Mahan Law Blog

Thursday, November 13, 2014

The Bourbon Boom

A close friend of mine called me last week while staking out overnight at a liquor store for the opportunity to purchase the much anticipated 2014 release of Pappy Van Winkle.  Turns out he wasn't the only one.  Pappy Van Winkle has coveted aged bourbon whiskey sought out by collectors, aficionados, and of course, restauranteurs and eclectic bar owners.  The bourbon boom itself has sparked interest in many entrepreneurs looking into niche market bourbon-and-whiskey themed bars and packaged liquor stores.  The Greater Cincinnati Area hosts several of these niche bars including the Old Kentucky Bourbon Bar in Mainstrasse Village.  In fact WCPO posted a list of the Top 9 bourbon bars not too long ago.

As a small business attorney I haven't heard this much hype about the liquor industry since the mass smoking bans or opening of the New Riff distillery in Newport and I do not see it going away anytime soon.  Anyone following the bourbon boom knows that supply is wavering in light of demand and its not like distillers can pump out quality aged bourbon overnight!  More than ever before people are interested in owning niche retail, package, and even small batch distilleries.  The problem are quota liquor permits and how the bourbon boom affects transfer values and procedures.

The most valuable liquor licenses are the quota permits--permits based upon the population of a given area such as a county or municipality.  Generally speaking, quotas were established years ago meaning the more densely populated areas received higher quotas (or available permits) to meet the demand of its population.  Since that time there has been an overwhelming suburban flight making the inner city quotas "over-issued."  What this means for the entrepreneur is you may not be able to simply purchase a liquor permit for your area; if your area is over-issued (meaning the quota has been met and the population per capita has since went down) the only way to get a permit is to transfer one from a current owner.  This is especially true in the Kentucky bible belt where counties and municipalities are just now going "wet" or "damp" after seeing the huge influx of taxable revenue previously lost to bootleggers and adjacent counties.  Another example would be Hamilton County (Cincinnati) which has been over-issued since the 1970's--now that's a long time to be on a waitlist!  

Transferring a liquor license is not as easy as one might think as the process is more closely akin to an Asset Sale Purchase Agreement coupled with other various agreements to be compliant with the law and serve legitimate business interests.  In both Ohio and Kentucky a license holder cannot simply sell his or her license to the highest bidder.  Ultimately, the transfer has to be approved by appropriate state and local authorities and the new owners must pass somewhat rigorous and time-consuming background checks and paperwork.  This leads to a legal issue due to the delay between the closing of the sale and the time it takes the governmental agencies to approve the transfer.  The issue is that the buyer cannot simply use the seller's permit until it expires or until the transfer is made.  In Kentucky, the buyer would need to apply for a "transitional license" that is valid for 90 days until the regular license is issued.  In Ohio, the buyer and seller may have to enter into separate agreements to lawfully comply with the selling of alcohol during the transition period.  In either event a simple error in the application process can delay the transition period and interrupt business, or worst kill the deal altogether.

As the bourbon boom continues small businesses buying or selling liquor licenses may become lost in the myriad of Alcohol Beverage Control ("ABC") laws which can be complex and confusing even to the studious practitioner.  In 2013, Kentucky overhauled its statutes in an attempt to simplify antiquated and arduous regulations and processes.  If you or your business has dealings with ABC laws or want to take advantage of the bourbon boom Mahan Law dedicates a portion of its practice specifically to this industry and would be happy to work with you.  In the meantime, find time to enjoy some of the Pappy Van Winkle, that is if you have any!

Our office is conveniently located in Newport, Kentucky (less than two miles from downtown Cincinnati), but we handle cases throughout the states of Ohio and Kentucky. We also routinely meet with our clients at their offices or homes if more convenient.

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