best person to address that." Mr Griffin continued, "When the bill first came to us, we did have some concerns about this new term 'a limited liability organization', but I think Linda talked to your staff, Mr. Chairman, and we've basically come around to the feeling that this does, in fact, address the concern that the board had, and it does provide us a much more workable framework in which to license different types of limited liability organizations, whether they be partnerships, or companies or corporations." Mr. Griffin indicated that concluded his comments on regarding that part of the legislation. Number 0344 MR. GRIFFIN stated, "On the corkage issue, I know ... we did request, because ... no matter who brings the alcohol to the ... restaurant, we need to hold somebody responsible in the service of alcoholic beverages, and we felt that that needed to be spelled out. And I do see in the amendment, you haven't yet adopted it, but that you do talk about inserting that the licensee has to provide the permission, and with that, we would hold that person responsible. So, if they got somebody in a drunken condition, even if it was with their own wine, we would still hold the licensee responsible for that action." Mr Griffin further stated, "I did talk to our chairman, Bob Klein, he thought that as long ... -- he didn't really see the need for the limitation of the one bottle for every two persons, as long as you held the licensee ultimately responsible, so that's just his perspective. I think he was thinking more of people that might want to just have ... relatively small portions of several wines in some type of a wine tasting situation, maybe a different wine with each course of dinner, that type of thing, and of course if you had enough people in your party you could do that .... MR. GRIFFIN continued, "But he's not speaking on behalf of the board, because we haven't taken this up as a board, but he's speaking as chairman of the ABC Board. So, I did tell him I'd pass along his comment on the corkage, for whatever it's worth. ... From my perspective, I don't really have strong feelings about limiting how much wine you bring in. I think ultimately, as long as we can hold the licensee responsible, that's really the bottom line, and that they ... provide this corkage service with responsibility and common sense ,and moderation for the consumption of the wine. And I guess the last thing, just in the original bill, is the extension of the board to 2002 ... That's very important under the sunset provision that the board be extended. I think the board serves a very important purpose to the state, ... in a state that does have the number of problems with alcohol abuse that we have, that we do need a regulatory framework to be able to license and enforce the liquor laws of the state of Alaska." Mr. Griffin noted that concluded his remarks and stated the board is in support of the original Version G. CHAIRMAN ROKEBERG noted Mr. Griffin had omitted comments on Section 4 with regards to brewpubs. Number 0493 MR. GRIFFIN said the drafting of this provision is in keeping with the general thrust of the board's position the previous year with SB 138. He indicated the committee would hear from one brewery-restaurant whose situation is not completely addressed by this section. Mr. Griffin said this provides an incentive to these brewery-restaurant combinations to get a beverage dispensary license. Senate Bill 138 contained the provisions allowing beer manufactured at one location to be sold at another premise licensed to the same company, group or person; and the requirement that other beer a brewpub manufactured had to be sold through a wholesaler, so there are no problems with those provisions. He commented it is not identical to the previous legislation, in fact going a little further, but is really in keeping with the board's desire to try to straighten out this whole brewpub/brewery issue. It is certainly one way to start trying to settle this once and for all. The existing law does restrict to having only one establishment, not allowing them to have other restaurants and expand their businesses. Mr. Griffin stated the board is in support of these sections. REPRESENTATIVE SANDERS referred to his occupation as a longshoreman, noting he believed many of the other committee members also do not have wine cellars. He asked Mr. Griffin if the ABC Board would have any objection if the committee amended this to say that people could bring wine or Miller Lite onto the premises. He indicated his comments were amusing, but it is a serious question. Number 0616 MR. GRIFFIN replied he couldn't speak for the board because it has never taken a position on corkage, but he and his staff think it isn't a big problem, that corkage is doable. He noted Representative Sanders does touch on a problem. It's very clear now that people do not bring alcoholic beverages into bars - beverage dispensary premises - or into restaurants. Similarly, people don't open alcohol and consume it on package store premises. He commented that corkage kind of "fuzzes up the line," noting the current situation was very clear. Mr. Griffin described the various types of beverages besides wine that someone might want to bring into an establishment. He drew the analogy of being on a slippery slope with the possibility of sliding if people provide some rain and mud is created. Mr. Griffin noted, "The first person that provides a little rain might say, 'Why can't I bring my beer?' and then they'll say, 'Why can't I bring ... my 25-year-old Scotch ... or my 100-year cognac ...." He stated if it just says wine and the line is drawn there, then that is what the board will enforce, but does beg these other questions. Those kinds of