Author Archives: William T. Cheek III
Nonprofits in Tennessee have a huge fundraising advantage for special events. Unlike restaurants, bars, caters and other LBD license holders, nonprofits can accept donated alcohol and do not have to pay sales and liquor taxes, which average 24.25%.
For as long as we can remember, which takes us back just short of the Jurassic period, nonprofits could pull a license from the ABC for an event that was thrown by a restaurant, liquor store, promoter or just a strong supporter. The nonprofit got a check for doing essentially nothing.
The system was a simple way to raise money for nonprofits.
Recently, the Tennessee ABC changed the rules for nonprofit events, which we blogged about here.
Today, May 15, 2015, we received a copy of an official letter from the ABC that lays out detailed rules for special occasion events. A redacted copy is here.
Many of the rules in the letter are new to us. The rules significantly increase the role of nonprofits in special events. For large festivals, which rely on nonprofits for licensing, but are far too complicated to be thrown by a nonprofit, the new rules present major obstacles.
Many festivals may not survive the new rules. The new ABC rules may put large music events and food festivals out of business.
Nonprofit fundraising brings to mind the Grandmaster Flash rap classic The Message:
Bill collectors they ring my phone
And scare my wife when I’m not home
Got a bum education, double-digit inflation
Can’t take the train to the job, there’s a strike at the station
Section 3 of the letter is a game changer for many events. The letter prohibits event promoters from being paid based on revenue. A promoter can only be paid a flat fee.
Most festivals make a donation to a nonprofit – either a fixed amount, a portion of profits or a mix of the two. The promoter takes the risk that the festival will lose money, but also profits if the festival makes money.
As we read the ABC letter, promoters are prohibited from participating in profits. This also suggests that the nonprofit must bear the risk of loss from an event.
The letter also requires that nonprofits file a copy of all contracts with a promoter. Based on our experience, these agreements are generally an oral understanding. The new ABC rule requires that promoter agreements be in writing and a copy must be filed with the ABC.
Drafting and filing promoter contracts is an additional burden for nonprofits. Because of the strict rules set out by the ABC for special events, we encourage nonprofits to be very careful about the terms of written agreements with promoters. The contracts could be fertile ground for big fines.
We have not had an opportunity to discuss these new rules with the ABC and caution readers that the ABC may issue more guidance.
The Tennessee Legislature had a busy 2015 session for new liquor laws. Many industry pundits expected a relatively quiet year in the wake of the passage of wine in groceries law n 2014. Not so.
Courtesy of our friend and lobbyist to the stars, Baylor Bone Swindell of Windrow Phillips Group, attached is a preliminary summary of liquor laws passed this last session. Passed Alcohol Bills 2015
AC/DC knows alcohol all too well and immortalizes cocktailing:
So don’t worry ’bout tomorrow
Take it today
Forget about the cheque we’ll get hell to pay
Have a drink on me
Beer Tied House
The new tied house law for beer is perhaps the most sweeping change this session. The legislature adopted a traditional three-tier system for beer. Download the new law here Beer Tied House.
Prior Tennessee beer laws lacked a strong three-tier system. The law did not clearly prohibit a brewer like Anheuser-Busch from holding a wholesaler permit and cutting out Tennessee beer wholesalers. That would not be popular with Anheuser-Busch’s wholesalers, who we suspect were behind the legislation.
10 Day Credit Rule
Much ado has been made over the ambiguous “elimination” of the 10 day credit rule for sales by wholesalers to retailers. This session, the law was amended to provide that 10 day credit sales are legal, if payment is made by electronic funds transfer or escrow payment.
We have always seen the 10 day credit rule as protecting wholesalers from credit risk. The new law is no exception. The law creates a rebuttable presumption that a licensee is not financially responsible if the licensee fails to satisfy its obligations to any wholesaler twice within a twelve-month period. The ABC is required to set a hearing upon notification by the wholesaler, to determine if the licensee can rebut the presumption. The ABC may issue a fine, suspend or revoke the license, or make any other order it deems appropriate, upon finding that the licensee is not financially responsible.
We love hearing from entrepreneurs inspired by consumer demand. One of the most-frequent questions we hear is “how can I deliver alcohol to consumers?” Tennessee liquor laws and Tennessee ABC policies clearly prevented delivery of wine and spirits.
Legislation passed this year legalizes delivery of alcohol to consumers, but limits the practice to meal delivery services. The new law is here. Delivery Law. We find it odd that the delivery service must derive at least 50% of its income from the delivery of food, but rather than delivering alcohol from a restaurant, the delivery service must transport alcohol from a retail package store. The new law establishes a new license for delivery services.
