Recent updates to the Illinois Liquor Control Act, Part 1 of 2, Definitions, Class 3 Brewers, Self-Distribution, Alternating Premises Tap Rooms and more.
The Governor’s signature brought Public Act 102-0442 to life on August 20. The Act effectuates multiple amendments to the sausage of the Illinois Liquor Control Act of 1934. Let’s break them down:
Mead is in.
The definition of Wine is amended to specifically reference beverages made with honey and mead. Sadly, the Illinois legislature did not adopt the cute “honey wine” moniker the TTB prefers when referring to mead. The amendments suitably expand the Winery Shippers, First-Class and Second-Class Wine Manufacturers and First-Class and Second-Class Wine-Makers and even Limited Wine Manufacturer license holders’ rights by adding the privilege of selling cider and mead to brewers for sale in brewery tap rooms. Brewers can buy and sell mead now… allowing them to break the winery stranglehold on the Illinois viking demographic.
The new Illinois Class 3 Brewer licenses allows for limited self-distribution and selling wine and spirits at a brewery tap room.
A new brewer category, the Class 3 Brewer, creates a license with privileges similar to those of Illinois Brewpub licensees allowing for the tap room sales of wine and spirits in addition to beer. The licensees are restricted to not more than 155,000 gallons per year from the class three facility (465,000 gallons in the aggregate between multiple facilities) and a self distribution privilege of up to 200 barrels (6,200 gallons). Non-resident dealer’s (brewer’s outside Illinois) can also obtain this license (yes, Illinois follows Granholm better than many states). What’s interesting about the Class 3 self-distribution privilege is that it is allotted to each premises unlike the Illinois Class 1 Brewer privilege and allowed to aggregate, so with three facilities, a Class 3 Brewer could self-distribute up to 600 barrels (18.600 gallons). Current Brewpub licensees can apply for (convert to) a Class 3 Brewer license.
Illinois Distributors can now put on festivals.
A new version of a special event permit creates an avenue for Illinois Distributors and the newly created Class 3 Brewer to hold festivals or events. Yes, you read that right, the new amendments allow the middle-tier beer wholesalers to sell direct to consumers at these events. The aptly style “Beer Showcase Permit License” allows for the transfer of beer from the premises of these entities for a specific event and limits sales to not more than 96 fluid ounces per person. Like special event licenses, they can be granted for periods of up to 15 days in any 12 month period.
Manufacturers that make multiple commodities can now obtain self-distribution privileges for each of them.
The Act amends a poorly drafted clause in the sections granting self-distribution privileges to wineries, distilleries and breweries allowing mixed-commodity ownership the rights of self-distribution. Prior to the Act, the words “or produces any other alcoholic liquor” appeared as a limitation in Sections 3-12(a)(17), (18), and (20) of the Liquor Control Act which grant self-distribution rights to wineries, breweries and distilleries (respectively) and owners of one manufacturer license for a commodity were not allowed to maintain their self-distribution privileges if they obtained a manufacturer’s license for another commodity (holding a license to make both wine and beer or spirits and wine for example). The Act removes that language and those wishing to operate breweries and wineries and distilleries can now maintain their self-distribution when taking on the craft of manufacturing other commodities (still within the limitations of manufacturing not more than 25,000 gallons of wine, 930,000 gallons of beer or 50,000 gallons of spirits).
These provisions of the Act relating to amending and allowing for cross-commodity self-distribution limit the types of cross-commodity licenses an enterprise can obtain which discriminates against larger operators in one commodity – keeping them from holding a self-distribution privilege in a different commodity. The Act restricts the cross-commodity ownership of the class-type licenses to those of the First-Class Wine Manufacturer, First Class Wine-Maker to those of Class 1 Craft Distiller and Class 1 Brewer on the one hand and Class 2 Craft Distiller, Class 2 Brewer and Second-Class Wine-Makerson the other (e.g., a Class 3 Brewer’s can’t get another commodity license, first-classes stay with first-classes, and regular manufacturers without the Class-styled licenses can still obtain multiple commodities, but a regular Distiller license holder would not be able to obtain a Class 1 Brewer license and self-distribute (A large distiller like Brown-Forman cannot open a self-distributing craft brewery).
The method/manner/location of sales for brewers is dialed-in.
