HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 5, 1999 3:18 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Andrew Halcro, Vice Chairman Representative Lisa Murkowski Representative John Harris Representative Sharon Cissna MEMBERS ABSENT Representative Jerry Sanders Representative Tom Brice COMMITTEE CALENDAR * HOUSE BILL NO. 94 "An Act removing employees of the Alcoholic Beverage Control Board from the exempt service." - MOVED OUT OF COMMITTEE HOUSE BILL NO. 69 "An Act relating to the Alcoholic Beverage Control Board; and providing for an effective date." - MOVED CSHB 69(L&C) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 94 SHORT TITLE: ABC BD EMPLOYEES NOT EXEMPT EMPLOYEES SPONSOR(S): REPRESENTATIVES(S) KOTT Jrn-Date Jrn-Page Action 2/16/99 222 (H) READ THE FIRST TIME - REFERRAL(S) 2/16/99 222 (H) L&C, FINANCE 3/05/99 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 69 SHORT TITLE: ALCOHOLIC BEVERAGE CONTROL BOARD SPONSOR(S): REPRESENTATIVES(S) ROKEBERG Jrn-Date Jrn-Page Action 1/25/99 81 (H) READ THE FIRST TIME - REFERRAL(S) 1/25/99 81 (H) L&C, FINANCE 2/24/99 (H) L&C AT 3:15 PM CAPITOL 17 2/24/99 (H) HEARD AND HELD 3/05/99 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER PAT HARMAN, Legislative Administrative Assistant to Representative Kott Alaska State Legislature Capitol Building, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-3777 POSITION STATEMENT: Discussed HB 94 on behalf of the sponsor. DOUG GRIFFIN, Director Alcoholic Beverage Control Board Department of Revenue 550 West 7th Avenue, Suite 350 Anchorage, Alaska 99501-33510 POSITION STATEMENT: Did not have a position on HB 94; commented on HB 69, Version G, and amendments. ROD HANCOCK, Co-Owner Moose's Tooth Pub and Pizzeria, Moose's Tooth Brewing 3300 Old Seward Highway Anchorage, Alaska 99503 Telephone: (907) 258-2536 POSITION STATEMENT: Discussed Version G of HB 69 as a compromise. GARY KLOPFER, Majority Owner Snow Goose Restaurant, Sleeping Lady Brewing Company 717 West 3rd Avenue Anchorage, Alaska 99501 Telephone: (907) 561-2274 POSITION STATEMENT: Testified in opposition to HB 69. MARK STAPLES, Founder and Majority Owner Midnight Sun Brewing Company 7329 Arctic Boulevard Anchorage, Alaska 99518 Telephone: (907) 344-1179 POSITION STATEMENT: Agreed with Mr. Klopfer's testimony regarding HB 69 and provided additional testimony. S.J. KLEIN, President and Founder Borealis Brewery 349 East Ship Creek Avenue Anchorage, Alaska 99501 Telephone: (907) 278-5480 POSITION STATEMENT: Testified on HB 69. CHRIS ANDERSON, Co-Owner Glacier Brewhouse 737 West 5th Avenue Anchorage, Alaska 99501 Telephone: (907) 786-3789 POSITION STATEMENT: Testified in support of HB 69. ACTION NARRATIVE TAPE 99-20, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:18 p.m. Members present at the call to order were Representatives Rokeberg, Halcro, Murkowski, Harris and Cissna. Representatives Sanders and Brice were absent. The committee took a brief at-ease from 3:24 p.m. to 3:25 p.m. HB 94 - ABC BD EMPLOYEES NOT EXEMPT EMPLOYEES Number 0037 CHAIRMAN ROKEBERG announced that the first order of business before the committee would be HB 94, "An Act removing employees of the Alcoholic Beverage Control Board from the exempt service." Number 0057 PAT HARMAN, Legislative Administrative Assistant to Representative Kott, Alaska State Legislature, informed the committee that HB 94 is a repeal of Alaska Statute 39.25.110(15) which states that agents of the Alcoholic Beverage Control Board (ABC Board) are granted limited peace officer powers and listed under the exempt service. In practice, agents of the ABC Board are in the classified service as normal civil servants. This statute is no longer applicable and should be repealed. Mr. Harman noted that Doug Griffin with the ABC Board was online in Anchorage and could answer questions regarding the agency. He indicated Marco Pignalberi, who had served as an agent when the agency employees were exempt, had been expected as well. CHAIRMAN ROKEBERG said that HB 94 is clearly a housekeeping matter and the committee packet contains the statute. REPRESENTATIVE MURKOWSKI asked if subsection (15) was ever applicable. MR. HARMAN replied yes. He indicated a portion of the statute was probably applicable over 25 years ago which is as far back as there is corporate knowledge. Number 0246 DOUG GRIFFIN, Director, Alcoholic Beverage Control Board, Department of Revenue, testified via teleconference from Anchorage. Mr. Griffin had no position on HB 94, but concurred with Chairman Rokeberg's assessment of HB 94 as a housekeeping matter. Mr. Griffin confirmed to Chairman Rokeberg that he did not object to the passage of HB 94 by the committee and the legislature. CHAIRMAN ROKEBERG closed the public testimony, there being no further questions or testimony. Number 0305 REPRESENTATIVE HALCRO moved to report HB 94 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered. HB 69 - ALCOHOLIC BEVERAGE CONTROL BOARD Number 0320 CHAIRMAN ROKEBERG announced that the next order of business before the committee would be HB 69, "An Act relating to the Alcoholic Beverage Control Board; and providing for an effective date." Chairman Rokeberg noted the committee packet included a few amendments for the committee's consideration. Number 0384 DOUG GRIFFIN, Director, Alcoholic Beverage Control Board, Department of Revenue, testified via teleconference from Anchorage. Mr. Griffin confirmed to the chairman that those present in Anchorage had copies of the four proposed amendments. CHAIRMAN ROKEBERG noted that Version G, 1-LS0354\G, Ford, dated 2/19/99, of HB 94 is before the committee. He informed everyone that it was his intention to take up the amendments for discussion and action. Number 0482 CHAIRMAN ROKEBERG called a very brief at-ease at 3:30 p.m. due to a teleconference malfunction. The committee came back to order in less than a minute without the teleconference. Number 0490 CHAIRMAN ROKEBERG explained to the committee that the amendment, 1-LS0354\G.1, Ford, 2/23/99, relates to the sales of alcoholic beverages for weddings and florists. Chairman Rokeberg referred to subsection (j) of amendment G.1 which ultimately holds the licensee responsible for delivery, and subsection (k) of amendment G.1 which clarifies the hours of delivery. After the teleconference connection was restored, the public hearing began. Chairman Rokeberg informed everyone that if the testimony could be concluded today as well as consensus on the amendments, he wanted to move the legislation to its next committee of referral, the House Finance Standing Committee. Number 0646 ROD HANCOCK, Co-Owner, Moose's Tooth Pub and Pizzeria, Moose's Tooth Brewing, testified via teleconference from Anchorage. He said that he had seen amendment G.3 which seems to satisfy the Moose's Tooth special case as well as allowing the brewery-restaurant combinations to move forward. This is an acceptable compromise. Mr. Hancock said that his previous testimony would remain. CHAIRMAN ROKEBERG asked if Mr. Hancock's comment about moving forward meant expanding the premises by obtaining a beverage dispensary license and growing the business. MR. HANCOCK