“Hello, is this Jack’s Bar And Grill? … Yes, I would like to place and order for two New York steaks, medium rare, and two bottles of Jack Daniel’s with a home delivery within the hour? … Is that possible?”
As farfetched as this sounds, such a phone call could be made if legislation is passed in the 2021 New Mexico Legislative session.
It was on Wednesday, January 13,Governor Michelle Lujan Grisham outlined her legislative priorities that she wants the legislature to consider and enact during the 2021 New Mexico Legislative. Included as a priority is liquor license reform efforts. Lujan Grisham wants to provide a provision that would allow alcohol home delivery and loosen up the state’s tightly controlled monopoly on liquor licenses. A bill has now been introduced by New Mexico State Representative Dayan Hochman-Vigil, a Democrat from Albuquerque that would make significant changes to New Mexico’s liquor laws. .
HOUSE BILL 8
All bars in New Mexico have been closed since March under the Governor’s pandemic health care orders resulting in severe economic consequences. House Bill 8 introduced by Hochman-Vigil would allow what many consider would be a dramatic change in New Mexico’s liquor licensing laws. The legislation would allow restaurants, grocery stores, liquor stores, craft distillers, small brewers and bars to offer “home delivery” of bottled alcoholic spirits. Under the legislation, restaurant deliveries would be limited to beer and wine sales that would require a minimum food purchase of $25.00. All the other liquor sales businesses would not have a food sale restriction or a purchase quantity requirement.
HB 8 would create a new type of license that would allow restaurants to serve hard liquor, and not just wine and beer, without the purchase of an expensive dispenser license. If House Bill 8 were to pass, bars owners would be allowed to take alcohol delivery orders without opening their establishment. The argument made it would provide a stream of revenue for the struggling industry during the pandemic. The new license would allow restaurants to pay a yearly fee of $3,000 to the state to sell liquor.
A PANDEMIC CHANGE IN HEART
It was during the 2019 New Mexico Legislative session that Governor Michelle Lujan Grisham vetoed identical legislation that would have allowed for the sale of alcohol for home delivery. The Governor vetoed the legislation arguing that it violated the New Mexico Liquor Control Act. Lujan Grisham now supports House Bill 8.
What Lujan Grisham is now saying is that the legislation is needed to help the hospitality industry. The Governor’s Office had this to say in a news release supporting the legislation:
“The pandemic has shown what a useful tool this legislation would be, and the governor is clear that in addition to being helpful to consumers, it will be a real boon to restaurant revenues.”
NEW MEXICO’S ARCHAIC LIQUOR CONTROL ACT
Under the current liquor control laws enacted some 40 plus years ago, a “dispenser’s license” allows for the sale of package liquor sales as well as the on-premise sale and consumption of alcohol. Although beer and wine licenses are available, full scale dispenser licenses are tied to population numbers in counties and limits the number of licenses that are available.
Once issued by the state for a one-time fee the liquor license becomes the property of the purchasers. As a result, liquor dispenser licenses carry with them property rights, are limited in numbers and can be sold on the open market. Over the years, dispenser licenses have increase in value and are now known to be sold for upwards of $1 Million dollars. Consequently, only the wealthy or major corporations can purchase dispenser licenses.
Current owners of liquor dispenser licenses have strongly resisted any efforts to allow the creation of different categories of licenses. The argument made by the owners of “dispenser’s licenses” is that creating new licenses or increasing the availability of more licenses will devalue their investment purchase. The argument made by owners of full scale “dispenser licenses” is that their investments would suffer a sever devaluing making them worthless. One argument made is that the state should be required to reimburse or purchase back the licenses for what the owners have paid for them on the open market.
“MIXED LIQUOR” INDUSTRY REACTION TO HB 8
Matt Kennecott, the spokesman for the New Mexico Bar, Entertainment and Nightclub Association, said his organization does support some of the proposed HB 8 changes and that will allow for home delivery believing the change would create a new income generating source for his clients. Kennecott added that other changes for bars, including the elimination of yearly fee, should be added to the legislation.
Not surprising opposition to the bill is emerging from owners of full server dispenser’s license or those that lease them. George Gundrey leases 3 liquor licenses for two restaurants and one bar. Gundrey told the Albuquerque Journal the proposal to issue the new type of license is unfair to current licensees because it would devalue the more expensive licenses. Gundry put it this way:
“What they’re basically doing is making [our dispenser licenses] worth nothing, so obviously that’s very problematic. … The only ethical thing for [the state] … to do is somehow reimburse the owners.”
