News & Features

Liquor License Lockdown

While popular, the sale of alcohol is highly controversial in Montana, where Prohibition-era laws are a perennial source of contention and debate

Melanie Cross was ready to open a new restaurant in downtown Kalispell.

Her vision was clear: develop a cozy pub-style restaurant with a menu of locally produced items served alongside a list of fine wines and 20 microbrews on tap. Her building — a storefront on Main Street that she and her husband Andy have renovated since purchasing in 2007 — was well suited for a new kitchen and dining area, including a space that could accommodate live music.

Cross figured it was exactly the type of establishment that downtown Kalispell needed amid ongoing efforts to reinvigorate the heart of the city.

City officials reviewed a preliminary proposal in July and gave it the green light.

But then Cross contacted the state’s Liquor Control Division, which oversees the licenses required for serving alcohol, including beer and wine.

The quota was filled and no licenses were available.

If she wanted to purchase a beer and wine license, known as a cabaret license, outside city limits a few miles down the road, that was possible because there wasn’t a quota. But Cross’s location in Kalispell was ineligible.

Instead of buying a $400 license through the state, her only option was to try to purchase one on the open market. In July, a beer and wine license sold in Kalispell for $500,000, according to the state Department of Revenue statistics. The cheapest cabaret license sold in recent years went for $100,000. An all-beverage license for selling liquor went for $585,000 in April, which could be considered a bargain compared to the 2007 price of $950,000.

“I always told my friends that it would take a big wall to stop me. But that was it,” Cross said recently. “It stopped us in our tracks.”

Adding another mortgage-sized payment for a license to the overall cost of developing the restaurant made the project unreasonable, according to Cross.

In other words, her plans for opening a restaurant were shelved indefinitely.

“The sad thing is, how is this downtown ever going to change? It’s not. You’ve got to have more places to sit and eat. Downtown needs more restaurants,” she said.

“These regulations are ridiculous,” she added. “I’m not going to say it’s strangling this town, but it’s just keeping it held hostage.”

A bartender pours a drink at the Bandit in Columbia Falls. Beacon File Photo

A bartender pours a drink at the Bandit in Columbia Falls. Beacon File Photo

While many Montana residents, and the visitors who come here, enjoy alcohol, the state’s laws are a perennial source of contention and debate.

In the 80 years since Prohibition ended and states were given the choice over how to regulate alcoholic beverages, it’s been a hot-button topic in places like Montana, where the sale of alcohol is popular yet restricted and the debate still resonates over balancing individual freedom with the social risk and public costs of alcohol consumption.

Montana is one of 17 states in the U.S. with a quota system regulating the number of licenses that allow bars, restaurants and casinos to sell liquor, beer and wine. The other states are Alaska, Arizona, California, Florida, Idaho, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Ohio, Pennsylvania, South Dakota, Utah and Washington.

The idea behind the quota system dates back to the aftermath of Prohibition, when there were concerns that the sudden flood of available booze would cause societal harm.

Montana’s state law, which eventually established the quota system in 1947, says the overall purpose of the regulation is to “protect the welfare, health and safety of the people of Montana; to promote temperance, create orderly markets, and aid in the collection of taxes.”

By controlling the sale, manufacturing and distribution of alcoholic beverages, “Montana believes that moderation can best be achieved by neither promoting nor encouraging the consumption of alcohol but, instead by controlling it,” according to the state’s Department of Revenue guidelines.

Alcohol-related issues, including drinking and driving, do cast a large shadow over Montana, but at the same time, booze remains more popular than ever in Big Sky Country.

There are over 4,700 licensed bars, taverns, restaurants, manufacturers and distributors across Montana. In 2011, the state had the second most bars per capita in the U.S., according to the County Business Patterns study by the U.S. Census Bureau.

The Department of Revenue, by taking ownership of all liquor in Montana and selling it to distributors and retailers, such as liquor stores and restaurants, sold $119 million worth of hard alcohol at wholesale prices last year, according to the latest statistics. That was $6 million more than in 2012 and $74 million more than in 2000.

Naturally, in a state like Montana, where alcohol is lucrative, it’s a fierce competition for the ability to sell drinks, which is considered vital for any nighttime dining establishment.

Quotas are established for each city and county and are based on population. The state issues new licenses that are varied by the types of sales — liquor, beer and wine — to cities where the population increases by increments of 1,500-2,000. When a license becomes available through the state, a lottery is held among all interested parties to determine who is awarded the license, an aspect of the law that is frequently scrutinized.

In general, Montana’s quota system draws heavy scrutiny. Since the system was created, a dilemma has developed, causing a tug-of-war among those with licenses and those without.

Every major city in Montana has surpassed its allotted quota, either because existing bars and restaurants before the 1947 law were allowed to keep theirs or because of a controversial aspect of the law that allows licenses near city limits to float in after nearby annexation.

In Kalispell, which has a quota of 16 liquor licenses, there are 30. The city will need another 21,000 people before it will catch up to its quota standards.

Similarly, the quota for cabaret licenses in the city — 14 — has already been surpassed by three, meaning the state cannot issue anymore until another 6,000 people move into the city.

In Whitefish and Columbia Falls, there is a quota of 10 total liquor licenses but 24 that have been issued. A total of 20 cabaret licenses exist between the two cities, two more than the quota.

In Flathead County, the opposite situation exists: there are 80 liquor licenses available but only 62 issued. There is not a quota for cabaret licenses in counties.

Because of the limited supply within the cities, these licenses are hot commodities and become valuable personal property.

