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Check out the article that spawned this entire episode from SF Gate about Seven Stills, Seven Stills hit with 60 tied-house violations, will shutter Bayview and Mission spaces.
Episode Identifier (00:00):
Welcome back to season two of the Distilling Craft podcast. You’re listening to episode (8): “Tied Houses”
Fermentis promo (00:10):
The Distilling Craft podcast is brought to in part by our great sponsors “Fermentis”. The obvious choice for beverage fermentation. Providing the craft spirits industry worldwide with the best fermentation needs for more than 100 years. Contact our sales team to help make your choice on yeast and products for distilling your next great spirit. For more information, or to find a distributor visit www.fermentis.com.
Colleen Moore (00:39):
This is Colleen Moore from Dalkita. I’m your host for episode (8) of Distilling Craft, 2nd season. First, let’s do a little catch-up. Has anything changed in your life since we last talked a few months ago? Nothing. Maybe, it’s just the same old, same old, of course not, lots has changed since we dropped our previous episode about spirits judging at the beginning of March, 2020. All of the industry conventions have been canceled, rescheduled, and then eventually transitioned to a virtual event. We’ve had 50 shades of lockdown all across the country trying to flatten the curve of the coronavirus cases, and we’ve lost a lot of souls in that time. Maybe people you know, and I know several people across the country that were positive for the Corona virus that causes COVID-19. And I actually may have been one of them. We’re still awaiting antibody testing covered by our insurance company to find out if the illness I had in late February, early March provided antibodies consistent to a Corona virus infection, so the jury is still out on that. Then we had confusion about reopening, and then haphazard or even non-existing guidance on reopening at the federal level. Combine that with 50+ flavors on reopening plans, you probably started down that road too. Then we’ve had George Floyd’s murder by police in the pent-up, anger, rage, and frustration that kicked off demonstrations and protests around the world and riots in many places in the U.S. Safe to say, there has been some stuff going on. It’s been a dumpster fire figuratively, and literally in many cases. Thank you for downloading and listening to this episode today.
Colleen Moore (02:37):
On the show today, we’re going to cover the sexy topic of tied-house laws. We’ve got a case study with seven stills from California, that beverage attorney, Daniel Croxall and I are going to dissect and discuss along with the history of the laws and the three-tier system. It’s pretty interesting stuff, and you’re going to like it. So let’s take a listen.
Colleen Moore (03:02):
Today, we have the pleasure of having Daniel Croxall, a professor from the university of the Pacific McGeorge School of Law in Sacramento, California. Welcome onto the show, Dan.
Daniel Croxall (03:14):
Thank you so much for having me.
Colleen Moore (03:16):
Well, your scholarly interests center around legal writing and laws that impact craft beer including constitutional issues like the first amendment and tied-house laws, which is what we’re going to talk about today. We will be doing a little bit of armchair quarterbacking, because the one example that we’ve pulled up that just happened at the beginning of February, 2020 is seven stills brewery and distillery. They are actually having to cease their operations for 90 days following the receipt of about 60 tied-house violations over the past few years. And they had a subsequent license suspension. So there is a lot that is going to go into this, but Daniel here is going to help us walk our way through it and understand a little bit more about the three-tier system and tied-house laws. So, why don’t you give us an idea about what the three tiered system is in purity of concept?
Daniel Croxall (04:20):
In purity of concepts, the three-tier system started being thought about before prohibition was repealed. And in fact, Rockefeller commissioned a study by two gentlemen named Raymond Fosdick and Albert Scott. They wrote a treatise called “Toward Liquor Control” and they examined what might be the best avenue to regulate alcohol in the United States, should it become legal again? It came down to what they call now, the three-tier system.
Daniel Croxall (04:53):
The three-tier system means is that, there are obviously three tiers, one being the manufacturer, the second tier being the wholesaler or the distributor, and the third tier being the retailer. So, in purity of concept, none of the members of one tier can have any relationship or influence over the other tier. I mean, relationships going too far because they’ll have contracts, et cetera. But, the idea was to keep them as separate as possible to avoid market manipulation and sensibly to promote temperance, which was a concern at the time.