questions could arise, and that is the problem with getting away from the current very definitive bright line. Number 0729 REPRESENTATIVE MURKOWSKI noted the chairman had indicated the committee would not be moving the legislation this day and she questioned whether Mr. Griffin or other board members would be online the next time, when the committee would take up the audit comments. She asked if this is an appropriate time to do that. CHAIRMAN ROKEBERG responded that he would like to proceed to the testimony, noting he thought Mr. Griffin would make himself available at the committee's will. Number 0756 REPRESENTATIVE HALCRO asked Mr. Griffin, "If ... the corkage phrase were to pass, how many restaurants do you think would allow customers to bring in their own wine? I mean, it seems to me, in the food and beverage industry, liquor, obviously, associated with the menu items, is a big part of the ticket price." MR. GRIFFIN said that he had no idea, but he could try to obtain a figure through discussion with his staff and the board. REPRESENTATIVE HALCRO asked Mr. Griffin how much notice has gone out to licensees about this proposal to allow corkage. Number 0811 MR. GRIFFIN said he doesn't know. He said that the people present from CHARR [Cabaret Hotel and Restaurant Retail Association] and the Anchorage Restaurant and Beverage Association (ARBA) may be better at addressing that. He said that he doesn't think there has been a whole lot of notice, noting the chairman of the ABC Board might bring it up at ARBA's meeting today CHAIRMAN ROKEBERG said that CHARR, ARBA, and the "Hotel-Motel Association" are fully aware of it, had it at their meeting in Juneau last week, and it has been something the chairman has discussed with the three associations for the last four years. He noted it is also very customary throughout the world. Chairman Rokeberg clarified the trouble is that there are some restaurants which allow this to happen currently, not realizing they are breaking a law, because it is customary in a lot of jurisdictions. Number 0880 REPRESENTATIVE MURKOWSKI said when she first read Section 9 of the proposed CS, she made the assumption that regardless of whether or not the establishment lets the person bring in a bottle, they are allowed by law to bring it in. She asked, "Is it a discretionary thing with the establishments?" CHAIRMAN ROKEBERG replied there is an amendment here that makes sure of that [proposed amendment G.2]. The establishments have a right, and they charge for the use of the stemware. The corkage is a fee included in the [restaurant] bill, which means the restaurant has an incentive to not use its own inventory. CHAIRMAN ROKEBERG noted the LB&A [Joint Committee on Legislative Budget and Audit] audit had suggested the year 2002. The committee had passed out a bill the previous session giving the board a one-year extension based on that 1997 audit. The chairman noted if Mr. Griffin would like to have a further extension, he would not object, and this is something that could be discussed by the committee. Number 0933 REPRESENTATIVE HALCRO stated, "The proposed amendment to allow for delivery, whether it's to ships or whatever, this is similar to what I would imagine is Internet sales. Are Internet sales of alcohol currently regulated in the state of Alaska?" MR. GRIFFIN replied that he didn't know what Representative Halcro means by regulated. He said that if someone wants to order wine from some place out-of-state and they wish to do it for personal use only, it is permitted as the board interprets it. He noted the law is silent on this. However, the board does not allow people to solicit, and that is where the Internet is in kind of a gray area as to whether an Internet ad is solicitation. Mr. Griffin noted the board has interpreted that to mean someone has to seek out the website or chance upon it, and so the board has not looked at that as a problem. Receiving wine through ordering from a winery or a beer-of-the-month club gift, for example, is permitted for personal use only. He indicated delivery would have to be through some delivery service other than the United States Postal Service. CHAIRMAN ROKEBERG said that he would like to move on and hear from Chris Anderson. Number 1026 CHRIS ANDERSON, Co-Owner, Glacier Brewhouse, testified next via teleconference from Anchorage. He said that he is in support of these changes as his motive is to open another establishment in the state of Alaska. He indicated he has been seeking some modification of the law to allow him to do this for the last three years because the current statutes prohibit any brewery-restaurant dual license from owning or operating any [other] beverage dispensary or restaurant eating place in the state. Mr. Anderson said he has worked extensively with the CHARR and ARBA, the wholesalers, and the retailers, to finally reach some kind of consensus. This legislation will allow them to purchase a beverage dispensary license and then be able to sell beer to themselves or to a wholesaler. He said that he felt it was a good compromise and he'd like to see it move forward. He noted his business is located in downtown Anchorage. He continued, "I did send you, yesterday, an amendment to Section 4. The Moose's Tooth is another brewery-restaurant license holder, and they have a difference in their license, is [that] their brewery is not on premise. ... The amendment that I sent you would state that a brewpub license may be issued to a holder of a grandfathered brewery restaurant license issued on or before the effective date. So, their intention is to move along ... in this fashion, so there would really only be one license in the state that would be of the old style restaurant-brewery operating, which would