Historically, all-beverage licenses, considered the most valuable, go for $500,000 to $1 million on the open market in many of Montana’s largest cities.

Currently, a liquor license in Kalispell is worth about the same as one in Boston. The same goes for Whitefish, which shares a licensing jurisdiction with Columbia Falls.

On the flip side, in states without a quota system, licenses sell for a few hundred dollars for registration fees. In Oregon, a license to sell liquor, beer and wine costs $402 a year.

Patrons gather at the bar and restaurant area of Casey's Pub and Grill in downtown Whitefish.  Beacon File Photo

Patrons gather at the bar and restaurant area of Casey’s Pub and Grill in downtown Whitefish. Beacon File Photo

Attention has been refocused on Kalispell’s downtown in recent years, and efforts to re-energize the core area are gaining steam. City planners are undergoing a new project surveying the area’s stakeholders, gathering input on needs and challenges within downtown.

A unified message among business owners has already emerged: in order to breathe new life into downtown, there needs to be more restaurants and bars.

“We frequently hear from inquiring restaurants and the inability to acquire a license because of the sheer cost is something that always comes up,” said Kalispell Planning Director Tom Jentz.

“It’s a major inhibiting issue throughout our community.”

Put another way, “It’s absolutely limiting commerce,” said Pam Carbonari, Kalispell’s former mayor and coordinator of the Kalispell Downtown Association.

Critics of the quota system say it deprives cities like Kalispell from expanding the lineup of restaurants. Casinos are more often able to afford to pay the high cost of a liquor license because of its gaming revenues, compared to a start-up restaurant faced with greater risk of diminished returns. Many cities have seen their allotted licenses gobbled up by casinos instead of dining establishments.

The primary point of contention centers on prospective businesses frequently being priced out because of the high market value for a license.

Both Carbonari and Cross, who hoped to open a new restaurant in downtown, said they sympathized with current license holders who paid a hefty sum for a license.

But they both said separately that the state’s current system remains problematic and is in need of fixing.

“It’s a bad situation,” Cross said. “It really is, and I don’t know what the answer is.”

Doug Day, the owner of Hop’s on Main Street, which has a cabaret license, said he supports more restaurants downtown because it would create a larger overall attraction that would benefit everyone.

“Part of our downtown problem is we don’t have enough restaurants down here,” Day said.

“When my wife and I go out to eat, we don’t have a lot of choices. So how are we going to bring the masses to our downtown area?”

Day was part of the organized effort among local restaurateurs in the 1990s that fought for the initial creation of cabaret licenses, allowing businesses to at least sell beer and wine without competing with bars for liquor sales.

The Montana Tavern Association, which represents tavern owners, strongly opposed the creation of cabaret licenses, as it does other attempts to remove or reduce license regulations.

The Legislature eventually approved the cabaret license request in 1997 but ensured the licenses were within a quota system.

“It was a long, hard battle for us, and it’s still based on a quota system,” Day said.

From the MTA’s perspective, the alcohol laws are properly regulated and established, and they create vital checks and balances.

“There are good reasons why you have (the current alcohol laws),” said Mike Hope, president of the MTA. “Every state in the country has some type of system set up for control.”

He added, “Do you think everybody should be selling liquor on every corner and in every building in downtown Kalispell? Would that ultimately be good for the citizens of Kalispell?”

Hope said it’s important for the quota system to create limited amounts because it raises the stakes for license holders and creates strong value in their business. Businesses are more likely to follow regulations, such as not over serving patrons or serving minors, because they risk losing a license worth a considerable amount of money, Hope said.

“We serve a dangerous product, if it’s not managed effectively,” he said. “That’s why the regulations are there.”

While the MTA continues to defend the quota system and other alcohol laws on the books, the situation has gained another complex facet in recent years.

In the past decade, Montana has seen a spike in microbreweries. Last year there were more than 40 craft breweries in the state, with another 11 reportedly in the works, according to the University of Montana Bureau of Business and Economic Research. This ranks the state third in the nation in breweries per capita, according to the Montana Brewers Association.

Craft beer production increased 49 percent from 2010 to 2013, and there were more than $60.2 million in gross sales of craft beer in the state last year.

Brewery licenses are not limited through a quota system; instead, breweries are restricted through operating hours and tasting room sales.

Last legislative session, in 2013, saw both the MTA and the Montana Brewers Association butt heads significantly over further regulations being proposed to restrict breweries’ business abilities. A draft bill was created that called for stricter restrictions requiring many retail breweries to purchase a license – a special license would cost $100,000 – or limit their on-premise sales. The tavern association argued that breweries have taken advantage of their tasting rooms and turned them into legitimate drinking establishments. The proposal sparked outcry from most of the state’s breweries, leading to a nasty behind-the-scenes fight that spilled into the public eye. The bill was eventually dropped.

In the aftermath, a new coalition was formed involving members of the MTA and MBA, along with distributors and restaurants. The intent of the coalition was to forge a new relationship that would help the separate interests work together instead of continue the historical feuding.

The success of the coalition will be largely determined in the next few months as another legislative session approaches and a renewed debate over Montana’s alcohol laws likely resurfaces.

Will the varied sides work together and address concerns like those in Kalispell and among craft brewers and tavern owners? Or will the clashes reignite?

“I would hope it doesn’t happen again. I don’t think it’s good for our industry and I don’t think it’s good for either side, the brewers or the taverns, to be honest,” said Hope, who serves on the coalition.

“I think we have to look at this thing as whole industry and how do we manage this product that can be dangerous, because if we make mistakes, lives are in danger.”

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