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Tasting Room as Separate Entity?


jwalla

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Hi All,

I checked pretty thoroughly on this and couldn't find much, so apologies if it has been covered. Let's say you plan to build in a state that doesn't allow tasting rooms, but having one and selling drinks/cocktails is a necessity starting out. Could you build a 'bar' with liquor license in an attached facility and only stock it with and serve your own spirits? Two separate business entities, but some physical connection so they appear seamless to customers and patrons. Would this work?

I feel like there has to be some loophole here that would make this possible, but on the other hand if none of you ingenious distillers have done it yet, it might be unlikely.

Thanks.

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Depends on your state laws. I have to sell to a distributer, I'm sure u do to, if not to your state, as I don't know of any state that can self distribute booze. If you can can I sure am envious! There is often rules about which licenses one person can hold too. I can't have a distillers license and a wholesaler s license as well here in my state. You could pull some funny buisness and get someone else to license a retail next to you, but the spirits would literally drive away to a wholesaler and then drive back to your next door, or something along those lines. I know of one place in my state that does this, but your gonna need some help, and atleast another person not in your buisness to pull a different permit. Speaking only from my understanding of my states rules. Best do some serious research if your buisness plan hinges on this idea

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All the answers are in the local and state laws. Virginia is a control state and the only place you can do tastings is at a VA Alcohol Beverage Control store (ABC). However as a VA licensed distiller, we have a contract to act on behalf of the Commonwealth and retail our spirits, as well as charge for tastings. Amounts are limited and one tasting per 24hrs per customer. All revenue goes to the state, and we get our wholesale price.

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I have to sell to a distributer, I'm sure u do to, if not to your state, as I don't know of any state that can self distribute booze.

In Hawaii we can sell to anyone, licensed or unlicensed, in any quantity.

In Hawaii we can sell to anyone, licensed or unlicensed, in any quantity.

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Thanks for the responses guys. I probably should have been a little clearer though. Rather than just a 1oz tastings, I would be interested in having a place where people could come and purchase cocktails, have a $10 G&T or Gimlet, etc. Really branch out and show off what our products could do, while also providing a nice return.

We are in a control state so there are strict laws about distillers technically providing anything more than a taste, I just wondered if you could, for example, wall off half the building with a separate entrance, build a bar, and serve visitors who came for tours or seminars in the adjoining space drinks of their choice, filled with your spirits.

It's pretty confusing.

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Jwalla I don't have an answer to your question, but I'd suggest using the term "cocktail" to ensure you are on the same page as whatever authority.

In MN both samples and cocktails are allowed. I ran into some confusion with the state/locals because they thought "tasting" was cocktails. I had to clarify that I would only be doing very small samples.

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  • 3 weeks later...

Thanks for the responses guys. I probably should have been a little clearer though. Rather than just a 1oz tastings, I would be interested in having a place where people could come and purchase cocktails, have a $10 G&T or Gimlet, etc. Really branch out and show off what our products could do, while also providing a nice return.

We are in a control state so there are strict laws about distillers technically providing anything more than a taste, I just wondered if you could, for example, wall off half the building with a separate entrance, build a bar, and serve visitors who came for tours or seminars in the adjoining space drinks of their choice, filled with your spirits.

It's pretty confusing.

I assume you are in Ohio from the title. Ohio is a control state.

You can get an A3A state permit and serve 4 tasting samples (1/4 oz servings) per person per day w/ an A3A, and you can sell the individual 1.5 liter per day for off-premise consumption only.

Even that is a bit shaky wrt law where the TTB does not allow your production to be on same-premise as any retail sales, but apparently a closed door is separate enoug. It's not seamless to customers.

To serve regular drinks and cocktails you'll need some sort of D' class permit, and essentially you are operating a bar at that point. Part of the "3 tier system" means that the producer/distributor/retailer are financially separate entities (can't have a tied house). If you've ever been to Party Source in KY (and it's worth a trip), the shop owner is the farther of the distillery owner across the parking lot. That makes it "hands off'" enough I guess. Even brewpubs in Ohio have to have separate ownership for the brewery and pub. Anyway in Ohio you have to ship a pallet to the state warehouse, and the bar would have to order from the state brokers (they aren't really distributors, since the state holds the stock).

I don't think what you suggest is possible w/o getting some separate entity to own the bar, but I've seem some really strange things that stretch my understanding of regulation.

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  • 3 weeks later...

Obviously, I'm jumping in late. I'll leave it to you to decide if that is better than never.

Those who say that state law reigns here are correct. Federal tied-house laws do not prohibit 100% ownership of a retailer by an industry member (a producer or wholesaler), since the tied-house prohibition is against "inducing" the purchase by prohibited means. The legal logic dictates that one cannot induce one's self I ate the chocolate bar because I waxnted to, not because I was induced to do it.

Because I jump up and down, insisting that you not listen to any advice that does not cite the source, here is the source:

§6.26 Indirect interest.