be the Sleeping Lady -- Snow Goose." He agreed with an unidentified speaker that the "Armadillo" [Armadillo Tex-Mex Cafe] in Juneau is also under this same licensing. CHAIRMAN ROKEBERG indicated he had not been aware the Armadillo is also included in this license group. He confirmed Mr. Anderson had concluded his testimony. REPRESENTATIVE MURKOWSKI stated, "I'm not clear what the amendment was, is that one that's been incorporated here?" Number 1198 CHAIRMAN ROKEBERG replied, "No ... Mr. Ford [Legislative Counsel, Legislative Legal and Research Services, Legislative Affairs Agency] is here, he indicates that we don't need that, but we're going to have this discussion .... There's further testimony coming, hopefully, from Mr. Jones from the Moose's Tooth to describe his circumstances." The chairman indicated it was his intent for the committee to take the testimony then hear from Mr. Ford to ensure the proper statutory language is included. CHAIRMAN ROKEBERG asked Mr. Anderson if it is his objective to expand his business by opening another premise. MR. ANDERSON answered that is correct. CHAIRMAN ROKEBERG asked, "You want to be able to sell the beer you currently brew in your ... grandfathered brewery restaurant, ... [or] GBR, into your new beverage dispensary-licensed premise, is that correct?" MR. ANDERSON answered, "Well maybe not (indisc.) the brewhouse would become a beverage dispensary, (indisc.) that brewhouse would be a brewpub under current statute, which would require it to have a beverage dispensary license." He noted the next location could be a restaurant. Number 1266 CHAIRMAN ROKEBERG confirmed, "In other words, you'd be able to start another restaurant across town, ... conceivably, and then be able to sell the beer you're brewing downtown now at the next place. That's what your objective is." The chairman questioned whether that was prohibited under current law. MR. ANDERSON said that that is correct as a brewpub. CHAIRMAN ROKEBERG noted that is the prohibition, "You're going to change your status under the license law, and then we need these amendments to allow you to conduct a rational business." MR. ANDERSON said, "Right, I will turn in my brewery license and my restaurant/eating place license, purchase a beverage dispensary license, and re-license under the brewpub statutes, ... which would be Section 4." CHAIRMAN ROKEBERG commented that would leave two, possibly three , out of the four or five [GBRs] originally grandfathered in. Number 1315 MR. ANDERSON noted that was correct and he indicated it seems to have been the intention of CHARR and ARBA to get rid of those licenses, leaving the remaining two forms of business. CHAIRMAN ROKEBERG confirmed there were no further questions of Mr. Anderson. He indicated he wished the committee to hear Matt Jones' testimony to help it frame the question before it. The chairman informed Mr. Jones his letter and amendment have not been distributed to the committee, but he asked Mr. Jones to describe his circumstances. Number 1362 MATT JONES, Co-Owner, Moose's Tooth Pub and Pizzeria, Moose's Tooth Brewing, testified next via teleconference from Anchorage. He stated that, unlike the other restaurant brewery combinations, they are not co-located - they are located approximately 2.5 miles apart. However, if allowed, they would do the same thing as Mr. Anderson; they would turn in their restaurant and brewery licenses, and purchase a beverage dispensary license in order to obtain a brewpub license. CHAIRMAN ROKEBERG asked, "You have one of the -- what I categorize as the grandfathered brewery-restaurant licenses, is that correct?" MR. JONES replied that is correct; they were issued those licenses in June and July of 1996. CHAIRMAN ROKEBERG confirmed their situation is unique because they are not co-located, and they are the only business with these circumstances in the entire state. Number 1425 MR. JONES reiterated that their situation is unique because they are not co-located, but they ask that the amendment be worded in such a way that they can be entitled to it - that they have the option to turn in their restaurant brewery license and purchase a beverage dispensary license in order to qualify for a brewpub license, so that they are basically on the same playing field as the other original "GBRs," the chairman referred to. CHAIRMAN ROKEBERG confirmed that concluded Mr. Jones' testimony. He asked, "Right now under the GBR is there a limit on how much you can brew?" MR. JONES replied that under the GBR there is not. CHAIRMAN ROKEBERG noted he believed there is a volume limitation under the beverage dispensary license. Number 1489 MR. JONES agreed, noting he believes it is 75,000 gallons. Like Mr. Anderson, they are also interested in expanding. If they are eligible for this, they would buy the beverage dispensary license, get a brewpub license, and then open a second location which would have a restaurant or eating place license. Of the 75,000 gallons of beer produced, some would go to the original location, some to the new location, and they would be allowed to sell any extra to a wholesaler. CHAIRMAN ROKEBERG commented, "By doing this, you would give up any right to your free-standing brewery to maintain a brewery license. Is that how you would understand it?" MR. JONES replied that is correct; they would give up the brewery license. CHAIRMAN ROKEBERG confirmed the Moose's Tooth currently has two licenses: a brewery license and a restaurant or eating place license. MR. JONES noted the group of five GBRs being discussed all actually had two licenses apiece, a brewery license and a restaurant or eating place license. He said the Glacier Brewhouse, the "Snow Goose," the Armadillo, and the "Railway" all own two licenses. Mr. Jones