If you think trying to get a bourbon and Coke at a bar on Saturday night is a challenge, you’d be surprised to have a drink at all if you knew what business owners endure to serve just a drop of what Bernard Shaw called “the anesthesia by which we endure the operation of life.”
The alcohol beverage control (ABC) laws are an archaic, byzantine patchwork of rules that often leave license holders as confused and disoriented as the man who stumbles out of a bar after closing time. To add to that confusion, the three-tier system of alcohol distribution is unlike any other business or governmental model. Put in place after Prohibition, the system was designed to eliminate what is known as “tied house arrangements,” which were common pre-Prohibition and involve a producer requiring a retailer to sell only the producer’s product, thus stymying competition.
The system divides license holders into three tiers: producers, wholesalers/distributors and retailers. The producers (distillers, rectifiers, vintners, brewers, etc.) are at the first tier, and typically, they are allowed to sell alcohol to the second tier only, which consists of wholesalers (those that sell and deliver distilled spirits and wine to the retailers) and distributors (those that sell and deliver beer to retailers). The wholesalers/distributors sell alcohol to retailers at the third tier that, in turn, sell it to the consumer. Thus, the three-tier system introduced wholesalers and distributors to act as a buffer between manufacturers and retailers.
Kentucky ABC licenses are further divided into quota and nonquota licenses. Quota licenses are limited in number; are issued based on the population of the county where the license holder is located; and vary depending on the highest class of city located in that county. The classification of cities is authorized by Section 156a of the Kentucky Constitution and established by statute.
There are two types of quota licenses at the retail (third tier) level: retail drink licenses and liquor package licenses. A retail drink license allows a retailer to sell distilled spirits and wine by the drink, for consumption only on the licensed premises, such as at a restaurant or bar. A liquor package license allows a retailer to sell packages of distilled spirits and wine, not by the drink, for consumption of that alcohol off the retailer’s licensed premises.
In counties containing a first-class city, one retail drink license and one liquor package license is available for every 1,500 residents in the county. Jefferson County, as a merged government, is the only county in Kentucky treated as containing a first-class city.
Generally speaking, in counties containing second- to fourth-class cities, one liquor package license is available for every 2,300 residents in the county and one retail drink license is available for every 2,500 residents in the county (assuming retail drink licenses are otherwise available under KRS 243.230).
Fayette County has an urban-county government system and is treated as a county containing a second-class city. Quota retail drink licenses cannot be issued in fifth- and sixth-class cities in a county where those are the largest cities of that county.
The Kentucky ABC Board may issue retail drink licenses in excess of the above-mentioned numbers if the license is for a facility that is: (1) an outlet in a hotel, motel or inn that contains at least 50 sleeping units; contains dining facilities for at least 100 persons; and receives from its total food and beverage sales at least 50 percent of its gross receipts from the sale of food; (2) an outlet in an airport terminal where commercial flights are made in or near cities of the first, second or third class in wet counties; (3) a bona fide restaurant with a minimum seating capacity of 100 people at tables that receives at least 50 percent of its food and beverage receipts from the sale of food; and (4) an outlet located within a premises that has been issued in an Entertainment Destination Center license.
Thus, the quota retail drink license that does not fit within any of the aforementioned exceptions has become commonly known as a “bar license” and allows a retailer to sell distilled spirits and wine by the drink, for consumption on the licensed premises only, with no limitation on seating requirements, food sales or the need to have a bona fide kitchen, and could be used, among other places, in a bar or at a restaurant. There are also other types of nonquota licenses other than the exceptions to the retail drink license, such as the restaurant wine license and private club license, and of course, under a different alcohol schematic, the malt beverage license. If all quota licenses have been issued, an ABC license must be bought from an existing business or the business model must change so a nonquota license can be used.
One final complexity: manufacturers and wholesalers/distributors are regulated by the federal Alcohol and Tobacco Tax and Trade Bureau as well as the Kentucky ABC and possibly one or more local ABCs. Currently, retailers are only regulated by state and local ABCs. However, retailers located in the same class city will most likely be governed by different local ordinances, and therefore, subject to different laws.
And if you’re not yet convinced, you should be aware that so long as Senate Bill 13, as amended, dealing with alcohol sales, is not vetoed by the governor, certain ABC laws will be changing shortly.
These rules are just the basics, so if trying to comprehend them has put you in need of a drink, just think of what the license holders have to go through. Then you’ll appreciate those few minutes of waiting the next time you stand yearning for the bartender’s attention.
Published in Business Lexington, April 11, 2013