Industry member interest in retail licenses includes any interest acquired by corporate officials, partners, employees or other representatives of the industry member. Any interest in a retail license acquired by a separate corporation in which the industry member or its officials, hold ownership or are otherwise affiliated, is an interest in a retail license.

§6.27 Proprietary interest.

(a) Complete ownership. Outright ownership of a retail business by an industry member is not an interest which may result in a violation of section 105(B)(1) of the Act.

(B)Partial ownership. Less than complete ownership of a retail business by an industry member constitutes an interest in a retail license within the meaning of the Act.

Please note that, under federal law, "clever" arrangements that result in an indirect interest can result in tied house violations. I'm obligated to make that clear, but in practice, you are going to be small enough that TTB will not invest its limited resources in determining whether your less than complete interest is having an effect on interstate commerce that is worthy of federal attention. That is probably not true of state agencies, which often take a stricter look at things, if only because they do not have the burden of proving an effect on interstate commerce.

Remember, you must obey state law. Federal law does not trump state law except where the courts hold that the state law conflicts with the commerce clause of the constitution. You do not want to go there. Indeed, in most cases, given the provisions of the 21st amendment, which grants states broad powers to regulate alcohol within their borders, state law will trump federal law if there is a direct and positive conflict between them, which only occurs when one prohibits what the other requires. Without direct and positive conflict, you can obey both laws by simply doing what one requires that the other does not prohibit, or not doing what one prohibits but which the other does not require. Cases of direct and positive conflict are rare and they certainly do not arise around the issue ofla distillery also holding a retail license.

Federal law does, however, prohibit establishing a DSP for the production of spirit on any premises where liquor of any sort (beer, wine, or spirits) are sold at retail. The regulation is broader:

Sec. 19.52(d) Restrictions on location of plants. A person who intends to establish a distilled spirits plant may not locate it in any ... [place] ... where liquors are sold at retail.

Although at one time, TTB was sloppy about this, allowing, in some cases, retail sales on the general premises of the DSP plant, they have taken steps to "correct" what they perceive as that error. Correspondence from specialists will sometimes include a statement that " A DSP needs to have complete physical separation from the sampling/tasting area for both bonded and general premises because it will most likely involve the retail sales of alcohol which by law cannot be done on distillery premises. This would require a separate entrance from the outside and 4 walls around the sampling/tasting area. The sales of most other merchandise can be done on distillery general premises." That is a direct quote from an email I received from a specialist, even though the application in question clearly showed the separation and the outside entrances. The take home point, for me at least - TTB specialists are proceeding with caution on this matter now, probably as a result of some internal audit that found their inconsistencies and generated written instructions advising specialists not to approve tasting rooms, etc..

At any rate, the DSP application must describe the segregation of the distilled spirits plant from the retailer premises, just as you would describe the segregation of the distillery premises from the childcare center next door. Note - it does not matter that the lease you sign with the landlord includes both the dsp premises and the retail premises. Nor does it matter that the person (LLC, corporation, etc) that owns the distillery also owns the retailer outright. What matters is that you have segregation acceptable to TTB and that you describe the distillery in a way that excludes the retail area from the distillery premises.

Some states take a different view; some do not. It is very state specific and the jargon used from one state to the next can vary significantly.The rules of an individual state may also differ for distillers, brewers (especially brewers, as witnessed by the brew pub model), and wineries.

So, adopting my jumping up and down posture, I conclude, you should (1) not listen to any advice that is not state and industry specific; (2) make sure that the advice your receive reflects your exact situation; (3) ask the question of state agents, not an ADI forum, but also question the advice of the state agents because they sometimes give off the cuff answers that don't actually reflect the requirements; and (4) don't rely on experts like me, unless that purported expert is a liquor lawyer who is intimately familiar with the laws of the particular state - I'm nt - and even then, beware, because in my career I've had to sort out more than one mess created when someone acted on bad advice received from an attorney who should have known better.

Finally, frame your inquiry to the state as follows:

(1) Under what circumstances can a person - which includes LLC's, corporations, etc - who holds a license or permit as a distillery, provide tasting and/or make sales to the general public?

(2) Under what circumstances can a person hold an interest in both a distillery license and a retail license?

(3) Under what circumstances can persons who hold an interest in an entity operating a distillery, also hold an interest in a retail licensee?

(4) Under what circumstances can a person allowed to serve sample and/or sell at retail, under any of the above arrangement, also serve cocktails?

In each case, ask them to provide a reference to the rules on which they base their determination. And if possible, get it in writing.

That should get you started down a road that leads to some definitive answers to your questions.

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Steve, Dunbar,

Thanks so much for taking the time to respond. In doing some research I've happened to find a couple places doing exactly what I'd like to do and you described above, even as it sounds contrary to the law. The road I'm on now is how to jump through the same hoops they jumped through. You've both been extremely helpful.

Thanks.

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