confirmed for the chairman that the endorsement was on the restaurant portion. Number 1592 CHAIRMAN ROKEBERG questioned if the 75,000 gallon limit is problematic. MR. JONES said that is difficult to say. It would probably suffice for two locations, but could be a burdensome cap if someone wanted to distribute, depending on the size of someone's distribution network. CHAIRMAN ROKEBERG said that he feels the statutory intention of the legislature was to "delimit" the amount of production at brewpubs, so they are not in direct competition or they are licensed differently than breweries, which don't have a limit. MR. JONES said that he believes that is true. He said, "Presently, it is 75,000 gallons for one, and an infinitive number of barrelage for the other. Whether that 75,000 is a hindrance to commerce for a brewpub, I'm not sure. ... (Indisc.) it could go up; I think right now it would work." Number 1652 REPRESENTATIVE HALCRO said the amendment also gives the option of selling to a wholesaler. He asked, "Does this mean, someday I might be able to find my favorite Polar Pale Ale at a retail establishment?" MR. JONES answered in the affirmative, noting they could sell it to a wholesaler who could take it to one of the various liquor stores around town [Anchorage] or who could then sell it to another restaurant or eating place license. REPRESENTATIVE HALCRO asked how that works with a 75,000 gallon limit. MR. JONES replied, "Under both the federal and state regulatory schemes, we're required to keep track of the beer production. Basically, we have to file a monthly report to the ATF [Bureau of Alcohol, Tobacco and Firearms] and a monthly report to the State Department of Revenue. And so we know exactly how much beer we produce, and those records ... are available to the ABC [Alcoholic Beverage Control Board] or anyone else who would want to question how much beer we're producing. But, for instance, with the 75,000 gallon cap, we could produce 30 [30,000] gallons for the first location, another 30 [30,000] gallons for the second location, and whatever the 'delta' is that remains could go to a wholesaler." Number 1794 BOB ACREE, Co-Owner, Glacier Brewhouse, testified next via teleconference from Anchorage. He emphasized he feels it's important for everyone to understand that none of the "GBRs" can currently open a second restaurant in the state of Alaska, indicating that has been the primary driving force behind this for the last three years on the Glacier Brewhouse's part. He indicated the other issue is in terms of the limit. He thinks the way this is currently written, if a business wants to brew more than 75,000 gallons, it could brew an additional 75,000 gallons in a second location if it obtains a second beverage dispensary brewpub license. CHAIRMAN ROKEBERG responded that is true, but they would need a second license. He confirmed Mr. Acree agreed and that concluded his testimony. Number 1879 REPRESENTATIVE SANDERS asked Mr. Acree if he literally meant he couldn't open a restaurant, or if he meant he couldn't open a restaurant and sell his beer in it. MR. ACREE replied they are prohibited by law from opening another restaurant, even one that does not serve alcohol. He stated, "That's been our big contention, and we've tried every which way to get this massaged the last three years, and finally we just agreed to bite the bullet and buy a beverage dispensary license in order to get all the parties to quit fighting us." CHAIRMAN ROKEBERG indicated he would like to describe that for the committee later. He asked Mr. Acree what the approximate cost is for a beverage dispensary license in the Anchorage area. Number 1955 MR. ACREE said his guess is about $150,000. He noted others present in Anchorage seemed to concur. CHAIRMAN ROKEBERG commented, "You're willing, in order to be able to grow your business, to invest as much as $150,000 to change just a licensure, so you can expand because ... the existing law prohibits you, is that correct?" MR. ACREE said after three years of fighting they have reluctantly agreed to do that. CHAIRMAN ROKEBERG asked if that fighting is just within the industry. MR. ACREE replied, "That's my impression, yes." Number 1996 CHAIRMAN ROKEBERG stated, "Just for the committee and for the record let me describe, I believe it was House Bill 372 of the Nineteenth Legislature, which I was a sponsor, changed a division in the law in the first session of the Nineteenth Legislature which allowed these types of restaurants-brewery combinations that were not brewpubs. But they were a restaurant license? And which were a lot cheaper than $150,000 or whatever the value was [of a beverage dispensary license] to exist, and was requested by the folks at the Snow Goose in Anchorage and some other growing areas to try to be -- to create the separate, new type of license because they didn't want to become a brewpub and buy a beverage dispensary license. They really wanted to do it on a more modest (indisc.) budget. So, the industry realized after the fact of what had happened, so the bill that I sponsored came in and actually repealed that, and in repealing, we grandfathered these other establishments that had gotten the licenses under that, so we grandfathered those particular licenses in. So, there was only, I believe, four or five licenses - one of which now, the Railway Brewery in Anchorage, has already gone bankrupt. So, there's a very small number here." CHAIRMAN ROKEBERG continued, "And what these gentlemen are actually offering to do is diminish that number further, because what was done is in the Senate bill -- in the bill that I sponsored, the Senate changed the bill in such a manner that it prohibited multiple licensing ownerships, and also the, as