Temporary Liquor License
The Legislature also codified a simple fix for a problem with sales of restaurants and hotels that hold liquor-by-the-drink licenses. The common practice was to enter into an Interim Management Agreement to allow the purchaser to use the seller’s liquor license. From a legal perspective, the Interim Management Agreement made no sense. It was merely a formality to allow a sale to close before a new licenses could be approved.
The new law is not perfect, but provides:
Notwithstanding any law or rule to the contrary, upon collection of a fifty-dollar licensing fee, the commission may issue temporary licenses not to exceed thirty (30) days to any new applicant for a license issued pursuant to this chapter.
We expect the ABC to adopt formal or informal guidance on how to qualify for the new temporary permit. Based on our experience, the 30 day period is too short and may create problems. We see the new law as limiting temporary permits to 30 days, with no authority to extend the 30-day period. We suspect that the ABC will stop recognizing Interim Management Agreements, meaning that the 30 day temporary is the only option for sales.
We advise folks to pay close attention to this change.
Tennessee Whiskey Wars
In the waning hours of the 2015 legislative session, a bill was amended to require that “Tennessee Moonshine” be distilled in Tennessee. The penalty is a one year suspension or revocation of the distillery license. The effective date of the requirement is July 1, 2016, which allows the bill to be revised next legislative session before it becomes binding law.
Wednesday afternoon, April 21, 2015, Rep. Curry Todd filed an amendment that lit up phone lines and filled in-boxes last night. Rep. Todd’s amendment requires that all moonshine marketed or sold as “Tennessee Moonshine” be distilled in the Volunteer State.
A copy of the amendment is here. The amendment was later revised to make the law effective on July 1, 2016.
The amended bill was approved by the House and awaits Senate approval. We expect the bill to become law.
Unbeknownst to most folks outside the industry, many distilleries cut corners and purchase neutral grain spirits from large factories. Cost is the major reason.
Some manufacturers completely eliminate corners and contract with a distiller to make their spirits, often delivering the product bottled and in cases.
Contract manufacturing is not necessarily a bad thing, unless your product misleads consumers.
For example, if we pay a distillery in Indiana to make our moonshine and then import the shine in bulk to bottle in Tennessee, can we truthfully call it Tennessee Moonshine? It is really made in Indiana, although bottling is technically part of the manufacturing process.
If the new Tennessee Moonshine law passes, shine will have to be distilled in Tennessee. We can still purchase neutral grain spirits from large factories, but we will have to run it through a still in Tennessee at least once.
We find ourselves humming the University of Tennessee’s fight song, Rocky Top:
Once two strangers climbed ol’ Rocky Top
Lookin’ for a moonshine still
Strangers ain’t come down from Rocky Top
Reckon they never will
Not that UT students ever drink…
Perhaps the biggest impact of the Tennessee Moonshine law will be a renewed push to require that Tennessee Whiskey be distilled in Tennessee. With much hullabaloo, Jack Daniels orchestrated a controversial state law that requires that all whiskey labelled “Tennessee Whiskey” must be made using the Lincoln County method, which is not coincidentally the method employed by Jasper Newton “Jack” Daniel down in Lynchburg.
Strangely, Jack did not require that Tennessee Whiskey be distilled in Tennessee. We could contract with a distiller in Indiana to make our whiskey, age it in barrels for several years and then ship it to our plant in Tennessee, where we can legally bottle and sell it as Tennessee Whiskey.
We have always thought that if there is going to be a law about how to make Tennessee Whiskey, it should require that the hooch be made here in Tennessee.
Our last post about a new Tennessee law that makes carding for minors harder lead to this excellent question: “I have wondered why there are not more severe consequences for someone using a fake ID?”
In all fairness, the Tennessee ABC and many local police departments have responded to industry requests to hold servers accountable for sales to minors. The TABC and most local police now criminally charge servers caught in under age stings.
In the past, the license holder got punished, but the state did nothing to the server. If the license holder fired the server, the server could just walk across the street and get a job at a competitor.
The impact of criminally charging varies, depending on how severe the local court system punishes a server for sale to minor. In Nashville, Memphis and other larger cities, courts tend to dismiss the charges after a short probation or community service. Conviction for sale to minor disqualifies the server from holding a server permit card for eight years.
In our experience, except in a few rural counties, courts allow the server to plead guilty to a lesser offense, which does not prevent a server from working in the industry.
But we digress.
It is crime for a person under the age of 21 to try to purchase alcohol. Tennessee Code § 57-3-412 provides that the minor’s driver’s license may be suspended and the minor may serve at least five days in jail. While we are not experts in criminal law, we presume that using a fake ID is a separate crime that carries additional criminal sanctions.
