New Illinois Liquor Law: Winners and Losers

 

Illinois recently passed two significant changes to its liquor laws – HB 4897, allowing taprooms (retail outlets of a brewery) to serve beer and cider from outside producers, and SB 2436, a modification of the prohibition on retail liquor sales within 100 feet of certain establishments such as a church, school, or hospital. With any change to the law there are winners and losers, and here they are for these recent developments:

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Winner - Breweries/Taprooms

This one is obvious – with the ability to now serve beer and cider other than their own, breweries can transform their retail operations by adding a taproom and selling products from many different producers. This further reduces the distinction between a taproom and a tavern, or a taproom and a restaurant that serves beer and cider, considering taprooms can also obtain a license to sell food. Taprooms can now potentially subsidize costs on outside beer and cider due to the reduced expense of selling beers produced on site. With the ability to also serve company-made beer produced off-site at a taproom, brewers have significant flexibility to maximize profits between production and retail sales. Brewers can also now provide collaboration beers produced at another brewer’s facility on their tap.

This change in the law is not only good news for current operators, but it’s also good news for individuals and companies planning to open or expand brewery operations with a taproom. With the ability to offer macrobrews and already established craft brands, operating a taproom can mitigate risks for investors by creating cash flow outside of the brewer to distributor sales model (or brewer to retailer sales model for breweries with self-distribution).  

Additionally, with different zoning regulations for taprooms as opposed to taverns, it’s also possible that taprooms could subvert existing restrictions and open up shop in zones that were previously off-limits to retail sales. Lastly, breweries also now have the ability to store beer offsite (away from their production facility) without using a distributor, thus giving them even greater freedom under the three-tier system.

Overall, this legislation opens up significant new options and opportunity for craft brewers to increase production and profitability.  


Loser (Mostly)
- Restaurant/Bar Owners

One brewery’s gain is another tavern’s loss, right? With retailers remaining in the same position, and taprooms now better off, many retailers are not happy with the change in the law. In an interview with Brewbound, Pat Berger, owner of Kaiser Tiger and Paddy Long’s, said, “With this new law I could set up a production brewery with a home brew kit, get a taproom license and essentially operate a bar in an area where bars aren’t allowed. Before this law, if you wanted a successful taproom you had to make good beer because that was all you could sell. Now you can have one tap of your crappy house beer and fill the rest with guest taps.”

While it is unclear how state and municipal officials would treat such a use, Berger does makes a valid point that retailers now have to compete with taprooms who have both cost and location advantages. With retailers unable to open a brewery – the tied house regulations prevent retail operators from owning a brewery – retailers cannot benefit from the legislation without first foregoing their current retail operations, which few are likely to do.  

Traditional retail outlets will still have the ability to sell wine and liquor at retail, which taprooms cannot do, but that is likely little solace to beer-centric bars and restaurants, which have increased greatly in number over the past decade. While this change in legislation does nothing to directly affect the operations of retailers, it does create more competitors, and ones with a distinct advantage.

Restaurant and bar owners may have some consolation though as the second significant change in Illinois liquor laws, the removal of the long- standing 100-foot restriction, makes it easier (and less expensive) for retailers to open up new locations next to schools, churches, or hospitals.  

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Winner - Bruce Rauner

Given the political divisions in Illinois, getting any legislation passed is often troublesome, but Rauner – specifically in the case of the 100-foot restriction – showed leadership in achieving a long-term solution to a systemic problem with Illinois’ liquor laws.

Since its inception in 1934, the Illinois Liquor Control Act has not allowed liquor licenses within 100 feet of a church, school, or hospital. With no way around this regulation, retail operators have relied on the burdensome task of lobbying and passing extremely specific state laws to “exempt” the retailer from the 100–foot restriction in order for the establishment to open in the desired location – and it happened enough that over 90% of the text of the current Illinois Liquor Control Act is a series of exemptions from this rule.

In an attempt to stop these continual “carve-outs” Rauner vetoed the most recent one, relating to operations at Thalia Hall in Chicago, and sent a letter to the legislature requesting a more permanent solution. While Rauner’s veto was overruled, legislation was introduced the following week that created a more overarching solution.

The law now allows for local officials (generally the local liquor commissioner) to exempt businesses from the 100-foot restriction, shifting the burden of evaluating these uses from the state legislature, which has far bigger fish to fry, to municipalities, who are closer to the situation and better able to determine if issues will arise regarding the exemption and issuance of a liquor license. While the municipalities still have to pass regulations granting themselves this power, it is highly likely that they will be doing so in the coming months.

Loser - Liquor Lobbyists and Lawyers

It is highly likely that municipal approvals for license operations within 100-feet of a church, school, or hospital are going to be much easier to procure than the long, expensive and burdensome process of passing a new state law. Without the need to gain votes from legislators, state level lobbyists and lawyers who previously assisted potential licensees through the legislation process are unnecessary, which will result in lower legal fees and consulting fees for the business operator.

Winner - Landlords and Property Owners

With a swipe of the pen, properties that couldn’t get retail licenses due to the 100 foot rule became significantly more appealing to potential tenants, and whether looking to rent or sell, this could significantly increase property values and rental rates, particularly for spaces currently built out for food service that have been unable to procure liquor licenses due to the prior restriction.  

Additionally, properties previously zoned in areas that did not allow for retail licenses, but did allow for the manufacture of beer, may have a new outlet for potential tenants or buyers from taprooms looking to capitalize on the ability to operate a taproom like a “bar”.

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Loser? (Not Likely)

It may seem that schools, hospitals, and churches are losers under this system considering it is now seemingly easier for retail liquor operations to open near them. However, in practicality, it is unlikely that a municipality would issue a liquor license over a justifiable objection by a school, church, or hospital. On the other hand, in our firm’s experience, the employees of these establishments appreciate well-run restaurants in close proximity, and removal of the state law prohibition provides an easier path to explore options in everyone’s best interest.  

Whether you’re a Winner looking to maximize on new opportunities or a Loser looking for ways to mitigate your risk, contact Troglia Kaplan if you are looking for the best strategy on how your business should react to these recent changes in Illinois liquor law.  





 
Olivia ShanksComment