we're hearing here, the prohibition of doing anything else. It was -- this particular amendment was offered by Senator Halford in the Senate ... The intent was to prohibit expansions of other businesses, and to keep -- this was - those grandfathered licenses were perceived by the industry as not being on a level playing field 'cause they had not made the investment in the beverage dispensary license, so this is what these gentlemen are saying, they're actually saying, 'Uncle, ... you guys win. We will agree to buy the beverage dispensary license to be on the level playing field, and give up the other type of license to get away from this other clause now in the law.'" Number 2190 REPRESENTATIVE SANDERS asked if this meant that because this was grandfathered in, they couldn't get it back in a couple years if they changed their minds. CHAIRMAN ROKEBERG replied, "No, they're going to have to give it up." He asked Mr. Griffin if what he had just described is a valid description. MR. GRIFFIN responded, "That is correct. There is specific language, prohibited financial interest, that if you own a brewery, besides these ones that are grandfathered in, you cannot have ownership in another restaurant, and you're right. And in response to the question ... from Representative Sanders, yes, since these are kind of grandfathered licenses, if they do make this decision to convert, there's no going back, they can't go back and go play under the old rules." He indicated it was probably a good thing to get away from this special class of grandfathered licenses, have a clearer set of rules for this operation, and allow the expansion. CHAIRMAN ROKEBERG asked if brewpub licenses are alienable; can you sell a beverage dispensary/brewpub combination? Number 2305 MR. GRIFFIN replied the chairman had described it correctly, stating, "Right now you have to have a beverage dispensary license - you call it an endorsement, it is another kind of license, it's sort of a secondary license - but a condition of getting a brewpub license is first being a beverage dispensary licensee ... with the intent that you want to manufacture some beer at this point for sale on your premises. And so you (indisc.) the second type of license for that purpose. This bill does expand it a little bit, allowing the sale of some of that beer to another..." CHAIRMAN ROKEBERG interjected, noting Mr. Griffin had misunderstood his question. He restated, "If you have a beverage dispensary license and then you become a brewpub license, under our statutes now can you sell that business to another party?" MR. GRIFFIN answered in the affirmative. CHAIRMAN ROKEBERG said, "The point being, right now with the grandfathered licenses, those are not alienable ... you cannot transfer those, is that correct?" MR. GRIFFIN commented it is not clear about what would happen if someone wanted to sell one. Mentioning the "Railway," he commented the board has not been notified that it has officially declared bankruptcy. CHAIRMAN ROKEBERG said he had written the bill; they are not supposed to be able to transfer those things. Number 2415 MR. GRIFFIN indicated perhaps Mr. Ford could address this. He noted the board hasn't had to face an attempt to transfer one of these licenses yet, and he reiterated what would happen is not clear to him. CHAIRMAN ROKEBERG commented the restaurant portion of the license could be sold, but not the right to be the combination. He stated, "Because they had a vested interest, they had given consideration potentially for the restaurant license, but they were granted by statute this special right to be able to be a combination." MR. GRIFFIN replied if that interpretation is correct, that is probably even another reason why it needs to be fixed. Number 2482 CHAIRMAN ROKEBERG said, "I'm just recalling off the top of my head, I'm not sure that - Mr. Ford's shaking his head, 'Yes,' right now - 'cause that was the intention of the sponsor." MR. GRIFFIN noted the board understood that was Chairman Rokeberg's intent, adding, "And if that situation were presented to us, we would do a lot of investigation and..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] TAPE 99-16, SIDE A Number 0021 MIKE FORD, Legislative Counsel, Legislative Legal and Research Services, Legislative Affairs Agency, came forward to answer questions from the committee about HB 69. CHAIRMAN ROKEBERG asked Mr. Ford if he had been shown communications from the Moose's Tooth Brewing Company and the Glacier Brewhouse requesting that HB 69 be further amended to provide for the dual premise situation previously discussed. He asked Mr. Ford to reassure them or speak to this issue. MR. FORD testified as far as he had heard discussed, he did not believe there needs to be any amendment to existing laws if, in fact, these businesses are giving up the licenses they presently have because then they no longer fall under the prohibited financial interest section. They will not have any licenses that are in conflict under the law. If these businesses are willing to give up their existing licenses and purchase a beverage dispensary license, they can do that now. Mr. Ford added that that is what he heard them say they wanted to do. CHAIRMAN ROKEBERG agreed, but added, "It's the multiple premise issue that's spoken to in the existing draft ...." Number 0126 MR. FORD confirmed that the draft proposed CS in front of the committee amends the brewpub license provisions, which would allow one to brew beer and sell it at some other licensed location one may have. That is a change to existing law. He noted, "If that's their concern, then the draft you have, Section 4, will solve that problem, ... but I believe what they're talking about is some additional element that they're looking