The Act adds language to the brewer definition under the Manufacturer licensee provision of Section 6-4 in an attempt to restrict the sale location rights of brewers to sales of packaged beer to consumers from the brewery premises, curb-side, and parking lots adjacent to the brewery premises subject to local ordinance. This is an inartfully stated provision apparently created out of spite for both the craft of legal drafting and brewers to explicitly state that breweries could sell at their premises and premises-adjacent locations. Speaking of inartful drafting – the Section 6-4(e) grant of right to Class 3 Brewers could have just allowed them to sell “alcoholic liquor” which is a defined term under the Liquor Control Act, rathern that listing out that they can sell their beer, beer from brewers, class 1 brewers, class 2 brewers, class 3 brewers and cider wine and spirits.
Wonky language regarding tap rooms at alternating premises added that needs guidance/clarification.
But don’t go thinking having an alternating premises will get you the ability to run a taproom that serves all commodities for your new multiple commodity facility. Section 6-4 has a new subsection (i) that appears to not allow your new brewery/distillery tap room to serve both your beer and your spirits:
(i) Notwithstanding any other provision of this Act, the common ownership of a brewery, winery, or a distillery shall not authorize the grant of and aggregation of retail privileges granted to any person or licensees in subsection (e). Any person or licensee with common ownership in a brewery, winery, or a distillery shall be limited to the retail privileges granted to only one of the commonly owned brewery, winery, or distillery. The State Commission is hereby authorized to restrict the locations of any commonly owned brewery, winery, or distillery to prevent the expansion of retail privileges, including, without limitation, restricting a commonly owned brewery, winery, or distillery from operating in adjacent licensed premises or restricting self-distribution privileges.
As there are locations in Illinois that already alternate their premises between wine/beer/liquor and do have tap rooms that sell their multiple commodities, and the language of this section is a bit wonky, it is likely that some challenges will arise to this new subsection (i). For instance, an equal protection argument arises if the operations that continue to provide tap room sales of mixed commodities are re-licensed and allowed to operate, but new alternating premises operations do not. Also, from a public policy perspective, does the language really mean to restrict all retail such that a brewery/distillery could not sell its beer and its spirits to visitors to go for off-premise consumption? Why is the legislature against Illinois businesses featuring and selling their finely crafted products at the premises where they are made? We’ll have to see how this gets implemented and how it shakes out as the language is broad enough to restrict some great Illinois businesses from showcasing their products.
Also, given the creation of the new Class 3 brewer license, the idea of a rational basis test to many of these restrictions seems inevitable.
More than 3 tap rooms for Class 1 Brewers.
The Act removes the prohibition on Class 1 Brewers having not more than 3 tap room locations (putting them on par with Brewers and Brewpubs which were not restricted in this way). Class 2 Brewers are still restricted in this manner.
Wine-Makers Premises licensees cannot hold Craft 1 brewer or distiller licenses.
Bad news for the Wine-Makers Premises Licensees. They are now prohibited from holding a Class 1 Brewer or Class 1 Craft Distiller’s license.
Procedures for the wine and spirits retailer delinquency list updated.
The contention over a trade group running the delinquent retailer list for failing to pay net 30 on liquor and wine purchases has been put to bed as the state will now be exclusively running this list. For those Illinois bars, restaurants and liquor stores unfamiliar with this. The Illinois Liquor Control Act requires payment from liquor and wine retailers to liquor and wine Wholesalers to be furnished within 30 days of delivery. Those who don’t pay: bars, restaurants, liquor shops, get put on the list where they’re not allowed to purchase from any other Illinois wine and spirits distributors or wholesalers until they furnish payment for the old invoices. This list used to be run by a trade group even though the statutory requirement was that the state run the delinquency list. That’s now been put to bed and the state will be running this list from now on. For those looking to find out more or look for the list or learn how to report, you can find that information here.
Stocking, rotation, resetting and pricing services statutory language added.