agreed with Chairman Rokeberg's interpretation. When the Moose's Tooth was formed in 1996, the plan was to open multiple locations in Alaska. Halfway through the process, the rules were changed. This resulted in the Moose's Tooth not being able to expand beyond the single restaurant. Mr. Hancock said this is a compromise and limits barrelage, but allows the restaurant to continue with its original plan of opening multiple restaurants. Number 0806 CHAIRMAN ROKEBERG pointed out that the provisions of the proposed committee substitute (CS) provide that a beverage dispensary license brewpub category would be allowed to sell to distributors on a wholesale basis. How would that differ from the current sales allowed to the public or "out the back door rather than on the premises?" MR. HANCOCK clarified that currently there is no barrelage restriction, therefore the Moose's Tooth Brewery can produce as much beer as it can sell. Currently, the Moose's Tooth is not restricted to selling beer to wholesalers. Mr. Hancock informed the committee this legislation would not allow the Moose's Tooth Brewery to continue its current practice of self-distributing its beer to its accounts. However, it is an acceptable compromise to be forced to use distributors. In response to Chairman Rokeberg, Mr. Hancock said the brewery was allowed to sell to other licensees including restaurant eating place licensees and beverage dispensary licensees. CHAIRMAN ROKEBERG surmised then that Mr. Hancock could sell to a bar or restaurant, a package store, a distributor, or any other licensee under the State of Alaska due to the uniqueness of a brewery classification. Number 0913 MR. HANCOCK agreed with Chairman Rokeberg's statement, but pointed out that all restaurant-brewery combinations can do that as well. He noted some of the restaurant-brewery combinations have zoning issues, due to city regulations, that may be restrictive. All restaurant-brewery combinations are allowed to sell as much beer as desired and self-distribute that beer if they so choose. Mr. Hancock emphasized that self-distributing is not all it's "cracked up to be sometimes." CHAIRMAN ROKEBERG pointed out that the proposed CS, Version G, would prohibit self-distributing. MR. HANCOCK said that he would be forced to use a distributor who picks up the beer, often promotes the beer, and distributes the beer. Consequently, the distributor would take a portion of the sale per keg which would reduce his business's profit margin a bit. With regard to why Mr. Hancock would agree to that, he explained that he wanted to come to a compromise in order to move forward with his restaurant. REPRESENTATIVE HALCRO understood that under the proposed CS and amendments, Mr. Hancock would have to purchase a dispensary license if opening another location. Number 1037 MR. HANCOCK said that he was prepared to purchase another dispensary license in order to open another location. He acknowledged this is not an ideal situation and stressed that he would not sell hard alcohol at his restaurant even with the beverage dispensary license. There is a small fringe benefit of live music, but Mr. Hancock did not intend to increase his current once-a-month use of live music. Mr. Hancock stated that he was prepared to spend $125,000 to $150,000 in order to expand. REPRESENTATIVE MURKOWSKI asked Mr. Hancock if beverage dispensary licenses are readily available. MR. HANCOCK replied that, from his inquiries, beverage dispensary licenses are available. He noted that the price reflects the supply and demand of the beverage dispensary license. Mr. Hancock pointed out that the city has issue with certain areas of the beverage dispensary licenses and he would have to reapply for his conditional use permit. Number 1134 REPRESENTATIVE MURKOWSKI asked if limitations would be placed on the ability to purchase a full beverage dispensary license due to the location of an establishment. Would there be the possibility of opposition from his community council or similar organization? MR. HANCOCK said that he had not fully reviewed that matter, but was fairly convinced that the location of the Moose's Tooth would not be a problem. He noted his restaurant was a family restaurant. With to amendment G.3, Mr. Hancock felt it was alright. Number 1252 GARY KLOPFER, Majority Owner, Snow Goose Restaurant, Sleeping Lady Brewing Company, testified via teleconference from Anchorage. The Snow Goose Restaurant is a restaurant-brewery combination. In a preliminary view, Mr. Klopfer was opposed to the entire bill which merely "band-aids" a bad situation. The entire code should be reviewed in order to determine what is best for the state and the industry. He informed the committee that he and his associate were the first to apply for a restaurant brewery license in downtown Anchorage. That combination was desired because the original capacities were not large enough for a "brewpub brewery" and there was no intention to serve hard liquor. Originally, there were five restaurant-brewery combinations with the majority concentrated in Anchorage. Mr. Klopfer believed the liquor license holders of Alaska originally felt the restaurant-brewery combination would wreck havoc on the value of the liquor license and create competition that would destroy the liquor license holder's business. Of the original five restaurant-brewery combinations, the four in Anchorage had spent in excess of $7 million to open the establishments that employ hundreds of people and pay millions to the local vendors. Mr. Klopfer imagined that any economically sane-minded person would endorse this industry, however Alaska chose to make it illegal. The notion people chose the restaurant-brewery combination because they did not want to purchase a liquor license is misguided. Mr. Klopfer indicated that one would have a difficult time finding a liquor license holder in the Anchorage area that would say they were impacted by the restaurant breweries which are an expensive operation. He informed the committee that he spent over $500,000 just on the brewery for the Snow Goose Restaurant and Brewery. It would have been cheaper to spend $125,000 to $150,000 for a liquor license. Number 1432 MR. KLOPFER said that he would prefer to return to the way it was three years ago. He believed it to be in the best interest of the state, future of employees, and future tax revenues to allow this industry to grow. Mr. Klopfer informed the committee that he was in the process of forming a state brewers guild in order to develop some guidelines that would help everyone move forward. This legislation will hurt the industry. Mr. Klopfer suggested that the appropriate action would be to rescind the grandfathering of the brewery dispensary licenses and allow anyone to obtain a brewery dispensary license. He supported those holding a liquor license to supply their own establishment with beer, but was opposed to allowing those holding a liquor license the ability to wholesale beer to other establishments that they do not own. A brewpub or a liquor license holder would now become a quasi-brewery that directly competes with breweries. He noted one of his