The recent SCOTUS decision in Tennessee Wine & Spirits Retailers Association v. Thomas (“Tennessee Wine”) stirred things up in the alcoholic beverage industry. As my colleague, Matthew B. Andersen, discussed, in Tennessee Wine, the Supreme Court found that Tennessee’s residency requirement to hold a liquor license was unconstitutional because it was a protectionist measure (i.e., intended to reduce competition from out-of-state businesses for the benefit of local businesses) clothed as a police power in violation of the Commerce Clause. Fortunately, New Jersey does not have a residency requirement to hold a liquor license, so there will be no challenges with respect to that issue. But the Tennessee Wine decision does make you think about the validity of other New Jersey liquor laws, particularly those concerning what a microbrewery can and cannot do.
The New Jersey statute authorizing the limited brewery license prohibits licensees from serving food. Similar to the residency requirement in Tennessee Wine, New Jersey’s food ban would be subject to a rational basis review, meaning that the law has to be rationally related to a legitimate state interest. What is the rational basis prohibiting food service where alcohol is served? We know that all alcohol service training programs encourage the service of food with alcohol since food will slow the absorption of alcohol in the body. Most states require that food be available to promote the safe consumption of alcohol. But New Jersey says no to food (although the latest version of the Special Ruling does allow menus to be on-site and clarifies gratuitous snacks like popcorn and pretzels are permitted). It is hard to see any health or safety basis for the prohibition on food. If the basis is that other industry stakeholders don’t want breweries to serve food, that does not look like a legitimate government interest, particularly when it is posed against the danger of not serving food with alcohol. Notwithstanding a potential challenge on rational basis grounds, the prohibition on food also looks like it could be an unlawful anti-competitive measure.
The limited brewery statute also requires breweries to give their customers a tour before selling at retail for on-site consumption. The spirit of this part of the law was to promote education about the brewing process (which somehow would help to distinguish a brewery from a bar or restaurant and/or justify the privilege to sell on-site). But if education is a critical component for on-site consumption (but not offsite sales?) why don’t restaurants have to tell me how my whiskey was distilled, or explain how certain wine varietals are better suited for growing in a particular region? What is it about a brewery that mandates the educational component before service? Is the tour requirement truly designed to promote health and safety or is it really an impediment to breweries included in the statute to placate other interests?
The related hot topic in New Jersey is the Special Ruling, which expands upon the activities that a microbrewery can and can’t do. Many New Jersey brewers have questioned the validity of the terms of the Special Ruling, and Tennessee Wine could motivate brewers that are up for a challenge. The issues above are incorporated in the Special Ruling, but here are a few more aspects of the Special Ruling that do not necessarily appear to serve a legitimate governmental interest:
- Maximum of 52 private parties per year. Essentially, a brewery can host 1 private party per weekend per year. If private parties are permitted at all, it is hard to see how this cap serves New Jersey residents. If a brewery has a venue that is in high demand and is capable of satisfying that demand, why limit the brewery’s ability to monetize its space while simultaneously denying customer choice? If a customer chooses a brewery over a restaurant/bar for an event, isn’t that simply healthy competition?
- Any live, amplified music requires a “special event” permit, up to 25 per year. If your usual Friday night solo musician plugs in their acoustic/electric guitar and microphone, a permit is required, and you can have them play only 25 nights (basically twice per month). Meanwhile, hiring an acoustic band or acapella doo-wop group for every Friday night of the year looks like something that can be done without a permit.
- Maximum of two TVs and no screen larger than 65 inches. One large screen (e.g., a projection screen), regardless of what is displayed (even if showing regularly scheduled TV programming) would be contrary to this provision. This requirement applies equally to a taproom that is 500 square feet and one that is 1,500 square feet. Is the concern that if your brewery has three 42-inch screens, it has now become a sports bar? Is that concern a legitimate governmental interest?
- No free drinks. Retail licensees are permitted to give customers one free drink. What is it about breweries that necessitates this ban? (Meanwhile, the limited brewery statute even allows the brewery to offer samples). Why is the lower alcohol-by-volume seller barred from the complimentary drink?
We appreciate that the ABC is doing its best to manage the expectations of brewers, concerns from outside stakeholders, and the desire to promote the craft beer industry and the associated economics; and to maintain a competitive, orderly, and fair distribution scheme in this state. As you can see from the above, it is particularly difficult to achieve that balance without potentially running afoul of Constitutional mandates. If our legislature is not going to address these issues (and others) via statute, a legal challenge similar to Tennessee Wine may be what’s in store.