KABR will endorse the compromise proposal to maintain separate licensing structures for retailers of alcoholic liquor and CMB retailers to be implemented April 1, 2019.   The proposal will keep Kansas retail licenses separate for the sale of stronger alcohol products v. limited alcohol beer.   The compromise was negotiated between Uncork proponents, the Kansas Association of Beverage Retailers (KABR) and the Kansas Association for Responsible Liquor Laws (KARLL).   

The proposal states CMB retailers would not sell beer over 6 percent alcohol by volume and liquor retailers may sell all current products plus cereal malt beverage.  Liquor retailers may sell other products up to 20% of gross sales, except that the sale of tobacco products and lottery shall not be included in the 20% limitation.  

The Division of Alcoholic Beverage Control will issue an impact study in ten years to report the market impact of the law change.  The ten years will be a reasonable time to measure the impact of law on the liquor industry without further legislation to expand where liquor products are sold.  Uncork proponents will publicly support the ten year period.  

Other changes include application of nondiscrimination and price rules to CMB and liquor licensees and provisions for distributors to require minimum orders for delivery, as well as retaining current definitions for CMB and beer.  KABR supports the Kansas independently owned retail liquor stores as the exclusive off premise retailer of higher alcohol beer and all wine and spirits products.

While KABR is cautiously supportive, it is only because the reality of changes in the states around Kansas lead us to believe that postponement would only result in legislation that is less targeted at CMB and even more harmful to our small businesses and our communities.

The impact of changes to Kansas beer laws is likely to be harmful to many Kansas small businesses - and that impact should not be diminished.  The 2019 strong beer implementation date in Colorado legislation and 2018 in Oklahoma has created a desire for "3.2 solution" in the Legislature and the parties have worked to draft a solution that maintains the public safety priority for regulating the sale of alcoholic beverages, while attempting to minimize the advantages of corporate retailers where possible.  

KABR's support is conditional on the provisions above - any significant changes in this proposal or efforts by Uncork proponents to avoid the public statements supporting the moratorium could void that support.

Updated information:  Uncork has signed off on the committee questions, will speak for the committee record and agree to the ten year moratorium.  Bill would include a market impact report from the Division of ABC in ten years and the Uncork members would respond to the following question - or something similar:

“Do the members of Uncork believe this is a reasonable time frame 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?”

Implementation date would be April 1, 2019 - instead of January 1.

Proposal would allow CMB retailers to sell up to beer that is 6.0 alcohol by volume and allow liquor stores to sell cereal malt beverages.

Liquor stores could sell other products up to 20% of gross sales.  Could sell lottery and tobacco, but lottery and tobacco sales would not be part of the 20% limitation.

• 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 House Committee on Commerce Labor and Industry is likely to meet in the next couple of days to discuss the proposal.  

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The Board of Directors will vote on the issue this afternoon.  

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.

Today, there will be more meetings held to discuss the Uncork bill and whether or not there might be a negotiated solution for the 3.2  issue.  These meetings were requested by the Speaker of the House and House Commerce Committee Chair.

These meetings are exploring the possibility that there could be a negotiated solution to the “crisis” expressed by the grocery and convenience stores – that changes in Oklahoma and Colorado are reducing the 3.2 products available for sale on their shelves and this will only get worse as these neighboring states implement strong beer sales in 2018 and 2019.

Discussion Concepts:

• Resolve 3.2 concerns by allowing grocery and convenience stores to sell beer products up to 5.0 or 6.0 ABV (alcohol by volume) – effective date delayed until 2019 or 2020
• Wine sales removed from the bill – not included
• Moratorium on liquor expansion legislation for ten years
• Allow liquor retailers to sell other products, including tobacco and lottery – sales of other products would not exceed 20% of overall sales except that tobacco and lottery could exceed the limitation
• Create a new definition of beer products between 3.2 ABW (same as 4.0 ABV) and 5.0 or 6.0 ABV that can be sold by both liquor retailers and cmb retailers – and include both types of retailers in the price nondiscrimination regulations for distributors   See list of products with ABV (limited)  See list 2 of products with ABV (some other than CoorsMiller and AB)

Lobbyists have been asked to meet in the office of the Speaker of the House this afternoon.

All KABR members are encouraged to participate in the KABR Teleconference at 4:30 p.m. TODAY for an update from these meetings  Call 1-877-278-8686 and enter code 809216.  Please mute your phone.  We will have an opportunity for questions and comments after the update.

Many of you have emailed your input and that is much appreciated. 

HB 2366 – Keg Registration   Read HB 2366.
This bill has not passed the House Federal and State Affairs Committee, but we expect it may be amended onto one of the following bills on the floor of the House.

Sub for HB 2277 – Common Consumption Areas    Read a description.  Read Sub for HB 2277

The bill was introduced by the House Committee on Local Government at the request of a representative of the City of Lenexa. In the House Committee hearing, a representative of the City of Lenexa and a representative of the League of Kansas Municipalities (LKM) testified in support of the bill. Written-only proponent testimony was submitted by the Lenexa Chamber of Commerce and a Lenexa business owner. Proponents stated creating a place for citizens to enjoy others’ company and to participate in civic, cultural, and social life is part of Lenexa’s Vision 2030 plan and the City intends to accomplish these goals by constructing the Lenexa Public Market, a city building that would allow the sale of alcoholic beverages and the sellers would have booths or kiosks rather than enclosed shops.  The concept is that people could carry their beverage with them throughout the common consumption area. 

The Committee established a subcommittee in order to create a bill that could allow this and also provide for liability for the holder of the common consumption area permit and the various licensed retailers or restaurants within the area.  The issue is somewhat controversial because there are other developers with an interest in allowing people to carry alcoholic beverages outside of licensed premises through areas of a city, including streets and sidewalks, and the licensed retailers would prefer to not be liable for the actions of customers once they leave their licensed premises.  The bill would allow this.

This bill continues to make licensees responsible, while allowing for the common consumption areas when a city or county passes an ordinance to allow it.  There are other requirements in the bill, including that each licensee would have to request permission to participate.

HB 2362 – ABC Modernization Fee   Read a description.  Read HB 2362.

Creates a $20 per license “modernization fee” for the Division of Alcoholic Beverage Control to be paid for each license application or renewal.  The bill would reduce the initial application fee for a liquor license from $50 to $30 plus the $20 modernization fee. The $20 modernization fee also would be added to the renewal application fee, which would remain at $10.  Fee sunsets in 2022.  “All moneys credited to the alcoholic beverage control modernization fund shall be used by the department of revenue only for the purpose of funding the replacement of the work processes, computer hardware and software and related equipment associated with the division of alcoholic beverage control's functions related to licensing, permitting and case management and supporting administrative processes, including maintenance, operation, repair and upgrade of such computer hardware, software and related equipment.”  Passed by the Committee on Appropriations March 22.