for that would allow them to dispose of their existing licenses to use these provisions." CHAIRMAN ROKEBERG clarified that the Moose's Tooth is concerned because they are not co-located, their circumstance are rather unique. Apparently, the Moose's Tooth has the brewery license and the restaurant license with the "endorsement," so they are concerned that they may not be able to make the conversion because of the other clause prohibiting the multiple ownership. Number 0214 MR. FORD advised that multiple ownership is only prohibited in certain combinations, and that it is permissible to have a brewpub license and a restaurant or eating place license. CHAIRMAN ROKEBERG asked about a brewery license, commenting he thinks that is the problem. MR. FORD replied a brewpub is kind of a brewery. He added, "So if that's the license they want -- if they can live with this limit of 75,000 gallons -- I can't see a problem for them." CHAIRMAN ROKEBERG asked if Mr. Jones was still there. Number 0255 MATT JONES of the Moose's Tooth, stated, "I think the confusion here is that if we give up our restaurant and brewery license ... and try to become a brewpub, the brewpub language states that you can only sell beer manufactured on premises licensed under the beverage dispensary license. So, in our particular case, the beverage dispensary license has to fall both on the eating side of our establishment and on the brewery side, even though they're three miles apart." He clarified that all of the other grandfathered brewery restaurants are, for all intents and purposes, located in the same building; however, the Moose's Tooth is not, and the law specifically states that the beer has to be manufactured on the premises. He noted as long as they could be considered one premises, it is not a problem, and he guesses that is the reassurance they are looking for. MR. FORD suggested that was perhaps a good question for Mr. Griffin, noting he thinks the ABC Board will determine what their actual premises are under that license. Mr. Ford stated he believes in the brewpub situation it is required to be in the same building. Number 0368 MR. JONES agreed, and reiterated that this is the reason the Moose's Tooth is asking to be given the same opportunity as the other grandfathered brewery restaurant licenses. He emphasized that, even if the ABC Board gives its okay, they would like to know, come different administrations or future change of law, that their license will be viable ten years from now. He read their proposed amendment [to AS 04.11.135(a)], "A brewpub license may be issued to the holder of a grandfathered brewery restaurant issued on or before the effective date of this Act." Mr. Jones indicated this would make all five of the original grandfathered brewery restaurants eligible for a brewpub license, whether or not they decided to exercise that option, and it would eliminate the issue of co-location. CHAIRMAN ROKEBERG questioned why the Moose's Tooth applied for the combination license initially when they were operating as a brewery and a restaurant. MR. JONES deferred the question to Mr. Griffin. Number 0464 MR. GRIFFIN responded that the Moose's Tooth is probably the only true brewery-restaurant, with a brewery on one side of town and a restaurant on the other. The other restaurants really are brewpubs because of their co-location, their combination. However, because the law did not allow these other restaurants to form brewpubs with just restaurant/eating place licenses, they found they could get to the same place by becoming breweries and restaurants, which was not a prohibited combination at the time. This is the path the Moose's Tooth also followed, but they truly are a brewery-restaurant combination, even though their brewery operation is small and apparently would fall underneath the 75,000-gallon cap envisioned for brewpubs. Mr. Griffin added that at that time having a brewery and a restaurant was a very permissible combination, and it was even possible to open up additional restaurants. He noted this was before the stricter prohibited financial interest provision was enacted by the Halford amendment CHAIRMAN ROKEBERG agreed that, from a drafting standpoint, it would be simplest to just repeal the Senate's amendment, indicating, however, there other factors are involved. Chairman Rokeberg commented he thought Mr. Jones wants an exception here, and, indicating the risk of special legislation, the chairman questioned Mr. Ford whether something could be drafted that would provide for Mr. Jones' circumstances. Number 0596 MR. FORD referred the question to Mr. Griffin, and asked, "If someone applied for a brewpub license, and they came to you and said, 'I have ... a facility at location X, and I want to brew beer under the brewpub license and sell it at location Y, which is two miles away,' what would you say?" MR. GRIFFIN responded that the ABC Board would say it is not allowed because AS 04.11.135(a) specifies: "(a) A brewpub license authorizes the holder of a beverage dispensary license to (1) manufacture on premises licensed under the beverage dispensary license not more than 75,000 gallons of beer in a calendar year." CHAIRMAN ROKEBERG noted that was a brewpub, and he asked why someone who owns a brewery couldn't sell beer on a retail basis if they own a restaurant license. Number 0660 MR. GRIFFIN referred to the prohibited financial interest portion of the law, which he paraphrases to say, "'You can't be in the manufacturing business and in the retail business.'". The manufacturing being a brewery in this case, not a brewpub, and the retail business being a beverage dispensary licensee or a restaurant/eating place licensee. Mr. Griffin noted this is in AS 04.11.450(b), which reads: (b) A