Senate Bill 0216 – (Hopefully) The Future of Michigan Liquor Law

Posted on February 26, 2013

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In July, we posted an analysis of the ORR’s proposed changes to Michigan Liquor Law.  With the recent proposal of Senate Bill 0216 of 2013, we are finally seeing some of those recommendations make their way into the legislative arena.   We believe that this is a significant structural change to the Michigan Liquor Code, which will begin shifting Michigan’s Liquor Laws into the 21st century.

On the whole, we are excited to see such a wide array of changes to the law.  It is our expectation that implementation of the changes in this bill will increase efficiency at MLCC and introduce more common sense into the overall licensing process.  The potential implementation of many of the ORR’s recommendations via SB 0216 could leave a lasting, and positive, impression on Michigan’s Liquor Laws.

Changes that are proposed by SB 0216:

  1. Modifications to the “Gas Pump Rule” or “Meijer Bill”
    1. There are two significant proposed changes to the Gas Pump Rule: (1) Lower the inventory requirement to $50,000; and (2) Eliminate the requirement that the point of selection and sale be at least 50 ft from the nearest gas pump.
    2. We have already seen that this is likely to be the most contentious part of SB 0216.  Many groups, including the AFPD, have spoken out against lowering the inventory requirement for locations with fuel pumps.  It is our belief that the inventory requirement does nothing more than harm smaller gas stations at the expense of larger corporations.  While we have licensed many gas stations using rolling papers and postage stamps, this option is not available for small family owned stores.  As a result, the current law, in our eyes, does more to favor larger corporations than it does to protect the public.
  2. Creation of Conditional Licenses
    1. The conditional liquor license would be available in situations involving a transfer of an existing license for use at the same location, or the issuance of a new license (other than an SDD or on-premise license).  If such a license was requested, the Commission would have twenty days to decide whether or not to issue the conditional license.
    2. As we have previously stated, we believe that these conditional licenses are a significant step forward in reducing the issues caused by the sheer length of the licensing process.  While MLCC has been making strides in reducing the amount of time for approval, the fact remains that it takes several months for approval. A conditional license would allow businesses to operate in the time it takes for Commission approval.
  3. Cross-County Transfer of On-Premise Licenses
    1. Escrowed on-premises licenses would be transferable between adjacent counties.  The fee for such a transfer would be $10,000.  Furthermore, a license could only be transferred across county lines once every five years.
    2. If implemented, this change could lower the value of some licenses (especially in counties where demand strongly outweighs supply).  At the same time, however, this change would increase the availability of licenses and decrease the number of licenses that languish in escrow.  While the decreased value of licenses may be harmful to some licensees, we believe that the overall impact of this change would be a positive one.
  4. Creation of a Farmer’s Market Permit
    1. This permit would allow a small winemaker to conduct tastings and sales of their wine at a farmer’s market.
    2. While there are valid concerns about the increased potential for sales to minors at Farmer’s Markets, we believe that this positive impact of this change could be significant.  By opening up another venue for small winemakers to market their products, this bill could provide these winemakers with another means of competing in Michigan’s growing wine market.
  5. Issuance of Redevelopment Class C Licenses to all municipalities
    1. Under this section of the bill, Redevelopment District licenses would be available in the downtown areas of any municipality, including townships and villages.
    2. We believe that this is a common sense change to the current Sec. 521a, which restricts these licenses to cities.  By increasing the availability of these licenses to townships and villages, which may only have a small number of quota licenses, this bill opens the doors for downtown improvement and redevelopment projects throughout the state, regardless of the form of local government.
  6. Limitation on Local Government Application Fees
    1. Under the bill, application fees charged by a local government unit could not exceed the annual license fee charged by MLCC.
    2. Again, we believe this is a common sense change.  While it is understandable that local government units may want to charge some “fee” for the additional work they encounter when approving a new licensed establishment, this fee must have a limit.  We have heard local government officials refer to their fees (which were excessive) as “the cost of purchasing a new license from the city.”  These licenses are not owned by the city – and therefore the city should not be charging for the “sale” of the licenses.
  7. Creation of a new class of On-Premise Resort Licenses
    1. The bill would create a new class of Resort License.  Forty of these licenses would be available each year.  The applicant would be required to make a $500,000 capital investment in the real estate, buildings, fixtures, and inventory.
    2. While this change could decrease competition, it will also increase the availability of on-premise licenses for those who invest a significant amount of capital into their projects.  This new license could promote significant investments and increase the willingness of investors who might not otherwise have access to a liquor license.
  8. Beer, Wine, and Spirits Festivals
    1. In addition to existing Beer Festivals, the bill would permit issuance of a special license for Wine and Spirits Festivals.
    2. We strongly support this change and believe it could play a significant role in the continued growth of Michigan’s manufacturing industry.
  9. Creation of the “Small Brewer” License
    1. The bill would replace the current microbrewer and brewpub licenses with a single small brewer’s license, which combines the rights of the two current licenses.  Now to be known as “Small Brewers” license, this license would include a 30,000 barrel/year threshold, and permit the licensee to also hold an on-premise license.  Small brewers could sell their own product on the licensed premises (for on/off-premise consumption); they could also sell directly to retail licensees.
    2. We find this change to be a common sense approach to reducing redundancy in the Code.  Furthermore, we believe that it could serve to aid the growing microbrewery industry in Michigan.  By affording small breweries the right to brew up to 30,000 barrels and hold an on-premise license (if they choose), this license, in essence, combines the best aspects of the microbrewery and brewpub licenses.  The ability of a small brewer to sell directly to consumers and retailers would sidestep the longstanding three-tier system and could play a significant role in the increasing significance of small breweries in Michigan.
  10. Permit Expedited Local Government Approvals
    1. Under SB 0216, local approvals may be given by a City or Township Clerk without the need for an official hearing, so long as the local legislative body delegates that power to the Clerk.
    2. This will further expedite a significant delay in the licensing process – local approvals.  By eliminating the need for a formal hearing, the change could shorten the licensing process by several weeks.
  11. Allow Operation of a Licensed Business by Receivers and Trustees
    1. Under the bill, receivers or trustees appointed by a Court, or a secured party foreclosing on its security interest in a liquor license, may be approved by the Michigan Liquor Control Commission (“MLCC”) to operate the licensed business.
    2. Although this change will not impact many licensees directly, it has a significant impact on lenders and receivers.  By permitting a Receiver, Secured Party, or Trustee to operate a licensed business, the bill would decrease the amount of loss that can occur upon default or bankruptcy by a licensee.
  12. Increase punishments for Sales to Minors
    1. The bill increases fines for sales of alcohol to a minor during a “sting” operation to $200 for the first offense, and up to $400 for a second offense.
    2. We wholeheartedly support the increased fines.  While Licensees must remain vigilant, we must also recognize the fault of the individual who permits an illegal sale.
  13. Permit Retail Charge Accounts
    1. The bill would permit sales of alcohol on credit, through a “customer’s charge account with a retail licensee.”
    2. The current ban on credit sales is a protectionary measure.  We feel that the desirability of the ban is more a matter of personal preference than legal significance.
  14. Increase the standard of proof for many violations
    1. The bill inserts the word “knowingly” into several violations, augmenting the previous “shall not allow” to a more flexible “shall not knowingly allow.”  This modification affects sales to intoxicated persons, consumption of alcohol by minors, gambling, and a number of other violations.
    2. This change recognizes that no matter how diligent a Licensee may be, the Licensee cannot be held “strictly liable” for all occurrences on the premises.  For example: While a Licensee who does nothing to stop illegal gambling should be held liable, a Licensee who had no reason to know of such gambling should not be held liable.
  15. Unlimited sales of Liquor to On-Premise Licensees by SDD Licensees
    1. Currently, on-premise licensees may only purchase 9 liters of spirits per month from SDD licensees.  Under this bill, on-premise licensees may purchase an unlimited amount of spirits from SDD licensees.  On-premise licensees would pay retail prices for any spirits purchased from an SDD licensee.
    2. We find this to be yet another common sense change.  By permitting SDD licensees to act as miniature wholesalers, this change could increase sales by SDD licensees and ensure that on-premise licensees remain fully stocked.