Daniel Croxall (05:30):
The point here is that, if you manufacture alcohol, you can’t have any influence over a distributor or wholesaler or a retailer for the purposes of better placement in the market, et cetera. So they wanted to keep those three tiers completely separate.
Colleen Moore (05:47):
So, the particular state this happened in California is a three tier state, correct?
Daniel Croxall (05:53):
Yes and no. We do have ostensibly a three-tier system, but we’re really what California has done is modified it a little bit in the sense that if you’re a manufacturer, you can also distribute your own alcohol. And in a strict three-tier system that would not be permissible. You’d have to go through the wholesaler or the distributor.
Daniel Croxall (06:16):
So California has modified it a bit in the sense that again, if you make your own beer, spirits, or wine too, you can distribute your own to retail accounts, which would be illegal under a pure three-tier system.
Colleen Moore (06:30):
So, the Seven Stills Brewery & Distillery , that opened up in San Francisco in around 2016, was founded by Tim Obert and Clint Potter. And it should be said that they were not available for comment on this story, so we are using an article from the San Francisco gate newspaper, that I will link on the show notes page. And so that is where we’re getting the direct quotes from this article. But their unique business model involved brewing craft beer, or buying it from another craft brewery, and then distilling that into a small batch whiskey product. However, legally dubious marketing practices, which the brewery contends are accidental have resulted in what’s called tied-house violations. So do you give us an idea of what a tied-house violation is?
Daniel Croxall (07:28):
We talked about the three-tier system, which is kind of the overarching concept in alcohol regulation. And then to put that concept into practice, the several States have enacted what we call tied-house laws. And tied-house laws essentially exist to regulate and control the interactions between the three tiers. And the main concept is that, a member of one tier cannot give anything of value. That’s actually the legal term in both the federal alcohol administration act and in most States versions. They cannot give anything of value to a retailer. The main point there is that is, to keep influence away from the relationship between the manufacturer and the retailer. So tied-house laws are designed to prohibit this influence that they were worried about at the time, the legislature at the time that the laws were passed, because at the time there was the ability to impact a retailer decisions or even a wholesaler’s decisions based on market strength of the manufacturer. And that’s kind of flip-flop today, but the laws are still in effect. And the whole point is to prohibit a retailer from being beholden to any particular alcohol manufacturer.
Colleen Moore (08:56):
So historically, where did the tide house idea come from? I’ve done some research and I’ve found an example of it, and I think that it still even exists in the UK today as a business model where a brewery would either own a public house or a bar wholesale and hire somebody to run it, or they would lease it out to somebody to run it. But the idea of being the brewery or the pub would only offer that particular brewery’s beer. So I’m guessing that just kind of got on a boat and cross the Atlantic with all of the people that came over to the United States to colonize it and make their own breweries, et cetera. So can you give us maybe some examples of a tied-house violation?
Daniel Croxall (09:54):
Sure. I’ll start briefly with- I agree with your interpretation of what a tied-house is. Just think of it as a retailer who is basically connected to a manufacturer. So the example of the United States is, would have been saloons back in the day. A manufacturer might pay for bars, new bar and refrigeration system, if they had it at the time, Or give just straight up money to only sell that particular brand. So when a prohibition was repealed, there are two concerns that the tied-house laws are kind of focused on one being temperance, which has recently been called into question, And at least in the ninth circuit. And the other was to prevent market domination in the sense that they wanted to avoid vertical integration. So they wanted to avoid a manufacturer from also controlling distribution and also controlling retail. They thought that was bad for consumer choice. They thought that was bad for temperance, because a retail house that was tied to a manufacturer would be obligated to push as much booze as they can from that brand. So the legislators decided they didn’t want to do that.