person who is a representative or owner of a wholesale business, brewery, winery, bottling works, or distillery may not be issued, solely or together with others, a beverage dispensary license, a restaurant or eating place license, or package store license. A holder of a beverage dispensary license may be issued a brewpub license, subject to the provisions of AS 04.11.135 . The prohibition against issuance of a restaurant or eating place license imposed under this subsection does not apply to a restaurant or eating place license issued on or before October 1, 1996 or a restaurant or eating place license issued under an application for a restaurant or eating place license approved on or before October 1, 1996. MR. GRIFFIN commented that the "a restaurant or eating place license" language was inserted by Senator Halford. Mr. Griffin stated, "Basically, it's saying if you're in the business of making product you cannot be on the retail end of it. It goes back to the old 'Tidehouse (ph) Laws', is what they were called, when the brewery owned the saloons and they'd make a lot of beer, ... and there was a great incentive to sell as much as they could, and as we went through Prohibition (indisc.) seemed to be a bad thing, so that's sort of the brief history of that. ... And then there's language further on in (b) which provides for this grandfathering, because at the time, because the restaurant/eating place license was not ... among this list of retail licenses - it was just the beverage dispensary and package store - they closed that loophole, if you will - that's probably the way Senator Halford looks at it. And the one exception that still remains of combining some kind of manufacturing, albeit at a lower level, and retail is the brewpub license." Number 0786 MR. GRIFFIN continued, "We kind of crossed this bridge a little bit when we allowed the brewpub license to come into being, where we allow someone to make a little beer and sell it on their premises if they had a beverage dispensary license. These four or five licensees we are talking about found another way to do that as well, because owning a brewery and owning a restaurant at the same time was permissible until the law was changed. That's why we're at where we're at, and so now we're looking at needing to change the brewpub statute, and almost call what really is a brewery - because it stands alone, it's not associated with a restaurant or a bar - and call that a brewpub ... and it really isn't that." Mr. Griffin indicated the entity in question is a small microbrewery - owned by the Moose's Tooth and licensed as a brewery to Moose's Tooth Brewing. CHAIRMAN ROKEBERG asked if Mr. Ford cared to comment. Number 0855 MR. FORD indicated he would agree that allowing a brewpub to have a brewing facility that is not in the same building is, in fact, what was intended to be prohibited by the "prohibited financial interest" portion of the law. He indicated this section of law prohibited breweries from holding restaurant licenses, but he said there would be a difference because there is a limit on manufacture under a brewpub license. A brewpub is a brewery, but it happens to be a brewery in a restaurant. So, it is a combination of a kind that was prohibited by a law, it's just that now there is a different kind of license. Mr. Ford noted what he was trying to get at, as far as whether that could be done, is that there is a definition of "licensed premise". "Licensed premise" just means that designated portion of a building one uses to operate the license. He commented he could not see how this definition would prohibit what he had suggested, although he said it is possible to interpret it that way. It is possible the legislature could amend the brewpub license to specifically provide for that: saying a brewery operation does not have to be in the same building - that the licensed premise could be building A and building B. Mr. Ford indicated that returned them to where they had started: a mini-brewery having a restaurant license. CHAIRMAN ROKEBERG commented it opened up a Pandora's Box. Number 0960 REPRESENTATIVE SANDERS stated to Mr. Griffin it has become very apparent to him during this hearing that these proposed amendments and changes are definitely going to endanger the extension of the ABC Board. He questioned whether Mr. Griffin, in light of this, would be in favor of returning to the original bill, allowing these issues to be taken up in separate legislation. MR. GRIFFIN agreed, noting he would have no problem trying to take out those parts deemed controversial. He indicated he was in favor of returning to the original Version G proposed CS with the deletion of the brewpub/brewery part, but leaving in, for example, the limited liability organization section. He stated, "I recognize the fact that ... because this is a bill that the Administration wants, and obviously the ABC Boards want (indisc.--talked over) it becomes a bit of a magnet for ... any kind of alcoholic (indisc.