licenses is a brewery license. Mr. Klopfer suggested the deletion of subsection (b) of amendment G.3 which allows wholesaling to a licensed wholesaler. CHAIRMAN ROKEBERG asked, "But Mr. Klopfer, do you not now as a -- because of your combination exempt license brewery owner allowed to sell to distributors and to retail establishments, so doesn't that restrict them? ... Or is it because the brewpub provision now does not allow any kind of off-sell [off-site] sales over five gallons?" MR. KLOPFER explained that presently with the purchase of a liquor license one can become a brewpub which restricts consumption of the beer to onsite. "I believe with this bill, I'm in favor if you own other establishments, that in fact you can supply those establishments because it's obviously coming out of the same pocket. ... There is a way there that it would definitely be not in favor of a brewery licensed owner to have that happen, in my opinion." Number 1614 CHAIRMAN ROKEBERG asked if Mr. Klopfer would prefer to have two of his competitors change to beverage dispensary licenses to become brewpubs and, therefore, not be able to compete with the Snow Goose in the wholesale market for brewed beverages. MR. KLOPFER replied no. Mr. Klopfer did not want the restaurant-brewery combination establishments to have to buy liquor licenses. Unfortunately, this legislation is pushing the restaurant-brewery combinations to purchase liquor licenses. Mr. Klopfer indicated he believed most of the restaurant-brewery combinations owners would be in favor of rescinding the prohibition against the expansion of combination establishments, as he would be. He felt it ridiculous that Mr. Hancock would have to purchase a $150,000 liquor license when he did not want to sell liquor. With regards to downtown Anchorage, there is concern with the number of hard liquor licenses and therefore, if the two establishments downtown wanted to sell hard liquor there would be more serious review of the issue. CHAIRMAN ROKEBERG noted that he had heard Mr. Klopfer testify before the ABC Board and various committees over the years. He asked if Mr. Klopfer was the person who had started the concept of the exempt brewpub restaurant license MR. KLOPFER replied yes. CHAIRMAN ROKEBERG said, "What you're asking this committee to do is go back to your idea that you got in statute four years ago and override what the legislature did three years ago to correct that mistake of public policy. So, it's a matter of how you view public policy and how the legislature at that time viewed public policy. Is that a correct assessment?" MR. KLOPFER said that Chairman Rokeberg was incorrect. Mr. Klopfer explained that the original public policy stood for Alaska for many years and no one abused it. CHAIRMAN ROKEBERG interjected that he was referring to the existing liquor laws. MR. KLOPFER reiterated that he did not want to serve hard liquor, but rather make beer to sell to the public. CHAIRMAN ROKEBERG surmised then that Mr. Klopfer had the law changed to accommodate his desire to make beer and sell it to the public. MR. KLOPFER replied no. Mr. Klopfer emphasized that he utilized the existing law. He stated, "You changed the law after the fact." CHAIRMAN ROKEBERG did not believe that to be correct. MR. KLOPFER said that he had the statutes to prove it. Number 1746 CHAIRMAN ROKEBERG explained that in 1988 the brewpub license came into effect and the "Cyrano's clause" of the statute of 1994 allowed the brewpub exempt licenses to exist. He asked if that is correct. MR. KLOPFER agreed that was correct, but noted that a brewpub license is under a liquor license. He stated he never applied, nor did he want, a brewpub license. Mr. Klopfer said he went for a brewery and restaurant license. In further response to Chairman Rokeberg, Mr. Klopfer clarified that he has a brewery license and a restaurant license. CHAIRMAN ROKEBERG pointed out under that existing statute that would be an exempt license. MR. KLOPFER agreed. He explained that as of October 1996 it is illegal to receive a brewery and restaurant license. REPRESENTATIVE HALCRO requested that Mr. Klopfer address other concerns with the current statutes that tie his hands with regard to expansion and sale or transfer of his restaurant brewery business. Number 1808 MR. KLOPFER informed the committee that his license only exists as long as he is alive. He referred to Code section 411 to 450 which created the exemption that does not include any language regarding transfer of the sale of the business. Under the current statutes, Mr. Klopfer cannot transfer his business. Further, the desire to expand, as in Portland where the McMenamins brothers have redeveloped old properties into viable entities, is not an option here. MR. KLOPFER, in further response to Representative Halcro, believed that he, as the licensee, may not transfer the license. Mr. Klopfer understood from discussions with the ABC Board that if he wanted to sell the business, the new owner would have to buy a liquor license. He informed the committee that the Snow Goose Restaurant and Brewery employs on average 80 employees year-round, and spent approximately $1 million with vendors in the local economy, and tens of thousands of dollars in taxes. Number 1948 REPRESENTATIVE HALCRO said that upon this discussion, he has determined this to be an "political hot potato." He asked if Mr. Klopfer would be amenable to a conceptual amendment allowing the sale or transfer of this combination license with certain restrictions. MR. KLOPFER replied no. He believed it a travesty that the current law exists. If someone wanted to open up a one barrel brewery and sell hamburgers next door, that is illegal, which Mr. Klopfer believed to be ludicrous. Furthermore, it does not make economic sense to require that person to purchase a liquor license. For the future, Mr. Klopfer believed the law should return to the point where people can own a brewery and restaurant. Number 2032 MARK STAPLES, Founder and Majority Owner, Midnight Sun Brewing Company, testified via teleconference from Anchorage. CHAIRMAN ROKEBERG noted that the committee should have a letter from Mr. Staples. MR. STAPLES agreed with Mr. Klopfer's testimony. Mr. Staples was opposed to forcing the utilization of a distributor. In most areas, there are three distributors who are "Bud," "Miller" and "Coors." "These big breweries have come down with huge incentives for these distributors to give what Budweiser, that's Anheuser-Busch, calls 'one hundred percent peace of mind' and and what they're doing is giving such incentives to these distributors that if they stop distributing other products besides their own." He pointed out that most distributors are not taking on any new products, but rather are trying to reduce the number of products. This could result in the inability to find a distributor and sell the beer outside of the restaurant. Even if a distributor were found, who is to say that the distributor would do a good job distributing the beer. Mr. Staples said that forcing the use of a distributor eliminates the motivation of the distributor to do a good job for the craft brewery and leaves