Daniel Croxall (11:07):
So at least in California, what they’ve done is they’ve created the ABC– the legislature through the business and professions code, and the ABC have created regulations that prohibit the offering or the giving of anything of value between the manufacturer and the retailer.
Daniel Croxall (11:24):
Now, an interesting example and something I’m kind of willing to bet is at issue in the Seven Stills case is something as simple as social media. In the last few years, and this has been changed, I’ll get to that in a second, but it used to be illegal under the California. We call it rule 106. It’s an ABC regulation. It used to be illegal to post the name of a retailer on a manufacturer’s social media– Twitter, Facebook, whatever. It was prohibited to mention that particular retailer, because it was seen as free advertising and that’s a thing of value. And in California, that’s been changed a little bit. Now you can mention the name of manufacturer if you mentioned more than one and you don’t state the price. So if you single out a retailer and you’re a manufacturer and you post that on social media, somewhere on the internet, that is a violation of the tied-house laws, because it’s seen as a thing of value. And the concept is to prevent laudatory comments, to prevent a manufacturer from saying, “Hey, go to Dan’s bar. That place sells our beer and they’re awesome.” that’s seen as advertising by the regulatory bodies.
Colleen Moore (12:37):
So, maybe a non-alcoholic beverage example would be the war between Coke and Pepsi. Right?
Daniel Croxall (12:46):
Right. They’re not constrained by the regulations and laws pertaining to alcohol. Alcohol is unique in that sense. In my studies and in my job, I’ve been trying to find analogous industry and it’s really not out there. I mean, there’s some similarities between like car franchises and things like that, but alcohol is truly unique in the regulatory structure, at least as far as I’ve found, and I’ve looked pretty carefully. This three-tier system, these tied-house laws don’t exist as far as I can tell in any other segments. So Pepsi and Coke wouldn’t be implicated. They would be free to say, “Go to Dan’s bar and drink a Coke.” that wouldn’t be a violation of any tied-house law, unless the Coke was a alcohol product.
Colleen Moore (13:33):
In your legal opinion, do you think that in this day and age that we need tied-house laws?
Daniel Croxall (13:44):
I do. I will say that I have a particular bias I think in this, I try not to be. tied-house laws are important for small and independent craft breweries and distilleries. The numbers and the market power of the big players are mind boggling. When you start talking about companies and brewing, more than 15 million barrels of beer, that’s an unholy amount of alcohol. And it’s interesting because in terms of breweries, at least in the United States, the number is like 84% brew less than a thousand barrels. So they have the relatively minuscule market power.
Daniel Croxall (14:30):
And these tied-house laws are important because if you’re a big player and you have really, really deep pockets, you can go out and you can basically buy shelf space. You can buy tap handles. Now it’s illegal, but it does happen pretty regularly. If you search around the web a little bit, you’ll find lots of instances of bigger companies going to retail accounts and paying in some manner, whether it be free TVs, maybe a new bar, maybe straight up cash. Those things happen. And if breweries illegalize that, it would be to the detriment of small business owners, small breweries, small distilleries, because they would just be simply overwhelmed.
Daniel Croxall (15:11):
Now, there are some tied-house laws that are being lessened. For example, in California, it’s illegal to give away anything of value, however; there are lots of exceptions. And the newest one is what we call the glassware bill, where a large menu or any manufacturer of alcohol is allowed to give up to five cases of glassware to a retail account. That came last year and it was sponsored by big manufacturers, because they’re the only ones who can really play that game.
Colleen Moore (15:45):
They are the only ones that can afford to buy glassware.
Daniel Croxall (15:48):
Right. Dubai glassware is very expensive, so your small little brewery, my little distillery isn’t going to be going out to its retail accounts and saying, “Hey, I’ve got some free glassware for you.” Whereas there are only a few players who can actually do that. So that’s legal instance of it. But other than the specific exceptions from state to state, it is illegal to go out and offer anything of value in exchange for placement or tap handles or anything like that.