--talked over) pass. ... I would be happy to work further on this in a separate bill, but I think the people (indisc.) really want this, the people that have ... financial stake in this, would like to keep as close to our (indisc.) as possible, just because it ... improve[s] their chances of passing." Mr. Griffin commented on the legislative "give and take," and, noting Representative Sanders' greater understanding in that area, Mr. Griffin commented he defers to and has to agree with the Representative's comments. Number 1080 REPRESENTATIVE HALCRO stated, "To me, ... it seems a little bit odd. Here, on one hand, we're talking about a ... corkage provision which would allow somebody to bring a bottle of wine into a restaurant, but yet here we won't let a licensed operator bring their own beverages into their facility. ... With Mr. Ford's interpretation of the description of 'licensed premise,' are you telling me that there is no administrative action or waiver that you could grant Mr. Jones, especially considering that this is a very unique situation?" Number 1133 MR. GRIFFIN stated he would feel uncomfortable doing that, noting he would like it to be spelled out as clearly as possible. He observed the board is subject to legislative audit. Mentioning another sunset audit in three or four years, Mr. Griffin commented he would not want to be "called on the carpet" for having read too much into a statute, or done something administratively that is not, in his mind, clearly spelled out by the statute. He noted those in the executive branch are often criticized for trying to read more into statute than was intended, or than is there. He expressed his willingness to work with Mr. Ford to reach agreement and ensure nothing is done beyond what the legislature intended; however, he thinks it is fairly clear the law intends for a brewpub to be connected to the operation of a beverage dispensary license. He referred again to the statutory language, paraphrasing, "It says it right there, you're manufacturing on premises licensed under the beverage dispensary license." REPRESENTATIVE HALCRO assured Mr. Griffin he appreciated his conservative approach, but, since Mr. Jones' operation is the "exception versus the rule," and given Mr. Ford's interpretation of licensed premise, he feels they should make accommodations in the interest of commerce. MR. GRIFFIN deferred to Linda Kesterson, the assistant attorney general for the ABC Board. CHAIRMAN ROKEBERG indicated the committee would take testimony from another witness in Anchorage before hearing from Ms. Kesterson. Number 1258 ANNE WILKAS testified via teleconference from Anchorage. She indicated she did some work for the Moose's Tooth as an attorney and would not take up the committee's time. She stated, "I want to see the Moose's Tooth ... get legislated in because if there's ever a question of legislative intent, I think it needs to be very clear that the Moose's Tooth has the approval of the legislature, not just the executive branch, and I think, as an attorney, and having had to go research the legislative record, that that is important." Ms. Wilkas noted that was all she really wanted to add. Number 1305 LINDA KESTERSON, Assistant Attorney General, Natural Resources Section, Civil Division (Anchorage), Department of Law, testified via teleconference from Anchorage. She referred to the definition of a premise and directed the committee's attention to AS 04.11.430. In AS 04.11.430 a license is to be issued to a specific location, and that has always meant one physical location. She commented that it is simply not tenable to say the board could interpret the brewpub legislation, "where it says 'on premises licensed to the beverage dispensary license,'" to include a separate physical location. That is not anything the board has ever done, she said, and her reading of AS 04.11.430 is that the board cannot say that a licensed premise can include more than one physical location. Ms. Kesterson stated that if the Moose's Tooth is going to get some contingent protection, as when it was grandfathered in, it is going to need some specific exception. The Moose's Tooth will not fit within the current Section 4 of the proposed amendment [G.2]. CHAIRMAN ROKEBERG noted it was getting late. He indicated he hoped Mr. Ford, Ms. Kesterson, and his office could work together to find a solution meeting the needs of the Moose's Tooth. The chairman questioned whether anyone else wished to testify this day. Number 1394 MR. JONES of the Moose's Tooth responded to a previous question regarding why the brewery and the restaurant had been built in different locations. Mr. Jones stated it was always their intention to open a restaurant with a brewery, and open multiple satellite locations. However, the primary reason they located in disparate places is because distribution out of a brewery located anywhere but in an industrial zone is prohibited under Anchorage municipal code. If the brewery was built downtown and they wanted to do significant distribution, there would have been problems with the municipality. "Incidental distribution" is allowed, but is not clearly defined. Mr. Jones stated the Moose's Tooth was operating under the rules existing at that time, although he thinks there is now some flexibility allowed regarding incidental distribution. He commented, "That's why we located in different places, if we had built a restaurant and a brewery right next door to each other, we would have had a different level of government telling us that we couldn't distribute." CHAIRMAN ROKEBERG assured Mr. Jones the purpose of the House Labor and Commerce Standing Committee is to ensure that the commerce of the state runs smoothly. He noted that was one of the committee's objectives with the legislation. Number 1471 MR. JONES added, "Like Mr. Anderson, we're in a position, finally, where we can expand. We employ about 62 people between the restaurant and the brewery, and we started that on a shoestring budget. ... I think at a time when the state is looking at dwindling incomes, we should probably try and figure out -- without annoying or causing the loss of revenue to other people with different licenses -- we should look at how we can ... allow business such as ours to prosper and to ... grow the jobs, so to speak." CHAIRMAN ROKEBERG agreed fully, noting that was why he introduced the legislation with these amendments. The chairman announced HB 69 would be held over for further public testimony and consideration.