Very Important:  KABR Members – Please Join the KABR Teleconference Friday, March 31 at 12:30 p.m.    Dial 1-877-278-8686 and enter code 809216. Please mute your phone until you need to speak.  

Update on 3.2 Discussions

Conversations with grocery and convenience stores regarding the 3.2 issue took a jump forward yesterday when Uncork representatives changed their position regarding a moratorium on future liquor expansion legislation. 

The retailers groups have said that they are willing to explore a solution to the anticipated changes in the 3.2 cereal malt beverage market but would need assurance that the Uncork proponents would not be pushing further liquor deregulation in the near future.

Spokesmen for Walmart and others initially insisted that such an agreement would be a violation of federal anti-trust laws – restriction of trade.  KABR asserted that retailers would need to anticipate a stable regulatory environment for a significant time period. 

Now it appears that the proponents may be willing to state on the record (before the committee and in the committee records) that this 3.2 proposal satisfies their legislative agenda and they would agree that a ten year timeframe is reasonable to allow for the impact of the new law on all licensees to be evaluated and reported by the Division of ABC – before the Legislature considers additional, substantive changes to state law regarding where alcohol products are offered for sale.

KABR proposed language ordering the Division of ABC to submit a report to the 2027 Legislature (in ten years) in order to establish that timeframe.  That report would include numbers of licensees on an annual basis over ten years, tax revenue/sales numbers from CMB and liquor products, density issues – impact on rural markets, social impact – DUIs, theft, etc.

Other issues in contention are:

• 5.0 or 6.0 Alcohol by Volume beer sales allowed for cmb retailers. Uncork requested 8.99 ABV – the Oklahoma law.  The beer wholesalers indicate that the number should be 6.0 ABV.  The Committee Chairman’s recommendation was 7.5%, but he has indicated he had picked up that number from conversations and is not committed to it.  (Liquor retailers sell CMB.)
• Allow liquor stores to sell other products, up to 20% of their sales could come from these other items.  Tobacco and lottery would be allowed, but not considered part of the 20% calculation. This was proposed by the Chair. Convenience stores oppose the tobacco portion, but will consider it for the implementation date.
• Implementation date:   Retailers suggest implementing the law in 2020, but Uncork insists it needs to happen by or before January 1, 2019.  The Oklahoma law begins October 1, 2018 and the Colorado law begins January 1, 2019. CMB retailers have been told that the supply of 3.2 will be in doubt by 2019 because of these law changes.  Read more about this below.
• Moratorium suggested language – “Do the members of Uncork believe this is a reasonable timeframe to allow for the impact of this law on all licensees to be measured before the Legislature considers additional, substantive changes to state law regarding where alcohol products are offered for sale?”
• Rules and regulations amended to apply price nondiscrimination rules across licenses (i.e. for CMB and liquor retailers).
• Division of ABC will have authority to implement rules and enforce them in CMB outlets.
• No CMB retailer could sell for less than acquisition cost plus applicable tax except as otherwise provided by law and rules.
• Distributors request provision to establish minimum order quantities by case or dollar value.
• Distributors request provision to grandfather CMB and strong beer franchises as of January 1, 2017.
• Wine is removed from the legislation.

The discussions have been directed and facilitated by the Speaker of the House and the House Commerce Committee Chairman.  The Speaker would like to see a public committee hearing scheduled very soon.   Things are moving quickly and KABR will keep you informed.

Is 3.2 Really Going Away?

We have had the opportunity to speak with many KABR members over the past 2 weeks who ask this question. KABR has not adopted the belief that 3.2 is going away.  Utah and Minnesota have not changed their statutes, and brewers will be making products for those states and for the large sports venues that serve lower alcohol beers.  Read the article.

We do know, however, that the Speaker of the House and other legislators have decided that the decreasing availability of 3.2 products, and the variety of packages, is an issue they want to resolve.  Read the Anheuser-Busch letter being passed around the Capitol.  Numerous legislators have told us that they will support our opposition to Uncork liquor expansion, but they expect the Legislature to address 3.2 supply concerns for CMB retailers.   

Some legislators and others have suggested that craft brewers might be willing to fill any gaps that might show up on CMB outlet shelves, but of course, the major CMB retailers are interested in the volume products that have the advertising power of the big brewers behind them.  See note from Minhas and City Brewing.

The discussions that have occurred between the retailers organizations and Uncork have focused only on this 3.2 question.   The primary motivation for this work is to be able to dictate the terms of the discussion rather than negotiating a surrender to a legislatively engineered proposal that would look like many of the broad facilitated “compromise” proposals we have seen in the past.     

If the proposal at hand is approved, it would be a Kansas solution that maintains separate sale and licensing for limited alcohol content beer in CMB outlets and and higher alcohol content beer, wine and spirits in the state regulated, Kansas owned independent liquor stores for the near future.  Kansas would not take the route being taken by Oklahoma expanding beer and wine sales and the Colorado model expanding sales of all beer, wine and spirits.   

It is a risk management question for retailers, and one that KABR takes very seriously.

In Other News

Today, the House passed HB 2362 on a vote of 96-28.  The bill establishes a $20 modernization fee on license applications and renewals for the Division of ABC to use for online technology maintenance and upgrades.

Today, the House advanced Sub HB 2277 to final action Monday.  The bill creates common consumption areas designated by cities and counties.

Yesterday, the House Committee on Taxation passed HB 2395 –establishing a flat income tax rate.