The Strange World of Montana Alcohol Law

By Beacon Staff

David Lewis, chef and owner of Pescado Blanco in Whitefish, is desperate for one of the beer and wine licenses up for grabs Aug. 8.

“If I don’t get it, I’m closing for sure,” he said last week. “It just is not working.”

Lewis works 14-hour days and said he barely pays himself at all. And despite the popularity of his cooking, he still has wildly discouraging moments: like when a 20-person party enters Pescado Blanco, then walks out because a few people want to have a glass of wine with their meal.

“If I had a full liquor license, I would be doing really well,” he said. “People say ‘I want for you to get your license so I can go in there.’”

A liquor license came up for sale three years ago, but the $400,000 price tag was too high for Lewis. Then he underbid for a license to sell beer and wine, also known as a cabaret license, which sold for $150,000. Having previously owned and operated two restaurants in Colorado where he paid $1,500 for a liquor license and $400 yearly to renew it, Lewis is continually shocked at the arcane nature of the laws in Montana that control the distribution of alcohol.

“The liquor laws are just crazy,” he added. “The little guy like me is just trying to make a living doing what he wants and it’s just impossible.” And Lewis is not alone. Dozens of restaurant owners throughout the Flathead have been waiting with trepidation on the results of the cabaret license drawing.

When the state Liquor Control Division issues 20 new licenses to Flathead Valley restaurants to sell beer and wine at the Aug. 8 drawing in Missoula, Lewis has a shot. His name, along with 42 others, will be dropped into a wire basket and spun around. Then the lawmaker behind the expanded allowance of cabaret licenses, Sen. Dan Weinberg, D-Whitefish, draws the names from the basket and they are ranked, with preference given to licensed restaurant owners in the business for more than a year – as opposed to those simply making a speculative investment. For the 124 cabaret licenses available state-wide, 532 businesses and individuals have applied; in Kalispell, 29 applicants signed on for 10 new licenses.

If Lewis’s name is among the top 10 for the Whitefish-Columbia Falls drawing, he’s in, and will pay a fee between $5,000 and $20,000 depending on the size of his restaurant. If Lewis misses, he’ll turn Pescado Blanco into a breakfast joint, where he won’t be at such a disadvantage for not selling alcohol.

This random drawing – which opens up the privilege of selling wine or beer to a few more lucky people and can determine the success or failure of a business – simply marks another chapter in the long, strange saga of the laws controlling alcohol in Montana.

The quota system employed by the state is oppressive, arbitrary and unreasonable, say many Flathead restaurant and liquor store owners. Due to the finite supply of full liquor licenses available, the price of those licenses has skyrocketed to almost $1 million in some cases, setting up an artificial economy and excluding many small businesspeople from a lucrative aspect of the food-service industry. Selling alcohol can often make the difference between a restaurant that turns a profit and one that merely breaks even.

And because liquor licenses have become so valuable, those who own them fight zealously against any measures that might increase the number of liquor licenses in circulation, thus decreasing their value. The community of restaurant, bar and liquor store owners can be close-knit and secretive, with everyone aware of the circumstances and amount of money changing hands over liquor license sales – but few were willing to speak on the record to a reporter.

The roots of Montana’s liquor licensing system date back to 1933, when Prohibition ended and taverns sprung up throughout the state. In 1947, the state enacted a quota system, allowing one tavern for every 1,500 residents of a city. But the taverns in existence at the time were grandfathered in, and what the state considers to be an excess of liquor licenses now exists in Montana cities.

According to state Liquor Control Division Administrator Shauna Helfert, Kalispell has 31 “all beverage” licenses – which allow the sale of wine, beer, spirits and gambling – when it should only have 15. Whitefish and Columbia Falls have 24 all beverage licenses, when they should only have 10.

As a result of the static number of liquor licenses, the price has skyrocketed. The new Kalispell barbecue restaurant, Famous Dave’s, paid $950,000 to the owners of the Bulldog Pub and Steakhouse for its liquor license. The new Blue Canyon restaurant in Kalispell bought its liquor license for $525,000 from a partnership of area businesspeople.

Both Blue Canyon and Famous Dave’s are chain restaurants, and can better afford the investment required for liquor licenses, say restaurant and bar owners interviewed for this story. But for the independent restaurateur, the only other way to stay afloat is to offer gambling – something many who simply want to focus on good food and drink are reluctant to do, despite its attachment to the all beverage license.

“It would be worth it to spend $1 million if I was all about having a gambling location, but I’m not,” Lewis said. The cabaret license does not allow gambling.

Bill Goodman, owner of Red’s Wines & Blues in Kalispell, said when he was planning to open the restaurant his accountant told him: “I would never make a nickel without putting in gaming machines.”

“I don’t want my gambling license, I wish I could strip it off and sell it,” he said. “They really shouldn’t be attached to liquor licenses.”

Goodman won’t install gaming machines and his business has faltered, closing earlier this year and reopening with stripped down menu offerings. But he’s not the best example of someone struggling under the high cost of city liquor licenses. He originally purchased a county liquor license – of which there are currently 16 available outside city limits in Flathead County for the nominal fee of $400 – on land at the southern edge of the City of Kalispell. Shortly after the purchase, the city annexed that land and his county license became a coveted city liquor license.

Goodman was part of a trend of savvy investors in the early 2000s buying up county liquor licenses on the outskirts of growing cities around the state. The Legislature put a stop to that practice in 2005 with a law restricting the use of city liquor licenses from newly annexed land until five years after the date of that annexation.

The Legislature has a way of halting or diluting any serious efforts to reform Montana’s liquor licensing system or increase the number of licenses available. Weinberg said his push in the 2007 Legislature to expand the liquor, beer and wine licenses available were stymied by the lobbying efforts of the Montana Tavern Association and even some banks which offer loans based on the equity in city liquor licenses.

“Politically, it’s a very tough area,” Weinberg said. “You start off wanting to change the world and end up changing a part of that world.”

The bill he passed, allowing for more cabaret licenses, was a compromise, he said. “To change the full liquor and gambling licenses would be impossible,” he added, while conceding that current law “inhibits commerce and competition” and does nothing to reduce rates of alcoholism in Montana.

Helfert, of the Liquor Control Division, said the state’s current liquor laws are deeply entrenched, but still represent an effort by the state to keep an addictive substance like alcohol from causing a huge cost to society if not controlled and regulated.

“It’s not toothpaste,” Helfert said. “We try to make sure it gets into the right hands.” Helfert added that the rising cost of liquor licenses are a result of whatever the market will bear, and the state does not receive any of the proceeds from a liquor license sale between two private entities. Nor does she expect the system to change significantly any time soon.

“There are subtle things that we can do to improve our system,” she said. “It’s years and years of history that have made it this way – I don’t know how you unwind it.”