the brewery no recourse. Mr. Staples opposed legislation requiring a brewery to use a distributor. MR. STAPLES informed the committee that when he started the Midnight Sun Brewing Company, it was legal to own a restaurant and a brewery license. Currently, those breweries that have grandfathered licenses have the ability to sell both retail and wholesale and, therefore, can compete with the Midnight Sun Brewing Company, which places Mr. Staples at a disadvantage. Mr. Staples noted that he had no desire nor means to acquire a liquor license. Mr. Staples supported returning to the law that allowed breweries and restaurants to obtain a license to do both. CHAIRMAN ROKEBERG referred to Mr. Staples' letter which states that it is not economically feasible for most small, would-be restaurant-breweries to purchase beverage dispensary licenses. The current statute does not allow that. MR. STAPLES agreed and said that he would like that changed. CHAIRMAN ROKEBERG interpreted Mr. Staples' desire for change to mean that he wanted to create a tavern in Alaska. MR. STAPLES disagreed with that interpretation. Mr. Staples clarified that he wanted to return to 1985 when it was legal to own a restaurant license as well as a brewery license which was the case until 1996. Legislation was passed due to the fear of the beverage dispensary owners that their license would be devalued because of a brewpub being located on every corner. As Mr. Klopfer stated, there will not be a brewery on every corner because the market cannot handle it. Number 2247 CHAIRMAN ROKEBERG asked if, as a brewery, a brewery can sell to retailers or any other licensee while brewpubs are not allowed the same. MR. STAPLES agreed. CHAIRMAN ROKEBERG asked if the actual level of competition with Mr. Staples from the exempt licenses might be reduced under the proposed CS since it would allow these exempt licenses to convert to beverage dispensary licenses and then allow them to sell to distributors. MR. STAPLES replied yes and noted that in the short-term this legislation may help his business by reducing his competition. However, using common sense, if a business wants to sell beer, the business should not have to purchase a hard liquor license. The brewing industry in Alaska is very young and in order to expand this industry it should be easier to enter this business. Mr. Staples expressed interest in expanding the entire industry. CHAIRMAN ROKEBERG pointed out that what Mr. Staples is proposing is called a tavern in other states, where only beer and wine are sold. MR. STAPLES pointed out that in other states this is legal. He asked how having a brewery on one side of town and a restaurant on the other could be considered a tavern. CHAIRMAN ROKEBERG explained, "Because you are able to sell without having a very limited menu." He said that is in Alaska Statute. MR. STAPLES stated that the restaurant license already includes restrictions regarding the percentage of food and beer or alcohol that must be sold which is not an issue. None of the brewpubs come close to selling as much beer as food, revenue wise. Number 2363 S.J. KLEIN, President and Founder, Borealis Brewery, testified via teleconference from Anchorage. Although the Borealis Brewery, a production brewery in Anchorage, is not a brewpub, Mr. Klein was interested in this legislation because it is related to the making of beer in Alaska. Mr. Klein believed that the legislation to date had confused two issues: the making of beer and how that beer is sold. The current laws are not ideal. The Anchorage area saw four brewery-restaurant combinations racing to open before 1995 to 1996. Since that time and since the change in law, there have been no new brewery/restaurants, or brewpubs, or restaurants affiliated with the concept of crafting their own beer in the Anchorage area. Mr. Klein believed this fact helps support the notion that requiring a beverage dispensary license to start up a brewpub is somewhat restrictive. This is bad for the beer-making industry which is in its infancy in Alaska. He noted that the Alaskan Brewing Company has been in operation for over a decade, but there has not been another brewery operating for more than five years. In the Lower 48, there are hundreds of breweries that have been operating for quite sometime and have contributed quite a bit to their respective local economies. TAPE 99-20, SIDE B Number 0001 MR. KLEIN did not believe that any legislation encouraged economic success of brewing companies. With regard to the amendments, he emphasized that the amendments are a compromise which he did not view any differently than the compromise existing since 1995. The restriction to distribution through a wholesaler is not a long-term solution. If the focus of this legislation is to encourage local beer-making and the employment that it creates, the legislation would be worth review. Number 0134 REPRESENTATIVE HALCRO posed the following scenario. A person wanted to open a brewery/restaurant, invest over $500,000 on the equipment, and serve food. A beverage dispensary license could cost upwards of $180,000 and a beer and wine license [restaurant or eating place license] can cost up to $125,000, which is a significant difference in the price. He asked if tight constraints are desired when a person brews beer and is serving food? To Representative Halcro it was of no consequence whether the beer was brewed "out your back door" or purchased from "Budweiser" because in either case the beer was sold in the restaurant. What percentage of beer sales are wholesale for the Moose's Tooth or the Snow Goose? MR. KLEIN said that there is a full set of laws which regulate the sale of beer to the public. The fact that a restaurant makes beer does not affect the restaurant's ability to sell beer whether that beer is Budweiser or homegrown ale. The issue becomes problematic with regard to other restaurant owners. For example, Diane Thompson (ph) at "Humpy's" [Humpy's Great Alaskan Alehouse] would question why Glacier Brewhouse could sell a half gallon of beer "out the door" to a customer if she could not? The law seems to be clear on that issue in that the act of brewing beer is licensed separately from the act of serving beer in a restaurant. He believed the current law requires a line of demarcation between the act of brewing and serving beer which he was unsure of in the case of a brewpub. Mr. Klein indicated that the sales to other premises is not a major portion of the Moose's Tooth and Snow Goose's business, for them it would be a matter of prestige as well as increasing attention to local products. Mr. Klein did not believe that was bad for the industry. Number 0305 CHAIRMAN ROKEBERG viewed Mr. Klein as a person dedicated to the art of brewing beer in Alaska and would encourage that. Chairman Rokeberg asked if Mr. Klein would like the law to allow a restaurant operation more easily. MR. KLEIN said that he had no desire to open a restaurant; his interest is that the beer be perfect. However, Mr. Klein did not believe that making beer should restrict him from becoming an owner in a restaurant elsewhere. The "Tidehouse (ph) Laws" currently existing