Colleen Moore (16:14):
So let me ask you, I have that I can go to any restaurant and see umbrellas on the patio that are branded or a light in the window that tells me the serve of blue moon beer, for instance, how did those fit into it? Because, those would seem to be something that they value. I know that the restaurants aren’t necessarily paying for them, or maybe they are?
Daniel Croxall (16:44):
I believe they are. Well, if they’re doing it legally, they are. There’s no law against purchasing a manufacturer’s goods as an example, like umbrellas or beer signs, et cetera. They are allowed to buy them, but they’re not allowed to receive them for free.
Colleen Moore (17:04):
So they can buy those umbrellas for a dollar.
Daniel Croxall (17:07):
Well, that’s getting a little tricky. I’m not going to answer that. I don’t know the answer to, if there’s any kind of price requirement, I suspect there’s probably not. But, as long as they’re not receiving it for free, then that would not be a violation.
Colleen Moore (17:29):
Then it’s not a tied-house violation.
Daniel Croxall (17:31):
Correct.
Colleen Moore (17:32):
So it could be a somewhat murky gray area… loop hole.
Daniel Croxall (17:39):
Yeah. There are free things they can give. Again, these are exceptions, so go back to rule 106. Allows like a brewery to give away, and I’m not precise on the numbers, what we call advertising specialties. And it’s around $3/unit item. If it’s less than that if it doesn’t appeal to minors, then they’re allowed to give out things like key chains coasters, things like that. Really kind of minor things. And they can’t be tied to a purchase. So you can’t say, “Hey, we’ll give you this cool key chain if you buy our beer.”, That’s called an inducement. And, that would be a violation of a tied-house laws. But because of an exception, they are allowed to give away smaller things.
Colleen Moore (18:23):
For these distilleries that are also have restaurants or a taproom even, what would be a good rule of thumb as far as training their staff? Because, it’s my understanding that even the staff can say yes to an offer and then get the entire company in trouble. So what kind of training would a taproom or public facing outlet need to do in regard to tied-house laws?
Daniel Croxall (18:56):
What I think best practices is, is to have one or a small team of people who are well-trained, well-versed with the tied-house laws, who are in charge of purchases and those kinds of contractual arrangements. It’s dangerous to have multiple hands in that pie because somebody might not be familiar with the laws. They are pretty tricky because they’re sensitive. I mean, who would’ve thought that a Twitter post is a violation of the tied-house laws. So my advice to a client would be, pick one or two people, maybe three, if you need it, and let’s make sure that they’re trained up on what they can and can’t accept, what they can and can’t give away, and let orders run through that particular person. It’s pretty dangerous to spread it out.
Colleen Moore (19:47):
So going back to our case is, with Seven Stills, it looks like they got their first violation in December of 2018, but that they garnered about 60 in total. And each one of those violations comes with a fine of $10,000, which would have meant that the brewery would have had to cough up nearly $600,000 to stay in operation. Of course, that was not a feasible situation for any kind of a craft level product. So they worked with their ABC in order to probably negotiate in 90 days suspension and to mitigate the financial hit, they also decided to close two of their facilities together. So, they indicated in the article that they tried to address each violation each time they got one and each answer that they gave the ABC apparently opened up more things that became violations. What is kind of a good rule of thumb when dealing with a state liquor control board? Should you always have council present? Is there a level of communications that you can have with them? Where should you stop and get an attorney?
Dalkita Promo (21:17):
Distilling Craft is brought to you by Dalkita, a group of architects and engineers who specialize in designing craft distilleries across the US. More information is available at our website www.dalkita.com Now, let’s get back to the show.
Colleen Moore (21:40):
Welcome back to the Distilling Craft podcast. In the next segment, Daniel and I are going to talk about when you need to hire an attorney to deal with your alcohol control board.
