New state laws ease tension between distillers and ABC

The legislature has passed several measures in the past two years that local distillers say have benefitted their business operations and improved their relationship with the state ABC Commission. 

Distillers point out that they can now conduct public outreach such as selling cocktails at certain agricultural festivals and events, have more control over their facilities, and are reaping benefits from lifting purchase transportation permits. The permits were required for large spirits purchases from distilleries and ABC stores.

One of the most critical changes is Senate Bill 890. The new law allows Sunday and holiday bottle sales for distilleries and made it clear that the authorization to possess ingredients includes the possession of spirituous liquor not distilled or produced at the distillery used for the production, research, and development or sample comparison of spirituous liquor. The Durham-based Mystic Farm and Distillery owner says the revamped language solves the issue that impacted him and many other distillers. Back in 2020, Mystic Farm was cited and fined by the Alcohol Law Enforcement Agency during a routine compliance check.

Owner Jonathan Blitz says ALE agents visited his distillery and seized bottles of opened liquor from his kitchen. 

“I was using the open bottles as reference samples, but agents sued me for possessing unauthorized spirits,” he said.

At the time, state law required distillers to have a mixed beverage permit to sell other people’s liquor, even though Blitz reported he was using it as a means of comparison. Another part of the former state law dealt with a permitting process that required that distilleries store their spirits in designated and preapproved areas of their facilities.

North Carolina, home to roughly 80 distilleries, is one of only 17 alcohol control states left in the country, also known as a local option state, where each county or city’s voters decide whether alcohol can be sold. 

According to Blitz and other local distillers, before 2019, community members had a contentious relationship with the state’s ABC Commission.

“The agency tried to manufacture and impose illegal rules on us without the authority to do so,” he said.

In a 2018 audit, the ABC Commission was reported to have wasted nearly $14 million in taxpayer funds. The Office of State Auditor Beth Wood found that poor contract administration cost N.C. taxpayers at least $11.3 million over 13 years. Unused warehouse space potentially cost the state $2.1 million over seven years, and a lack of monitoring left the state underpaid by at least $297,537 over two years.

The audit prompted legislative changes to the alcohol system.

Until 2019, distilleries were restricted to only serving communion cup-sized liquor samples to guests with no mixers. There was also a five-bottle-per-year restriction for on-site sales. But that same year, distillers say things began to improve when the Distillers Association of North Carolina (DANC) worked alongside the legislature to pass Senate Bill 290, the ABC Regulatory Reform Act.

The bill eased restrictions on distilleries by lifting the cap for on-site sales and allowed distillers to sell cocktails out of their facilities, thereby creating a more even playing field with breweries and wineries. The on-premises permit now allows for the sale of beer and wine both in a retail permitted area and to go in closed containers that the feds have approved. The same policy applies to any private club, bar, restaurant, brewery, or winery that decides to sell cocktails or other alcohol.

In the fall of 2020, at the height of COVID-19 lockdowns, the industry saw significant economic losses as it was an integral part of the nation’s crumbling retail and hospitality sectors. Many state governors recognized that residents quarantined at home were turning to the proverbial “cocktail hour” to relieve pandemic-related stress, thereby passing rules allowing bars, restaurants, and distilleries to sell their products off-premises and deliver alcohol. Still, North Carolina distilleries remained behind in this aspect.

Carol Shaw, executive director of the Distillers Association of North Carolina, says recent bills such as House Bill 768 and Senate Bill 470 include many of their organization’s top priorities. For instance, the House bill allows distilleries to obtain mixed beverage catering permits, bring their products onto the premises where a hotel or restaurant is catering food for an event, and serve the liquor to guests attending the event. 

“This change provides distilleries another option to grow their businesses,” Shaw says. The bill also allows distilleries in areas that have not held a mixed beverage election to serve their products in mixed beverages upon obtaining a special permit. Previously, only breweries and wineries could serve their products for on-premises consumption in areas that have not held a local malt beverage or wine election. 

“This change provides distilleries with parity,” Shaw says. The legislation also eliminates the purchase-transportation permit requirement, which means that distilleries and ABC Boards will no longer have to issue purchase-transportation permits if a customer purchases more than eight liters of liquor.

Senate Bill 470 clarified parts of Senate Bill 890 on things like what names can be included on a personalized label by deleting ABC Board and ABC stores from names on the bottle with a personalized label; relaxing rules for special events, and that the alcoholic beverages can be sold and consumed in any part of the distillery that is open to the public. Additionally, distilleries now have the authority to determine which areas of their premises are open to the public.

As for Mystic Farm, Blitz says after almost a year of litigation and eight months of the ABC Commission operating under court supervision, he reached a settlement in which all spirits were returned to him. ABC is no longer seeking to put administrative rules on distilleries, and since the settlement, Blitz has been unaware of any attempted improper enforcement action against other distilleries. 

“North Carolina distillers also can sell bottles on Sundays and holidays, which has been very important in supporting the growth of our industry because we were losing half the weekend. To have the legislature and governor support our industry this way has been truly amazing, and something no one would have believed was possible a few years ago,” Blitz adds.

Blitz says their relationship has also improved substantially with the appointment of Hank Bauer as the new ABC administrator. 

“Mr. Bauer has proven to be a very effective leader, modernizing the warehouse, permitting operations, and leading the ABC through a period of rapid growth and change. North Carolina Distillers feel strongly that ABC leadership is very concerned with ensuring that everyone follows the rules so that smaller distilleries like ours can fairly compete against the larger out-of-state conglomerates.”