were intended to keep say, Anheuser-Busch Companies, Incorporated, from buying restaurants and bars in Alaska and having a straight-through distribution like that. A lot of those at the table today illustrate that encouraging a single-tier production to plate system like these restaurant-brewery combinations have has proven to be an economic boon for the state. Mr. Klein said, "When you step back from, sort of the individual requirements, the individual requirements, what each of us want out of the legislation to the general goal of fostering economic growth up here. I don't think there is anything wrong with that at all." Mr. Klein did not like any operation being forced to sell only through a wholesaler for the same reasons Mr. Staples outlined. The more restrictions placed on the act of beer making, the more problematic running a business becomes. This is a really tough business. Number 0467 REPRESENTATIVE MURKOWSKI understood Mr. Klein to suggest that this legislation was not so bad given the alternatives. She pointed out that Mr. Klein is viewing this from the brewery perspective and others present view this from the brewpub perspective. Could all of you, with a little more time, produce a better piece of legislation? MR. KLEIN stated that there had been much discussion. Mr. Klein said that there are others who have more interest in the specific amendment. If the goal is to encourage growth in the industry, the brewers, given the right forum, could produce something that made more sense. There is not much to model from in the Lower 48. There is a new guild, the "Craft Breweries Guild," that is forming which he foresaw encouraging discussions on this issue. Mr. Klein reiterated that his interest was to ensure the committee realize that passage of these amendments is merely a temporary fix. There is a reason no new brewpubs have opened in the Anchorage area for the past three or so years, and that is not necessarily a good thing. Number 0599 REPRESENTATIVE HALCRO asked Mr. Hancock of the Moose's Tooth what would he do with the $180,000 if he had the ability to expand and did not have to purchase a beverage dispensary license. What would happen if the state did not require the purchase of a license that Mr. Hancock and his colleagues did not need nor want? MR. HANCOCK did not doubt that with more capital, a business could grow faster. The money could be used to do all kinds of things. Mr. Hancock agreed that this legislation was a "duct tape" fix to this issue, but at least those in the game would be allowed to expand which he was ready to do. Number 0700 CHRIS ANDERSON, Co-Owner, Glacier Brewhouse, testified via teleconference from Anchorage. This is a compromise which is the key. Mr. Anderson informed the committee that he has spent years on this issue. The first years were spent doing exactly what Mr. Klopfer detailed; that expansion be allowed under the rules the business were created under. This compromise has resulted after years of discussion with the Cabaret Hotel and Restaurant Retail Association (CHARR), the Anchorage Restaurant and Beverage Association (ARBA), the ABC Board, wholesalers, legislators, and many more. This compromise allows brewery/restaurants who wish to expand the ability to expand. If this legislation is tabled, the ability to expand would not be available. For years, the inability to expand has cost the industry millions in revenue, millions in payments to employees and vendors. Mr. Anderson was not happy that he would have to purchase a beverage dispensary license in order to solve this problem, but that is the compromise. The battle may not be over. The brewers guild, of which Mr. Anderson is a member, can propose legislation and work with the players of the issue to provide viable options. Mr. Anderson believed the intent of the legislation was to allow a vehicle for expansion of those brewpubs desiring expansion. This is not a perfect solution, but it is "a" solution. The people involved that are interested in expansion of their business and would spend the money to expand are satisfied while those not willing to do that are unsatisfied. Mr. Anderson urged the committee not to let this issue get out of control. From Mr. Anderson's perspective, he wanted to expand his business. Number 0869 CHAIRMAN ROKEBERG inquired as to who Mr. Anderson was compromising with. MR. ANDERSON informed the committee that he had met with the ABC Board, CHARR, ARBA, and distributors. There were several formal meetings during which these issues were discussed and resulted in legislation that was thought would pass through, but did not. This issue has been brought to the attention of all those who have been opposed in the past. Mr. Anderson stated that everyone has backed away and wants to allow expansion for those business interested in such. There are larger issues facing the industry. Mr. Anderson believed that stopping this legislation would stop commerce. In further response to Chairman Rokeberg, Mr. Anderson informed the committee that CHARR and ARBA employ hundreds and hundreds of people in Alaska. He pointed out that CHARR and ARBA are currently aligned with the hotel and restaurant association. He noted all three of these organizations have given their vote on this bill, commenting that that is thousands of people throughout the state. CHAIRMAN ROKEBERG surmised that those organizations would comprise over hundreds of businesses and tens of thousands of people. MR. ANDERSON agreed with Chairman Rokeberg's assessment. Number 0976 REPRESENTATIVE MURKOWSKI noted that Mr. Anderson had stated that the he had been in negotiation and conversation with CHARR, ARBA and others which resulted in the compromise before the committee. She pointed out that the committee does not have any correspondence from CHARR or ARBA stating their support. Representative Murkowski was curious if anyone from CHARR was present to provide feedback on this. Representative Murkowski appreciated the ongoing process that resulted in this difficult compromise. If no one is terribly excited about the compromise, Representative Murkowski felt that was probably a sign that it is a good compromise. CHAIRMAN ROKEBERG mentioned that there are observers from CHARR who are available for comments after the completion of questions to Mr. Anderson. Chairman Rokeberg informed the committee that CHARR is aware of the proceedings, but has been waiting to see the amendments before composing a letter. REPRESENTATIVE HALCRO detected frustration in the voice of Mr. Anderson. Representative Halcro acknowledged that this has been a three-year journey. Representative Halcro believed Mr. Anderson would agree that this discussion of the changes is occurring because the restrictive language was placed in this bill by legislators who were serving their constituents which Representative Halcro said he was doing. MR. ANDERSON said he did not disagree with Representative Halcro's comments. CHAIRMAN ROKEBERG requested that Doug Griffin of the ABC Board comment on the amendments. Number 1125 MR. GRIFFIN said he believed the amendments, specifically G.3, did address some of the unique situations such as