We would also note that there are several recommendations from the initial ORR Report that are excluded from SB 0216.  A few of those recommendations:

  1. Allow license applicants to submit the same Brewer’s Notice and supporting documents required by the federal Alcohol and Tobacco tax to the Commission concurrent with their submission to TTB.
  2. Eliminate the Fingerprinting requirement and run LEIN, NCIC, or ICHAT checks on applicants if complete arrest and conviction information is deemed necessary.
  3. Eliminate investigation of individuals already licensed with the Commission.
  4. Eliminate pre-licensing verification of finances by the Commission.
  5. Eliminate the word “verifiable” from R 436.1105 and 436.1121 (dealing with “verifiable finances”).  Use affidavits attesting to the source and legitimacy of funds used.
  6. Authorize “incomplete” applications for investigation.

The Bill has been sent to the Committee on Regulatory Reform and hearings will likely begin shortly.  You can follow the bill or read it in its entirety here.

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*This information and thoughts herein are provided by the Liquor Lawyers at Stariha & Brower, PLC.  As always, we remind readers that the materials on this site are provided purely for informational purposes and are not legal advice. These materials are intended, but not promised or guaranteed, to be correct, complete, and current. This blog is not intended to be a source of legal advice. Therefore, the reader should not consider this information an invitation for an attorney-client relationship. Readers should always seek the advice of competent counsel.

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