Daniel Croxall (21:51):
It depends on the business savvy. Once a violation is alleged, then I think it’s important to have counsel involved in the process. Somebody who knows the industry, somebody who knows the law, somebody who can negotiate on your behalf with the control board. Now, at least in California, the control board is also willing to discuss with alcohol industry members gray areas. So if you have a question about, “Hey, can we do this?” Or “Can we do that?”, you don’t necessarily need to go to a lawyer, although I would recommend you do. You can go straight to the ABC here in California and ask, “Hey, are we allowed to do X, Y, or Z?” Some people kind of do it, try to do it anonymously, some people don’t. But it’s always good to ask and I don’t think you need a lawyer for that. But I think once a violation comes down or an allegation of a violation, then it’s important to get council involved, because what I took from this Seven Stills article, that we were talking about, is that they kept answering questions, and getting in more hot water as they went. And it might’ve been helpful to have counsel directing the conversation.
Colleen Moore (23:08):
So this article particularly did indicate that– as they answered questions and provided more information, there were more questions and they provided more information, and then they just started digging into every facet of the building, including old social media posts, brewery production logs, records from the taproom over the past two years. And so we talked a little bit about what the tied-house laws, so that’s designed to maintain that separation between the three tiers and the laws prohibit companies from offering gifts of value, which in this case, social media posts are considered a value, which is one of the issues is that there’s not really a dollar figure associated with a social media post. So, how do you define value, I guess?
Daniel Croxall (24:10):
That’s a really good question. And your point for the social media post is a good one. I don’t think you can put a dollar value on it, but it is essentially in the mind of the regulators free advertising.
Daniel Croxall (24:23):
So who decides what’s a thing of value? Well, ultimately if it’s not in the code, the state code or the state regulations, then it’s really up to the regulating body to determine if they think something is a thing of value or not. I don’t think there’s a specific definition out there, at least not that one that I’ve come across that says, this is a thing of value. This is not. It’s really helpful to the manufacturer or the retailer. Is it helpful to the retailer and, in that manner, If it is, then it’s not a spelled out exception, you’re at risk of getting a violation,
Colleen Moore (25:07):
Another violation that they mentioned later on in a press release was something like a potential violation where a brewery cannot say, give a dollar for each pint donated to a particular charity, rather they have to donate a predetermined amount. Is there any other giving social situations where something like that could happen? Where it would become a tied-house violation? What is the best way to support some charities with a brewery or with the distillery or a winery?
Daniel Croxall (25:47):
The problem with beers or whiskeys for a cause, type scenarios is that, it could be seen as an inducement. If you say, “Hey, our brewery on Wednesday night, we’re selling, we’re going to donate X amount of the profits to children’s cancer research.” It’s possible that the regulators would see that as inducing people to come to the establishment and purchase alcohol. So I could see that being grounds for a potential violation. Now, I don’t know how familiar you are with the ridiculous amount of fires we’ve been having in California and the big one that we had up in paradise last year. This one, in that case, Sierra Nevada created a beer. The name is a “Resilience IPA.” And they were donating a portion of those proceeds to the Paradise fire, the Campfire I believe was called. And I don’t know the details of this, but I have it on pretty good authority, someone I trust, that in that instance, they went to the ABC, the California regulators and said, “Can we please brew this beer and donate proceeds to the Paradise fire victims?” And again, I’m not saying this as fact, but I believe that they were granted that permission. And then Sierra Nevada along with a slew of other breweries brewed this resilience IPA, and most of them, there was a story a while back, perhaps not all of them donated the amount of proceeds that they were supposed to help the Campfire victims. Just a kind of like, “Hey, our breweries cellar man’s wife got ill and come to the brewery tonight and we’ll donate a portion of the proceeds to his family to take care of her.”, I think that’s very risky because it could be seen as an inducement, which would be a violation. So it’s tricky.
Daniel Croxall (27:47):
The best way to help is to follow your state’s donation laws. It seems to me that California has laws where you can donate to a 501(c). You can give away free beer, that they can later use it at events. I think that’s a good way to do it. Just make sure that you’re checking your state’s code as to what you can and can’t donate.
Colleen Moore (28:06):
Do you see any of the laws changing around either making it easier to support community events or even defining things in this era of social media?