the Moose's Tooth. This would allow the option of expansion through the purchase of a beverage dispensary license. Mr. Griffin said that he understood the concerns of Mr. Klopfer and others regarding the beverage dispensary license. Mr. Griffin pointed out that the board did address this issue and offered SB 138 last year which did not progress. Senate Bill 138 would have allowed a restaurant eating place licensee to get a brewpub license without purchasing a beverage dispensary license. The main opposition to that was from those with the beverage dispensary licenses. Mr. Griffin agreed that Mr. Anderson promoted the compromise in order to move the discussion forward and allow the expansion of commerce. Mr. Griffin believed the ABC Board took the same view. The ABC Board is sort of neutral, but the board does see the value of the expansion of businesses. "So therefore, I, we do support this approach to that extent. It's not comprehensive and it's not a total fix; it is the duct tape solution, but it will work. And we think it's something that we can administer." CHAIRMAN ROKEBERG referred to amendment G.1, Sections 5 and 6 regarding the control licensee as related to the florist. Is the board comfortable with the provisions in G.1 as written? MR. GRIFFIN pointed out that the language in G.1 is language developed by the board in response to a request from Senator Torgerson on behalf of a constituent in Seward. Mr. Griffin indicated the need to clarify the language since he differed with the explanation provided to the committee at the last meeting. He explained that the board would, in terms of delivery, hold the liquor licensee responsible. The board feels comfortable with the language. Mr. Griffin commented that the board attempts to find the balance between alcoholic beverage commerce and protection of the public which resulted in the restrictions placed on the delivery and purchase of the delivery products. With regard to whether this would exclude grocery stores, Mr. Griffin interpreted the language as not excluding grocery stores. Number 1475 REPRESENTATIVE MURKOWSKI referred to amendment G.1 and pointed out that both subsections provide that the board would issue a permit to the licensee authorized to deliver the alcoholic beverages. Would that language change the zero fiscal note? She clarified that she was referring to whether it would cost the board more to operate it. MR. GRIFFIN viewed it as a wash. Anything collected would cover the cost. He acknowledged that the board could not predict this. This will mainly be used to keep track of who does deliveries similar to the monitoring of those package stores that are in the written order business. The permit is not designed to be a money generator, but would cover the costs. REPRESENTATIVE MURKOWSKI referred to subsection (k) in amendment G.1 which requires that delivery can only be made to a responsible adult who provides positive identification and proof of age. No such language exists in subsection (j) referring to deliveries to cruise ships. Is there any reason there was no proof of age requirement in subsection (j)? MR. GRIFFIN agreed that the language referring to deliveries to cruise ships does not specify that. He noted that there are many provisions in Title 4 that require alcohol only be received by persons of age. Mr. Griffin said it would not hurt to add language to the cruise ship and hotel subsections because the desire is to have the same criteria apply. Through testimony received during the development of this language it was brought forth that often these deliveries are made to a purser or other officer due to the security on the ship. Still the person receiving the delivery would need to be of age. REPRESENTATIVE MURKOWSKI asked, in reference to amendment G.3, if the beverage dispensary license would be readily available. MR. GRIFFIN informed the committee that in Anchorage approximately 10 beverage dispensary licenses exist which are not operating or are not tied to a premise that is operating. That is more non-operating beverage dispensary licenses than has been the case in some time. Mr. Griffin did not follow the price, but he indicated that the range of $125,000 to $180,000 was probably accurate. Number 1774 REPRESENTATIVE HALCRO inquired as to how many beer and wine licenses are available or are those restricted. MR. GRIFFIN said that type of license is restricted. He clarified that the beer and wine license is the restaurant eating place license. Twice as many restaurant eating place licenses are available. Mr. Griffin explained that the beverage dispensary license is restricted to one per every population of 3,000 which is being exceeded. A restaurant eating license is restricted to one per every population of 1,500. Currently, there is not a secondary market for restaurant eating place licenses. There are about twelve restaurant eating place licenses available which allows a person to come in and purchase a restaurant eating place license from the board without shopping around which would be required for the beverage dispensary license. CHAIRMAN ROKEBERG informed Mr. Griffin that he had an amendment referring to the proposed CS, Version G, page 5, line 21 changing the year from 2002 to 2003 or 2004. Chairman Rokeberg asked which year Mr. Griffin would prefer. MR. GRIFFIN stated that he appreciated anything that could be given. REPRESENTATIVE MURKOWSKI requested that Mr. Griffin comment on amendment G.4 which would eliminate the restriction regarding how much an individual may bring into a premise. Number 1974 MR. GRIFFIN believed that the amendment was offered by Chairman Rokeberg who was being responsive to a comment from the chairman of the ABC Board who had spoken solely on his own behalf. The issue of corkage has not been discussed with the board as a body. Prior to the last hearing, Mr. Griffin said he had talked with Bob Klein, the chairman of the ABC Board. Mr. Klein asked that Mr. Griffin inform the committee, on Mr. Klein's behalf, not as a member of the board, that there may be instances that people would want to bring more alcohol. Mr. Griffin conveyed that Mr. Klein felt that would be acceptable as long as the licensee is in full control with the ability to not over serve someone, as if the licensee were selling their own alcoholic products. He noted Mr. Klein felt that the one bottle for every two person restriction was really not necessary. Mr. Griffin said that he could agree with that; the main goal is that the licensee has the ability to control how much alcohol is served. Mr. Griffin indicated the restriction might be a problem in a wine tasting or wine comparison situation. Number 2116 REPRESENTATIVE MURKOWSKI asked if she had permission to bring in my own wine into an establishment, would she then turn the wine over to the server who refills the glass and keeps the bottle. What does the reference to the licensee maintaining control mean? MR. GRIFFIN agreed with Representative Murkowski's description. REPRESENTATIVE HALCRO inquired as to how corkage would effect host liability laws. MR. GRIFFIN referred to amendment G.2 which would insert "With the permission