Lobbying Affiliate: MML&K Government Solutions

Changes to Kentucky Alcohol Laws, Business Lexington, June 2013

Attorneys

Business Lexington, June 2013

Authored by: Stephen G. Amato

Kentucky is known for several unique things: bluegrass music, thoroughbreds, and bourbon. Kentucky's love affair with bourbon dates back to the 1700's and the industry is booming still today, as the time-honored tradition of bourbon-making grows in popularity. Along with the growth of the traditional bourbon industry, there has been a corresponding increase in the number of small breweries and wineries opening for business throughout Kentucky. With Kentucky's roots firmly in bourbon and its branches now reaching farther into the malt beverage and wine spheres, you might think that alcoholic beverage laws would be state of the art. However, you would be wrong. Instead, Kentucky has maintained a crazy quilt of, sometimes ambiguous and sometimes arguably inconsistent, set of laws and regulations, many of which were birthed in the days following the repeal of prohibition. Whereas, generally speaking, old is good if you are talking Bourbon, for example, more often old (more precisely, outdated) is not good when it comes to regulating the complex alcoholic beverage industry and the relationships between its various constituents.

For years, the process of adding new laws, and amending and repealing existing laws has simply added content to the crazy quilt without necessarily simplifying or clarifying the overall scheme. However beginning in the late summer of 2012, at the behest of Governor Beshear, a task force overseen by the Board of the Kentucky Department of Alcoholic Beverage Control began work on a broad scale review of the alcoholic beverage control laws with the imprimatur to recommend systemic changes to begin to clarify and simplify this important set of laws.

The primary result of that work was the introduction of House Bill 300, which contained a multitude of proposed changes to streamline, consolidate and change provisions that would bring clarity and efficiency to the process of the regulating the alcoholic beverage industry. Virtually all of the proposed changes described in House Bill 300 were ultimately passed by the General Assembly as Senate Bill 13, and later signed into law by Governor Beshear. That legislation, together with several other alcoholic beverage-related bills that were brought forth to the General Assembly independent of the Task Force bill, comprised what many in the industry view as a banner year for legislative action in this arena.

Some of the key provisions of SB 13 are aimed at reducing the number of separate alcohol license types that are issued by the Kentucky ABC by consolidating what were multiple separate licenses into broader umbrella licenses and in some instances, simply eliminating certain licenses. This should result in a more user-friendly experience for applicants and licensees and in a more stream-lined and efficient process for the Kentucky ABC itself.

Other provisions of SB 13 include, in certain instances, a longer license term for certain licensees, a broader definition of qualified historic sites for purposes of seeking retail alcohol licenses, the institution of the so-called Master File to assist businesses with multiple licenses, and the elimination of broad prohibitions on the sale of alcohol on election days. In addition, the bill clarified the authority and limitations on micro-breweries in connection with the sale of their products on their own premises and, for the first time, requires out of state distillers and wineries to actually be licensed by the Kentucky ABC - an effort to give the Kentucky ABC some needed regulatory control over those businesses which are sending their products into our state for consumption by our citizens.

A separate measure, House Bill 315 was also passed and later signed into law by Governor Beshear, HB 315 permits sampling of malt beverages on premises at a brewery, provided that the brewery is located in a wet locality and the sample does not exceed 16 ounces per patron. The bill was aimed at helping Kentucky brewers market their products in a fashion similar to that permitted to Kentucky distillers. Kentucky brewers, such as Alltech's Lexington Brewing Company in downtown Lexington will now be able to offer tasting tours that includes samples of its popular Kentucky Bourbon Barrel Ale, and its other brews.

Other legislative efforts in the alcoholic beverage area did not enjoy the same success. One of the more interesting unsuccessful efforts was the introduction of House Bill 310. It sought to block grocery stores from selling wine and liquor, and ban the same sales in new pharmacies. The bill stipulated that grocery stores could sell alcohol from an adjoined area with a separate entrance to where the wine and liquor are sold, as they are currently allowed to do in Kentucky. As it stands, individuals under 21 cannot enter a place that sells wine and liquor, by the package, effectively preventing these items from a appearing in grocery store aisles. Beer, however, is allowed to be on the shelves in the state's wet localities.

Quickly dubbed the "grocery store bill," House Bill 310 surfaced this year in response to a ruling from U.S. District Judge John G. Heyburn earlier in 2012 declaring unconstitutional Kentucky's ban against wine and liquor being sold by the package in Kentucky's grocery and convenience stores. Judge Heyburn's ruling, however, was suspended so that state lawmakers would have an opportunity to act on the law. Lawmakers took heed and HB 310 was born. The bill was heavily supported by a group known as Fighting Alcohol Consumption by Teens, aka "FACT." Those who opposed the bill cited concerns about business competition (retailers in most other states have the option to sell wine and liquor), the alluded-to unconstitutionality of such a measure, and the possible tax revenue that would be generated if the ban were lifted. The bill did not pass, but the issue is not dead. Judge Heyburn's ruling is currently on appeal to the U.S. Court of Appeals for the Sixth Circuit.

All in all, it was a very active year for alcoholic beverage industry legislation. Now that these bills have become law, industry watchers will be keen to see if these changes bring about the efficiency and clarity that their sponsors had in mind when they were introduced. For those who believe that the Commonwealth of Kentucky should boast the gold standard for alcoholic beverage statutes and regulations which promote both a robust alcoholic beverage industry as well as a strong set of provisions for the public safety concerns associated with alcohol sales and use, this was a significant step in the right direction.

Stephen G. Amato, Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC, has practiced law throughout Kentucky since his graduation from the University of Kentucky College of Law in 1990. His practice is diverse, focusing on civil litigation and administrative law. Mr. Amato's administrative practice focuses extensively in the area of alcoholic beverage regulation, primarily representing the interests of alcoholic beverage retailers and distributors in connection with licensing and enforcement issues at both the state and local levels. Mr. Amato may be reached at samato@mmlk.com or at (859) 231-8780, ext. 104.

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