Daniel Croxall (28:20):
It might happen at the regulatory level, meaning the agency level. I doubt it would happen at the legislature because what happens at the state legislatures mostly is special interests, and we’ll just say big manufacturers are typically introducing legislation that is aimed at weakening tied-house, because they want to be able to get out there and use whatever means necessary to regain market share that they’ve been losing to craft breweries for a better part of a decade or longer than that. So basically what’s happening at the state legislature level are our bills that come in that favor, big manufacturers, and then the smaller breweries and perhaps distilleries are then forced to basically play defense against those bills. So I don’t see a big push at the state level for making donation type things easier.
Daniel Croxall (29:21):
I could see the state regulating bodies making changes and saying, well, we’ll make this an exception because it’s going to this good cause, but it seems also very likely, very difficult that the state agency would be able to track the proceeds, check the funds. Is there going to be a recording, a reporting requirements. So, you have to keep in mind that these liquor control boards are primarily concerned with two things:
Daniel Croxall (29:47):
One, the prevention of serving overly intoxicated people more alcohol, cause bad things happen.
Daniel Croxall (29:54):
Two, keeping alcohol out of the hands of minors.
Daniel Croxall (29:57):
With the focus on that and their limited resources and human power, their attention is elsewhere. It actually strikes me as a little surprising that in this SF gate story about Seven Stills– you don’t see too much market policing going on, it happens, but this one seems very aggressive. I don’t know what they did. I wish them well. I hope everything works out for them. I have no idea what they did and I’m not commenting on whether they were right or wrong, but there’s a lot going on here that drew the ire of the ABC. So, it’s really interesting to see how they prioritize their enforcement activities.
Colleen Moore (30:39):
It is interesting. And I do want to note that the folks that had gotten dinged by the ABC indicated that the ABC was relatively nice to work with. And this particular situation, they were moving from an LLC to a C corporation, but hadn’t completed the merger, so they had some of the property for the brewery/distillery in the name of the LLC or the C-corp or vice versa. And so then that became part of their negotiated settlement with the ABC in that, they had to close one facility, maybe that was under the LLC altogether. They have a brewery and a taproom and a restaurant that is a 22,000 square foot project, so they found, and we have a lot of folks on the architecture side things that their project ends up costing much more than they ever thought that it would. And that was the case here. So they really pushed to get the restaurant open for instance. But then, now they don’t have the money to finish the production space. So this particular company has brewed some backlog stuff to carry them through this 90-day suspension. So it was just an interesting situation when the music stopped, and everybody had to scrambled to find a chair where this particular situation broke for this particular company, I thought was pretty interesting.
Daniel Croxall (32:30):
And those are very interesting facts. You have to think carefully about your license. The premises are licensed and the license holder can be a person or an entity. So If you were brewing or distilling off your licensed premise, but say if an LLC owned the license and you were transitioning to a C-corp or something, and you didn’t transfer that ownership interest through the ABC and the license, then you would be essentially brewing or distilling at a premises that isn’t licensed by the entity that has the license. Because you have to think of an LLC and a corporation as different people, just they’re distinct, at least in the eyes of ABC in this case, it would seem that they are distinct entities. And if the LLC owns a license, well, that means that the corporation doesn’t. So it would be essentially seems like unlawful manufacturing. I’m speculating again, I don’t know any of that.
Colleen Moore (33:36):
Who knows how the paperwork broke over these particular entities and locations?
Daniel Croxall (33:41):
You just gotta be really, really careful with your license. I mean, a 90-day suspension, I can hardly think of what we would call independent craft breweries or craft distilleries that would be able to effectively navigate that 90-days of non-production. You can’t even really step foot in the manufacturing facility and you can’t sell it, it would put most companies, at least ones that I’ve dealt with out of business. It’s a pretty harsh penalty. There must’ve been a lot of substance to it, but I hope they come out fine on the other end.