of the licensee, a" language. Mr. Griffin emphasized that if this corkage would be allowed, it must be clear that the licensee has the ability to restrict and stop serving. The licensee must be able to control the situation because the licensee has to have the connection with what is going on at the table. Mr. Griffin reiterated that the main point is that the wait person or licensee's representative must be present to monitor the situation. Therefore, the host liability should not be affected. Number 2324 CHAIRMAN ROKEBERG asked if anyone else wished to testify on HB 69. Hearing none, the public testimony on HB 69 was closed. Chairman Rokeberg directed discussion to the amendment regarding the extension of the ABC Board. He favored extending the board for two years. The ABC Board was extended for one year last year by the "golf course bill" [HB 458] authored by the chairman. The audit indicated extension to the year 2002. Chairman Rokeberg believed the extension should be to the year 2003 or 2004. REPRESENTATIVE HALCRO expressed concern that the renewal of the ABC Board is the only manner in which outstanding issues would be addressed. Representative Halcro believed that by extending the board to the year 2004, some issues not addressed to some people's satisfaction would have to wait five years before being able to address those issues. This is of grave concern because a number of these items are restrictive and unfair. If these issues are not addressed this year, they should be addressed next year or the year after. He did not believe waiting five years would be beneficial to anyone. CHAIRMAN ROKEBERG noted that there is nothing to dissuade Representative Halcro from introducing a bill on the subject. REPRESENTATIVE HARRIS pointed out that the items before the committee are add-ons to the original legislation. TAPE 99-21, SIDE A Number 0001 REPRESENTATIVE HARRIS asked if there were any glaring problems with the last audit [Audit Report, September 8, 1997, Division of Legislative Audit]. CHAIRMAN ROKEBERG replied that there were three recommendations, and two of those were "housekeeping/accounting-type procedures." The major criticism, he added, was regarding following the recommendations of local bodies; however, the ABC Board took strong exception to the auditor's position. Number 0049 REPRESENTATIVE MURKOWSKI indicated that she reviewed the audit before the first hearing of HB 69. She noted that she was very interested in the definition of authority that ABC investigators have, how that has extended from licensing to actually making arrests for prostitution and gaming. She inquired as to the full scope of that authority. She advised that the auditor's recommendation was for an extension to be granted, and that there was nothing in his report that would inhibit that; however, she stressed that the audit did raise some interesting issues that the committee would do well to look into at a future date. CHAIRMAN ROKEBERG agreed. He pointed out that the legislature granted a one-year extension last year based on the 1997 audit, bringing the sunset date to 2003. Number 0197 REPRESENTATIVE HALCRO reopened the question of broadening the base of responsibility of the ABC Board to include tobacco enforcement and/or gaming. He agreed with a comment made by United States Senator Ted Stevens who, when asked why so many riders were being attached, said, "It's the only train leaving the station." That being the case, Representative Halcro added, "I think we need to make sure that it comes around more than once every five years." Number 0247 CHAIRMAN ROKEBERG called an at-ease at 5:03 p.m. The committee came back to order at 5:07 p.m. Number 0284 REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment G.1, labeled 1-LS0354\G.1, Ford, 02/23/99, which read: Page 1, line 4, following "licenses;": Insert "relating to package store licenses;" Page 3, following line 30: Insert new bill sections to read: "*Sec.5. AS 04.11.150(a) is amended to read: (a) Except as provided under (g),(j) and (k) of this section, a package store license authorizes the licensee to sell alcoholic beverages to a person present on the licensed premises or to a person known to the licensee who makes a written solicitation to that licensee for shipment. A licensee, agent, or employee may only ship alcoholic beverages to the purchaser. Before commencing the practice of shipping alcoholic beverages, and with each subsequent application to renew the license, a licensee shall notify the board in writing of the licensee's intention to ship alcoholic beverages in response to a written solicitation. The package store licensee, agent, or employee shall include written information on fetal alcohol syndrome and fetal alcohol effects resulting from a woman consuming alcohol during pregnancy in a shipment of alcoholic beverages sold in response to a written solicitation. *Sec. 6. AS 04.11.150 is amended by adding new subsections to read: (j) A package store license authorizes the licensee to deliver not more than two bottles of wine or champagne in a gift basket with a floral arrangement to a cruise ship passenger or a hotel guest. The wine or champagne for delivery may be purchased from a package store licensee by a florist or gift basket establishment with a state business license that designates the business as a florist or gift basket establishment. The package store licensee shall keep on file a copy of the Alaska business license of a florist or gift basket establishment to which the licensee sells wine or champagne for delivery to third persons by the package store. The package store must keep a written record of each delivery made under this subsection for a period of at least one year, including the name of the business purchasing the wine or champagne and the name of the person to whom the delivery is made. A delivery under this subsection must be made by the licensee or an employee or agent of the licensee who has completed alcohol server training as required under AS 04.21.025. The board shall issue a permit to each licensee authorized to deliver wine or champagne under this subsection and may by regulation impose an administrative fee for the cost of issuing the permit. (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 other social event as defined by regulation of the board. A delivery under this subsection may be made only after a sale by written order received from a person present on the licensed premises who makes payment in full at least 48 hours before the delivery. The written order must include the name and address of the purchaser and the date, time, and address of the delivery, as well as the name and address of the responsible adult who will receive the delivery of alcoholic beverages. A delivery authorized under this subsection must be made by the licensee or an employee or agent of the licensee who has completed alcohol server training as required under AS 04.21.025. Delivery may only be made to a responsible adult at the delivery address on the written order. The responsible adult must provide identification and proof of age as defined in AS 04.21.050, and must acknowledge receipt