Those retailers and manufacturers, distributors, and importing distributors who were looking for better guidance on procedures for resetting, stocking, and rotation practices now have guidance in the form of a new statutory section section 6-6.1, for activities they’re allowed to undertake. Really this is about manufacturers and distributors restocking and rotating at retailers. Under the new statutory language manufacturers and distributors are now allowed to stock at retail licensed establishments provided that the alcoholic liquor products of other manufacturers and distributors or importing distributors are not moved, altered or disturbed. They can do this once every 24 hours. According to the new statutory language the stocking is considered service incidental to a sales call or delivery. Manufacturers, distributors, and importing distributors may also rotate liquor products at retailers premises every 24 hours. Manufacturers, distributors, and importing distributors May participate in, or be present at, merchandising resets conducted at a retailer’s premises no more than four times per year. During this activity, they may stock or restock entire sections of point-of-sale locations at the retailer’s premises. During these resets manufacturers, distributors, or importing distributors may only move, alter, disturb, or displace their alcoholic products and the alcoholic beverage providers for those displaced products are properly notified and not attending, manufacturers, distributors, or importing distributors. So now it becomes important to pay attention as to whether or not you’ve received a notice and whether or not your products were moved. Shelf planning and diagram provision are now authorized services that manufacturers, distributors, and importing distributors may provide to retailers. But, those entities cannot condition pricing discounts, credits, rebates, access to brands, or the provision of any other item or activity upon the retailer’s choice to implement or not implement the diagrams, shelf plans, or shelf schematics provided. Note that under this new statutory provision manufacturers, distributors, and importing distributors cannot fix prices to products on behalf of retailers. This includes entering pricing into a retailer’s computer system. But, this doesn’t apply to affixing shelf tags that identify the product and price of the alcoholic liquor, and at no time may manufacturers, distributors, or importing distributors delegate or contract the service to a third party. Shelf tags are considered point of sale advertising materials under this new section.
Self-Distributing brewers must use their own vehicles.
The amendments to the Illinois Liquor Control Act now address the manner of self-distribution for brewers:
(c) Any brewer or non-resident dealer which holds self-distribution privileges pursuant to a class 1 brewer license or a class 3 brewer license under this Act shall deliver beer to any retailer in the brewer’s wholly owned or leased vehicles or through a freight forwarding service, excluding common carriers such as Federal Express, United Parcel Service, or similar common carriers, and shall provide services to the retailer upon the request of the retailer if such services are permitted under this Act and the rules of the Commission.
Owned or leased vehicles or a freight forwarding service are to be used.
Beer production reporting for brewers.
Under a new section 5/8-10.5, brewers and brewpubs now have reporting requirements. This section is similar to the Brewer’s Report of Operations filed with the TTB and includes water usage (one hopes they realize brewers clean tanks with water and use it for many other things besides brewing beer). Here is that new statute in its entirety:
Sec. 8-10.5. Beer production quantity reporting.
(a) As used in this Section:
“Directly” means that a licensed distributor was not used in the transaction.
“Final packaging container” means the last vessel in which beer is held before (i) consumption by an individual on the brewer’s licensed premises; (ii) being placed in a keg, bottle, or can for consumption by an individual; or (iii) being removed for additional fermentation and aging in a cask or barrel.
(b) A brewer who is a class 1 brewer, class 2 brewer, class 3 brewer, or brew pub licensee shall accurately measure the quantity of beer transferred into its final packaging container to determine the brewer’s tax liability by converting beer production into the amount of beer sold and to ensure compliance with any production or self-distribution quantity limitations under this Act applicable to the class 1 brewer, class 2 brewer, class 3 brewer, or brew pub. The measurement shall comply with 27 CFR 25.41 and 27 CFR 25.42. Any brewer subject to this Section shall file, on the same date as the brewer files similar reports with the U.S. Department of the Treasury’s Tobacco and Alcohol Tax and Trade Bureau, with the Department and State Commission a report of their use of water along with their “Brewer’s Report of Operations” filed with the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau and shall maintain and produce for examination and inspection by the Department and the State Commission utility bills for water for 3 years along with their “Brewer’s Report of Operations” filed with the U.S. Department of Treasury’s Alcohol and Tobacco Tax and Trade Bureau. The Department, in cooperation with the State Commission, may audit on an annual basis the amount a class 1 brewer, class 2 brewer, class 3 brewer, or brew pub licensee produces to determine compliance with this Act.
(c) A brewer’s failure to comply with this Section shall result in the State Commission issuing a fine or suspending or revoking the brewer’s license.
Part 2 will discuss the new Illinois Liquor Control Act amendments regarding quantity discounting and cooperative purchasing and transfer rights for retailers.