Colleen Moore (34:12):
Me too. So thinking about the laws are on the books, whether or not they’re being enforced in different places kind of location dependent, right? Knowing that those laws exist are really important. Where would you suggest people start to become educated about some of maybe more arcane aspects of different laws, like a tied-house law, if they would have it in their particular state?
Daniel Croxall (34:44):
State by state. Every state, at least everyone that I’ve looked at, has a website to their alcohol control board, whoever that may be in California’s ABC, in Washington, for example– I can’t remember the name of it, but anyway– Every state has their own. And if you click on the website, there will be a link usually to rules and regulations. And you can click there and you can start your education that way. They’re usually links to the statutes and the attendant regulations. That would be my advice. It would be to start there. And if they have questions that they just can’t answer that on their own, then they should probably reach out to council. It’s important to keep in mind that the statutory scheme is what we call a permissive statute. And what that means is, if the statute doesn’t say you can do it, you can’t. It’s hard to deal with statutes that are written like that because it’s impossible for the legislature to think about all the permutations that might come in that area of the law, but still the rule is if it doesn’t say you can, you can’t. And if you proceed in any other fashion, like, well, maybe we’ll get away with this, then you’re taking a really big risk.
Daniel Croxall (35:56):
It’s funny because, I just teach full time now, but I represent one brewery still. And one of the managers, there are people that I deal with a lot, calls me the No-man, because they’re always calling and they’re saying, “Hey, can we do this?” And I’m like, “No.” “Why not?” “Because the business and professions code doesn’t say you can.” And sometimes there are ones that are truly gray. And what we’ll do sometimes is we’ll call the ABC and we’ll say, “Hey Kevin, we have this idea. We’re not sure if it fits or not.” And most times they’ll get back to you with their view on it. And sometimes it’s yes and sometimes it’s no. I would encourage alcohol industry members not to be afraid of calling their regulating body and asking. Most of them have helplines or at least emails for general information. And instead of taking a risk, that’s going to get you shut down for a pretty hefty period of time, it’s better to have clarity on it upfront. So I would say go to the rules and regulations on the websites. And, if you’re not satisfied there either call an attorney or call the regulating body.
Colleen Moore (37:07):
Do you recommend that if they did have a gray area and they called the helpline and somebody on the other end of the phone said, “Yeah, you can go ahead and do that.” Is that something that they need to back up with writing? Or should I get that triple signed and notarized?
Daniel Croxall (37:25):
At least, Sunday, a responsive email or something, “Hey, so, and so. Thank you for chatting with me yesterday.” Just confirming that you stated XYZ about this question that I asked you and await the response. I mean, it would be easy for someone to say, “Well, they told me I could”. So I would definitely try to have it in writing.
Colleen Moore (37:56):
And that’s just good general dealing with anybody, making decisions or interpretations of any kind of code, and so we deal with building and fire code here at Dalkita all the time. And, anytime somebody offers an interpretation that is either against code or is going to be kind of like grandfathering something in or allowing it because you have more protection somewhere else, that’s definitely something that we tell people that they must get in writing, so that it’s traceable. Because, once the regulators come in to a building for instance, and inspect this, if they see a weird sprinkler set up, for instance, in a distillery, they can ask questions about that, and you need to be able to prove that you were able to build it that way or design it that way.
Daniel Croxall (38:51):
Yeah. And sometimes I’m sure you know, like, with the fire inspectors and the building inspectors, one might tell you one thing, and then you make that fix. Then the other one says, no, you can’t do that.
Colleen Moore (39:03):
Yeah, multiple reviewers on a project- really, really great.
Daniel Croxall (39:07):
It happens in alcohol as well with health departments and this department and that department. And, sometimes you get conflicting instructions from a particular inspector. And, that’s the problem with local agency, multiple regulations- one might tell you one thing, and one might tell you another, and you have to find that common ground. And it’s expensive time consuming and generally a pain in the rear.
Colleen Moore (39:32):
And then you have to document it.
Daniel Croxall (39:34):
We always document it. Yes.