of the alcoholic beverages in writing. The package store licensee shall retain the written order and the responsible adult's written acknowledgment for at least one year after delivery. The board shall issue a permit to each licensee authorized to deliver alcoholic beverages under this subsection and may by regulation impose an administrative fee for the cost of issuing the permit." Renumber the following bill sections accordingly. Page 5, line 23: Delete "Section 12" Insert "Section 14" Page 5, line 24: Delete "sec. 13" Insert "sec. 15" CHAIRMAN ROKEBERG asked whether there was any objection. There being none, Amendment G.1 was adopted. Number 0315 REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment G.2, 1-LS0354\G.2, Ford, 02/24/99, which read: Page 4, line 27: Delete "A" Insert "With the permission of the licensee, a" CHAIRMAN ROKEBERG objected for the purposes of discussion. He clarified that Amendment G.2 gives the licensee the right to refuse to do corkage, allowing the licensee to maintain control. Having said that, Chairman Rokeberg removed his objection, and asked whether there were any further objections. There being none, Amendment G.2 was adopted. Number 0358 REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment G.3, 1-LS0354\G.3, Ford, 02/25/99, which read: Page 3, following line 30: Insert a new bill section to read: "*Sec.5. AS 04.11.135 is amended by adding a new subsection to read: (d) Notwithstanding (a) of this section, the holder of a brewpub license who under the provisions of AS 04.11.450(b) formerly held a brewery license and a restaurant or eating plate license and who, under the former brewery license, manufactured beer at a location other than the premises licensed under the former restaurant or eating place license may (1) manufacture not more than 75,000 gallons of beer in a calendar year on premises other than the premises licensed under the beverage dispensary license; (2) provide a small sample of the manufactured beer free of charge at the location the beer is manufactured unless prohibited by AS 04.16.030; and (3) sell the beer authorized to be manufactured under this subsection (A) on the premises licensed under the beverage dispensary license or other licensed premises of the beverage dispensary licensee; (B) to a wholesaler licensed under AS 04.11.160; or (C) to an individual who is present on the premises where the beer is manufactured in quantities of not more than five gallons per day." Renumber the following bill sections accordingly. Page 5, line 23: Delete "Section 12" Insert "Section 13" Page 5, line 24 Delete "sec. 13" Insert "sec. 14" CHAIRMAN ROKEBERG asked whether there was any objection. There being none, Amendment G.3 was adopted. Number 0376 REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment 4, which read: Page 1, line 4: After "licensed premises" Insert ";" After ";" Delete: "and" Insert: "relating" After "licensed premises" the sentence now reads "; relating" Page 4, lines 30-31 Delete: "A person may not bring more than one bottle of wine for every two persons seated at the person's table on the licensed premises." CHAIRMAN ROKEBERG objected for purposes of discussion. He clarified that Amendment 4 modifies the final changes recommended by the assistant attorney general and modified by Mike Ford, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency. Secondly, he pointed out, it addressed corkage removal on page 4, lines 30 to 31, to allow for a fiftieth anniversary celebration. Having said that, Chairman Rokeberg removed his objection to Amendment 4, and asked if there were any further objections. There being none, Amendment 4 was adopted. Number 0434 REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment 5, which read: page 5 Line 21 Delete "2002" Add "2003" page 1 Line 7 After "Board" Add "to June 30, 2003" CHAIRMAN ROKEBERG asked whether there was any objection. There being none, Amendment 5 was adopted. Number 0461 CHAIRMAN ROKEBERG stated, "I would like to thank the committee for their indulgence in this bill. It is very complicated, and it is the culmination, basically, of three years of negotiations between those people in the industry that have beverage dispensary licenses, and those people that, some four years ago, because of what I call a quirk in the law, and/or a change in the law that I think a lot of people in the industry weren't fully aware of, allowed the creation of the exempt, now grandfathered, combination brewery restaurant licensure." Number 0516 CHAIRMAN ROKEBERG added that there were initially five of these licenses issued, and he believed that four are current. One of those licenses is for the Armadillo Tex-Mex Cafe in Juneau, and it was his understanding that they only manufactured about 100 barrels of beer a year. Consequently, there are three main establishments involved, and two of the three testified in agreement with this compromise. He acknowledged that liquor statutes in the state of Alaska become highly political issues, but Alaska's laws are patterned on the federal three-tier system that regulates distributors, wholesalers and retailers. These policies, he stressed, were made for protection of the public, as well as the protection of commerce. Chairman Rokeberg declared that the individuals who would be affected by HB 69, as amended, have agreed to it, and added that it is a "pro-business, pro-jobs bill." According to the "Wine Institute," he reported, only four states in the United States prohibit corkage, and at least 24 states allow it, including all of the "wine-growing states on the West Coast." He asked for further comments or objections. Number 0728 REPRESENTATIVE HALCRO objected, and added, "I understand the hard work of the last three years and the compromise, but this bill is still blatantly unfair. I don't think it does anything for labor or commerce. I think it restricts the ability of business to grow. I think there is an established, clear-cut firewall between beer and wine and hard liquor, not only state laws, but federal laws. I think both sides are very well-protected, as you can tell by the disparity in the cost of a beer and wine license and a beverage dispensary license. It is unfortunate that people like Moose's Tooth or the Snow Goose or Glacier Brewhouse have to go out and spend $125,000 to $180,000 for the benefit of contributing more to the property tax base, employing more people, investing more into the economy. It is truly a travesty, and these restrictions that are in this statute were put there solely by people protecting their constituents, and I am just sorry that I couldn't do the same. I fully intend to stand on the floor and make amendments to this bill, simply because this is blatantly unfair." Having said that, Representative Halcro withdrew his objection. Number 0831 REPRESENTATIVE HARRIS made a motion to move CSHB 69, Version G as amended, from the committee with individual recommendations and the attached fiscal note. There being no objection, CSHB 69(L&C) moved out of the House Labor and Commerce Standing Committee. ADJOURNMENT Number 0859 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 5:17 p.m.