Conjures up the classic Stones ode “Sympathy for the Devil”
Just as every cop is a criminal
And all the sinners saints
As heads is tails
Just call me Lucifer
Cause I’m in need of some restraint
We agree with the comment that persons under 21 are not regularly punished for trying to purchase alcohol. We think that the lack of real consequences invites college kids and other under 21 partiers to boldly flash fake IDs and flaunt under 21 laws.
One tactic we encourage licensees to consider is to prosecute underaged patrons that attempt to purchase alcohol. Regardless of whether the minor uses a fake ID or their real ID, it is a crime in Tennessee.
For establishments near colleges, prosecuting attempted purchasers can send a strong message on campus for underage students to avoid your restaurant or bar. We know from experience that more often than not, students know which places sell to minors and which do not.
Although criminal prosecution is aggressive, with penalties being so tough in Tennessee, it is a tool worth considering. For more information about carding, visit past posts.
Tennessee tackled one of the biggest issues for carding minors over two decades ago. Tennessee was on the forefront of states requiring that drivers licenses be plainly marked “Under 21″ if the person was under the age of 21. TCA 55-50-334.
Problem is, the ID law has a broad loophole: “Upon attaining the age of twenty-one (21) years, any licensee may obtain a license without the letters, words and numbers required above by paying the fee for a duplicate license. However, no person shall be required to obtain the duplicate license, until the license expires.”
An “Under 21″ ID in Tennessee can be valid for up to five years after the person turns 21.
Instead of being an easy fix for servers, the “Under 21″ ID has become a trap. Because so many people older than 20 have “Under 21″ IDs, many servers are so accustomed to the IDs that they presume the person must be old enough to drink.
New Tennessee legislation appears ready to increase the problem by three years. SB209 is headed for the Governor’s desk, making Tennessee drivers licenses valid for eight years.
We see SB209 as a bill with good intentions, but a significant unintended consequence for preventing sales to minors in Tennessee. We believe that the fact that Tennessee drivers licenses are valid long after a person turns 21 is a huge reason why so many restaurants and bars in Tennessee are failing ABC compliance checks.
Reminds us of the 1988 Looney Tunes smash movie ” Who Framed Roger Rabbit” and the classic line from Jessica Rabbit:
“I’m not bad. I’m just drawn that way.”
We have been blogging about effective carding strategies in Tennessee and encourage folks to focus on sales to minors in Tennessee. Good operators have had liquor licenses and beer permits suspended for sales to minors. Some are looking at devastating suspensions and revocation. It is a real problem for the industry.
Folks ask us all the time. What happens if I sell beer, wine or spirits without a license in Tennessee?
The short answer: It can be really bad. Do you want to go to jail or lose your business?
The sale of alcohol without a license is a crime in Tennessee, punishable as a Class B Misdemeanor. TCA 39-17-702. Conviction of a Class B Misdemeanor leads to jail time of up to six months, a fine of up to $500, or both. TCA 40-35-111.
From a practical perspective, a legitimate business that fails to have proper permitting may face serious legal consequences from the Tennessee ABC or local beer board. Criminal charges are rare in our experience.
However, the failure to have proper alcoholic beverage permits may disqualify the business from being issued a liquor license or beer permit. This is a risk that no responsible business owner should take.
Cosmetologists have a special exemption that allows service of complimentary wine, which we blog about here.
Kid Rock gets it:
So let’s roll the dice, one more time
Take a chance on love again tonight
Risk it all, lay it on the line
Perhaps the biggest concern is insurance. We find that most insurers limit liability to liquor claims. Generally, insurance policies exclude coverage for liquor liability without a valid liquor license.
Most folks do not recognize the importance of insurance, until you need it for a claim. If someone who drinks at your business later kills or maimes another person in a drunk driving accident, for example, your insurance may not cover the claim, if you do not have a liquor license and dram shop insurance.
Without insurance, you could end up spending tens of thousands of dollars in legal fees and hundreds of thousands or even millions of dollars in damages.
We think it is not worth the risk to play fast and loose with the liquor laws. Hire a licensed caterer.
We love feedback from readers and this post is in response to a good question from a follower.
Question: In a beer-only bar, with no liquor license, do you have to have a kitchen and what are the food requirements?
Great question without an easy answer. The reason? The laws for beer are set by each city and county. There are hundreds of Beer Boards in Tennessee and each has its own set of laws.
Because Tennessee has separate licenses for beer and liquor, there are probably hundreds of bars in Tennessee that only serve beer. In almost every Tennessee city and county, the requirements for beer generally make it cheaper to open a beer bar than a place with full liquor service.