Colleen Moore (39:36):
We definitely wish Seven Stills the best of luck to get through this 90-day shutdown period. The last thing I wanted to talk with you about is that, it seemed like the penalty. They came to this resolution in November of 2019 and they thought the suspension was from that point on, so they had stopped operations for December essentially, and then January, and then come to find out that the penalty didn’t start until February. Is that something that is normally hidden?
Daniel Croxall (40:11):
I wouldn’t say hidden. I think they can institute the suspension that the regulating body can institute it whenever they see fit. So that would be the kind of thing that an attorney might have been able to help with. You have to look at when the suspension starts. And when the suspension starts, you have to cease all operations. But, it’s possible that was simply overlooked. They may be assumed that, “Oh my God, we got to stop right now.”, but it would be in the papers for the official suspension.
Daniel Croxall (40:43):
Awfully harsh. They really do. But they have different impacts on different size industries. Like, there was a case a few years ago, I can’t remember the date. But one of the large beer manufacturers was busted for tied-house violations. They were giving away TVs and refrigeration units, which can be very expensive up to $20,000. I said probably with the expectation that their beer would be pushed. He got caught and they entered into a settlement with the ABC and it was somewhere around $400,000 fine. Now for a small company that would probably be enough to put them under. But for this particular behemoth,
Colleen Moore (41:24):
It was just the cost of doing business. Right?
Daniel Croxall (41:26):
Yep. When they did the cost, the calculation on it was like roughly 3% of the daily profits that cooperation made. So like you said, cost of doing business for some people, it’s an absolute game changer, game stopper for another group. And I think in essence, that’s why we need the tied-house laws. Because, they would be abused at the exclusion of small powerless companies in the market should we not have them. So I do think they serve a very beneficial benefit to the smaller industry players like craft breweries and craft distilleries. Without the tied-house regulations, they would be forced out of the market relatively quickly.
Colleen Moore (42:11):
When that note, tied-house laws are good and beneficial and that everyone should try their best to abide by them. If you’re interested in how tied-house fix your location in your particular state, the best place to start is going to be your alcohol control board at the state level, where most likely that will have links to their laws and rules that you should read through and highlight just so that you know what’s going on in your industry.
Daniel Croxall (42:44):
Thank you for armchair quarterbacking this story with me. I appreciate it so much, Daniel.
Daniel Croxall (42:50):
My pleasure. I appreciate it.
Colleen Moore (42:52):
A special thanks to Daniel Croxall and by extension Seven Stills distillery for helping us better understand tied-house violations and their context, both with the distillery industry and how that compares to other food products in the market. Ultimately, they help craft alcohol businesses compete. If your state has uneven concessions between wine, beer, and spirits, get involved with your state guild. If you don’t have a state guild, start one. There is strength in numbers and a chorus of voices is harder to ignore.
Colleen Moore (43:31):
That’s it for this turbulent eighth episode. We’re going to ease back into this. Of course, I would be remiss if I didn’t mention that a giant thank you goes out to you for downloading and listening to this episode of our podcast. Don’t forget to like, share, subscribe, even if you like just a tiny bit of today’s show, it really helps out with our shows vital statistics.
Colleen Moore (43:55):
If you want more information about this show, go to the show notes on our website, www.dalkita.com/shownotes where we will have links to the people, places and things mentioned today. There is even a real live transcript of the show to share with all your friends and you can post a short comment for our team to obsess over dissect, and even infer your tone and judge your grammar. Our theme music was composed by Jason Shaw and is used under creative comments, attribution 3.0 license. The final shout out goes to the man that puts all of this together, our sound editor, Daniel Phillips of zero crossing productions. Until next time, seriously guys stay safe out there. I’m Colleen Moore from Dalkita, and this has been the Distilling Craft podcast.
Dalkita Sponsor (44:44):
Dalkita is committed to getting intelligent and quality design solutions out of the Craft Distilling Industry. Check them out at their website: www.dalkita.com. Until next time, this has been Distilling Craft. Cheers!