Myra Ghattas is the owner of Slate Street Cafe and Sixty-Six Acres. Slate Street Café, located in downturn Albuquerque only sells beer and wine while Sixty-Six Acres, located on tribal property, also sells liquor. Ghattas has this to say about the proposal:
“[This proposal] is huge. A lot of people in my position who own restaurants have been working to get that playing field leveled for a long time, because those old laws were really dated. … I think it would significantly help independent local restaurants, who I think have the short end of the stick when it comes to liquor licensing in New Mexico”
The link to the quoted source is here:
Over a year and a half ago on July 24, 2019, guest commentator John B. Strong on this blog had this to say regarding state liquor control reform:
“Many people don’t quite understand how outdated and unfair our liquor licensing laws are here in New Mexico. Decades ago the legislature created a system of a set and limited number of licenses to be able to serve or sell liquor by the drink. This is not the same as wine and beer licenses. There are currently 1,411 licenses in the state for this purpose, and they trade as a commodity and can be bought and sold to the highest bidder.
The state derives no economic benefit from the purchase, sale , or leasing of these licenses at all. They simply allow the owner to then go to the State Alcohol and Gaming Commission and apply for a license that allows them to sell alcohol.
Since there are a limited quantity of these licenses there has been a constant upward push in the price to acquire them. About 10 years ago these licenses cracked the $200,000 mark. Recently the last two licenses sold were reported by the state to be $500,000 and $590,000. Originally most if not all of these licenses were owned by local small businesses scattered across the state, but over the years the increased prices began to tempt small family-owned businesses to simply sell them as they became worth much more than the actual business they were attached to.
Therein begins the problem. Many of these licenses began to migrate away from small locally owned businesses to large out of state corporations. Companies like Marriott and Hilton Hotels, Cheesecake Factory, Applebee’s, and other large chains. Then groups formed here to acquire licenses and lease them out rather sell them, both in anticipation of ever-increasing values for them as well as increasing lease payments.
…[In] a couple of years these licenses will likely crack $1 Million dollars! [Once that happens] … you will never again see a small family owned Mexican restaurant that can sell a Margarita, or a local Steakhouse that can sell a martini, or an ethnic restaurant that can sell beverages native to the food they prepare. Consider the International District, which is home to many great ethnic food establishments, and they are under constant pressure to compete with large chains that have this unfair advantage over them.
Replicate that scenario across the city as well as the state and you start to see the problem. Keep in mind as well that we have an interest in our small businesses, because when the large chains sell that $10 Martini, their profits go straight to a corporate bank account in New York, Chicago, or LA. When our small businesses are able to make that sale, those profits percolate through the community many times over, and that is a BIG deal.
I don’t think anyone believes that when this system was set up that it would get to this point, and periodically over the years there have been conversations about reform, but nothing ever happens. Partly because there is a lot of money at stake for the folks who own these licenses. [It’s believed] about half of them are owned by out of state corporations that probably pay little attention to their value and it’s complicated to try and change it. I am told that we have around 34 different licenses for beer, wine, and alcohol, and that is far too many.
[A] couple of suggestions:
The legislature could simply create a class of liquor license combined with wine and beer specifically for venues of less than 75 seats that would be affordable, say $500 per year. This would take some of the pressure off the upward increase in the large venue licenses but they would still maintain a high value, while giving small venues a chance to compete. … We could levy a tax on liquor beer and wine [could be] levied, and bond against that revenue stream to begin buying in and cancelling [dispenser] licenses. … .”
The link to the full John Strong guest column is here:
COMMENTARY AND ANALYSIS
In general terms, licensing by a government agency means the government gives permission to an individual, business or corporation to do something or do an activity that is highly regulated for the protection of the public health, safety and welfare. Licensing usually requires minimum qualifications mandated by state regulations such as education, training and certifications and even inspections at times. Examples include licenses to drive, to do business, practice certain trades such as construction, plumbing, electrical, architecture, the practice of law, the practice medicine and even selling some goods and services. Health code inspections for restaurants and grocery stores are good examples of government licensing regulations of goods and services.
The biggest problem with the existing state liquor control laws is that they create the problem of granting a “property right” to those who were originally issued state licenses by allowing them to be sold or leased on the open market. The state did so for the sole purpose of putting a cap on the number of liquor licenses in order to avoid the proliferation of liquor businesses in a county, city or neighborhood. It was a good idea at the time and was intended to have an impact on the state’s alcohol abuse problem and DWI rates.