Beer bars in Tennessee are often well-loved watering holes that are quaint comfortable places to get loaded. The kind of place you might expect to see George Jones or Janis Joplin
Although many beer boards have no rules for food service, some have very specific requirements.
For example, in Hendersonville, the beer laws require that food sales be at least 60% of total sales. Hendersonville audits sales annually and the effect is to essentially prohibit bars in the city.
In Nashville, a beer bar must serve a meal. Meal is not defined. Beer inspectors in Nashville look for a food menu, kitchen equipment to prepare the food on the menu, and a place to store food inventory.
Maryville limits the number of Taverns, a business that’s primary purpose is the sale of beer, to 12.
We cannot help but think about Hank William’s classic:
There’s a tear in my beer
’cause I’m cryin’ for you, dear
you are on my lonely mind.
The take away? Check local beer laws.
Powdered alcohol has quickly become a public nuisance, at least in the eyes of some legislators. In Tennessee, legislation is swiftly bound to become law and criminalize the sale of powdered alcohol, except for medicines.
Critics claim the substance is ripe for abuse, particularly by minors. Naysayers say that powdered alcohol can be snorted for a quick buzz or covertly sprinkled onto someone’s food.
The man behind the product disagrees. “It would take you an hour of pain to [snort] the equivalent of one drink,” Mark Phillips said in an interview with the New York Times. “It really burns.” We understand the product is lightweight, but bulky; not something that could be easily slipped into a coke or snorted.
We believe that the alcoholic beverage market is filled with products that target younger drinkers looking for a quick cheap buzz. Alcoholic whipped creams, colorful pre-mixed shots at liquor store check outs and potent sugary pre-mixed cocktails seem to pose much more danger than powdered alcohol, at least from the vantage point of our easy chair.
According to the Times, Palcohol was “inspired by a love of hiking but a distaste for carrying bottles of adult beverages uphill.”
Based on the chilly reception of powdered alcohol in several states, we suggest that Mr. Phillips plans to end hikes at a bar or restaurant with a liquor license.
Heed Alan Jackson’s advice:
‘Cause life’s like a river
And the water is deep
Cross it with care
Or you’ll end up like me
Let my mistakes
Be your steppin’ stones
And walk on the rocks that I stumbled on
We encourage industry members to learn the ins and outs of the new Tennessee ABC rules for marketing spirits and wine. Read more here: Market Memo
Reminds us of the ubiquitous 1974 song by one hit wonder The Hues Corporation:
to rock the boat, don’t rock the boat baby
rock the boat, don’t tip the boat over
rock the boat, don’t rock the boat baby
rock the boat
Monthly Tennessee Alcoholic Beverage Commission meetings are typically unexceptional. Not a place to expect much drama or hullabaloo.
For industry insiders, the March ABC meeting featured a real cliffhanger. The City of Memphis asked the ABC to revoke the license of Gagliano’s Liquor, Inc., d/b/a The Bottle Shoppe. The ABC agenda framed the issue as follows:
On February 11, 2015, Mayor Wharton issued a letter revoking his approval of the City of Memphis’ Certificate of Compliance (dated July 31, 2014) for this location based on allegations of the site being too close to two churches and a residential community. The Commission is tasked with determining what recommendation to make to TABC staff regarding the action of the City of Memphis, including, but not limited to, having the issue set for TABC revocation before a state administrative law judge.
Two of our favorite Memphians, City Attorney Roane Waring and Memphis Alcohol Commission Executive Secretary Aubrey Howard, journeyed to Nashville to advocate for revocation of the liquor license of The Bottle Shoppe on behalf of Memphis Mayor A.C. Wharton.
Commissioner John A. Jones quickly extinguished hopes for help from the ABC. Since the formation of the Tennessee ABC in the 1960s, there has always been a Jones on the Commission. We love the perspective that Commissioner Jones often brings to the discussion.
Commissioner Jones observed that in his 20 plus years as a Commissioner, the agency had never revoked a liquor license because a city changed its position on approval of a certificate of compliance. Jones noted that Memphis could deny renewal of the certificate of compliance when it came up for renewal.
Reminds us of Got My Mind Made Up by Bob Dylan and Tom Petty
Don’t ever try to change me,
I been in this thing too long.
There’s nothin’ you can say or do
To make me think I’m wrong.
We appreciate the Commission taking a firm position on this issue. City approval of a certificate of compliance should be final for purposes of city laws like distance requirements. The Commission should not be a forum for enforcement of local laws that a city has already signed off on.