When George Gundrey says “… The only ethical thing for [the state] … to do is somehow reimburse the owners” what he essentially is saying is the liquor industry wants the state to buy back the “dispenser licenses” the state originally issued many years ago for a significantly reduced or nominal fee and buy back those licenses today at the tremendously inflated market value. It has absolutely nothing to do with ethics but every thing to do with economics. In other words, the dispensary license owners want the state to pay perhaps as much as $1 million dollars for a liquor license it issued for perhaps a few thousand dollars. The ones that are truly getting hurt are the taxpayers having to by back a license issued giving property rights for a state regulated industry.
It is well known in Santa Fe that the New Mexico liquor lobby is one of the strongest and wealthiest lobbying groups in New Mexico and has been so for many, many years getting involved with elections and making donation to legislators. New Mexico has an extensive history of attempting to restrict liquor licenses and at the same time dealing with some of the highest rates of drunken driving (DWI) in the country.
IMPEDIMENT TO ECONOMIC DEVELOPEMNT
To be blunt, the state’s existing liquor licensing laws impairs economic development. The dispenser licensing law works against the small business owner or entrepreneur. As the market exists now, only out of state chain stores and restaurants, which are proliferating Albuquerque and squeezing out locally owned businesses, can afford whatever it takes to buy a liquor license. Smaller, locally owned restaurants cannot compete nor afford to pay hundreds of thousands for a dispenser liquor license. Any average New Mexican who wants to open a new bar or restaurant with a full liquor license cannot do so because the cost of a liquor license is so prohibitive. Although there is a cap placed on the number of licenses that can be issued based on population numbers, there is no real evidence that fewer licenses reduce DWI rates and increase public safety in any meaningful way.
Regulation and Licensing spokeswoman Bernice Geiger had this to say:
“Currently one of the impediments to economic development in the state is the relatively high cost of a dispenser type liquor license. One of the goals of this bill is to give people who are priced out of the market the ability to get into the market, to decrease the cost of licenses across the board, but [to give] current licensees the flexibility to pivot to new business opportunities by allowing the buy-back of lost package privileges or the ability to sell the license in markets that currently are restricted.”
Albuquerque has repeatedly tried for the last 50 years to revitalize the Downtown area. Revitalization of any downtown area always includes entertainment venues, new restaurants and bars. However locally own businesses simply cannot afford the investment in a liquor license. Laws preventing alcohol sales within 300 feet of a church or school, and preventing sales before noon on Sundays make any city in the state less attractive to businesses, while serving no real public safety function. Sunday liquor sales at one time were prohibited all day with one argument made because it is considered a day of worship for attending church and not for drinking. The 300-foot restriction is somewhat of a farce and should be eliminated.
It is likely that more liquor licenses will actually reduce DWI in New Mexico. Further, Albuquerque has an emerging arts and music community that needs supplemental income that could be enhanced.
RETURN TO TRUE MEANING OF STATE LICENSING TO PERMISSION
The sale of liquor in the state is one of the most highly regulated industries in virtually all states. Licenses usually have ongoing qualifying mandates for renewal and at times have terms as to how long the license is effective and must be renewed. There is also a liquor license revocation process in place, such as revoking a license if liquor is sold to minors. Normally, licenses issued by a state do not give vested property rights to those individuals who apply for and issued the license to be able to sell or transfer on the open market. Dispenser licenses are viewed as “speculative investments” that accure in value, and that was never the intent of the legislature.
The unintended consequence of New Mexico’s current liquor control act is that it gives property rights to the license holder to sell, transfer or lease the license. This was done for the purpose of limiting the total number of licenses the state can be issued based on population levels.
If New Mexico Governor Michelle Lujan Grisham and the New Mexico Legislature truly want to encourage economic development and help locally owned businesses, liquor license reform must be included in the equation. It is likely such reform will require sweeping changes to level the playing field for all that want to apply for liquor permits. All existing “dispenser license’s” need to be revoked, with a formula to calculate a reasonable price for buy back. An option would be for the state to grant tax credits or deductions without cash purchases.
One thing is for certain, the state needs to abolish the population caps on the number of liquor licenses, abolish dispenser licenses and refrain from ever giving property rights to a license’s it issues for permission to do a state regulated activity in the future.