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Minutes for HB2282 - Committee on Commerce, Labor and Economic Development
Short Title
Kansas liquor control act and retailer's licenses.
Minutes Content for Tue, Apr 4, 2017
The committee proceeded to deliberate on HB2282 - Kansas liquor control act and retailer's licenses.
Representative Davis moved, seconded by Representative Claeys, to amend the bill. (Attachment 1)
Chairperson Mason noted the following organizations submitted statements:
Whitney Damron, Kansas Association for Responsible Liquor Laws, Inc. (Attachment 2)
R.E. "Tuck" Duncan, Kansas Wine & Spirits Wholesalers Association (Attachment 3)
Ross Schimmels, Standard Beverage Corporation (Attachment 4)
Amy Campbell, Kansas Association of Beverage Retailers (Attachment 5)
Chairperson Mason asked the stakeholders if the organizations they represented were in support of the substitute bill for HB2282. The Chairperson said this legislation is a major fundamental change in more than sixty years of state policy for the sale of intoxicating liquor products and is likely to have a marked impact on Kansas retailers as well as new licensees that will be allowed to sell CMB and a stronger beer product. The substitute bill contains a requirement for ABC to conduct a market study and present its finds to the Legislature ten years following this bill's enactment. Does the organization you represent believe this is a reasonable timeframe to allow for the impact of this law on all licensees to be measured before the Legislature considers additional, substantive changes to state law regarding where alcohol products are offered for sale?
Whitney Damron, Kansas Association for Responsible Liquor Laws, Inc., said Yes.
Amy Campbell, Kansas Association of Beverage Retailers,, said Yes.
Tom Palace, Petroleum Marketers and Convenience Store Association of Kansas, said Yes.
Dick Stoffer, Hy-Vee, said Yes.
Representative Ruiz asked if distributors will be able to sell 5% beer. Representative Davis stated yes, it is by volume.
Representative Ruiz asked if the definition of cereal malt beverage would be changed. Representative Davis stated no; the substitute bill would not change the definition of CMB but clarify that beer at a certain volume can be sold at grocery stores.
Tuck Duncan, KS Wine and Spirits Wholesalers Association, stated there is no change of licensing to sell CMB as long as it is available, Starting on April 1, 2019, in addition to CMB, those license holders can sell beer not to exceed 6% and conversely liquor stores who can carry all beer can sell CMB.
Representative Carmichael referring to the neutral testimony of Debbie Beavers, Director, Alcoholic Beverage Control Division (ABC), that was given on February 14, 2017, where concerns were raised, such as Section 10 of HB2282, which has the potential to allow 10 or more convicted felons to own a liquor store, asked if any of those concerns still stood or if the proposed substitute bill addressed those concerns. Mike Heim, Assistant Revisor, stated that was a separate bill and her concerns would not be relevant to the substitute bill.
Ms. Beavers stated it is her understanding that the substitute bill did not change licensing requirements for CMB. Her concerns dealt with a new license type.
Representative Carmichael asked Director Beavers if, after reviewing the bill, she thought there was no changes being made in the qualification of ownership of the retail liquor store as she understood it. Ms. Beavers replied that is correct.
Representative Carmichael asked Director Beavers if any of the ABC's concerns remain in this substitute bill or have they all been addressed satisfactorily. Ms. Beavers said most have been addressed from the original bill. However, this bill is different, and not having time to thoroughly read it, ABC may have some concerns. For example, there appears to be some conflict with KSA 41-103 that declares CMB and alcoholic liquor be sold separately. Also, in the substitute bill where it says the Director shall have oversight over the sale of beer that may not be more than 6% Ms. Beavers was not sure what oversight would mean.
Representative Carmichael asked whether this substitute bill would still allow minors to be unsupervised with alcohol in retail establishments and whether there is anything that addresses this issue. Ms. Beavers stated that 18-year olds can sell CMB, but the substitute bill does not show that supervision would be provided.
Representative Claeys asked how the 20% limit on nonalcoholic sales would be calculated and what happens if someone, hypothetically, has 21% sales of lemons and limes. Ms. Beavers answered ABC would likely have to promulgate some rules and regulations. Currently CMB licensees have to meet the 30% food sales requirement. They send a report to ABC each time they renew their license.
Representative Claeys asked how often licenses are renewed. Ms. Beavers stated liquor licenses are renewed every two years and CMB licenses are renewed annually.
Representative Claeys inquired what would happen if a licensee does not meet the requirements. Ms. Beavers answered that currently the licensee would have to change to a private club license, in order to not have the food sales requirements; and at the end of the license term the licensee can reapply for a drinking establishment license and start over.
Representative Elliott asked how many liquor stores would add non-alcoholic merchandise to their stores. Whitney Damron, Kansas Association for Responsible Liquor Laws, stated many stores have party shops attached to their stores or they have retail space for those items; so many would add those items to their stores.
Representative Corbet asked what percentage of 6% beer makes up the sales revenue for a small store. Amy Campbell, Kansas Association of Beverage Retailers (KABR), stated that when looking at the 6% labels, one is looking at a vast majority of sales.
Representative Corbet asked how binding this 10-year agreement would be on interested parties and the Legislature. Ms. Campbell stated the Uncork proponents are on the record saying they endorse the 10-year moratorium on subsequent changes to the expansion of sales of alcoholic liquor, and they agree that that is a responsible expectation for retailers to have this change in the market place and know impacts are going ot occur within the liquor market. They would also want to hear legislators on the record saying it is legislative intent that the substitute bill would put this issue to rest for a period of time. As far as binding future legislatures or special interest groups that may come in and ask for these things, obviously there is not much that can be done to prevent that from happening.
Representative Carmichael asked if there are any reports that show how many small businesses will be put out of business. Mr. Damron stated he had not heard of any such reports, but there is no change without risk to businesses.
Representative Carmichael stated it has been commonly discussed that 200 businesses would be put out of business with this legislation. Mr. Damron stated it had been discussed.
Representative Carmichael asked Mr. Damron if his clients were mainly large businesses as opposed to mom-and-pop stores. Mr. Damron stated his clients are large, but it is hard to compete with national companies, such as Costco.
Representative Carmichael asked who are the businesses that are signatories to an agreement that has not been seen. Tom Palace, Petroleum Marketers and Convenience Store Association, answered his organization was part of a coalition made up of Quik Trip, Casey's General Stores, Walmart, Hy-Vee, and Dillon's. They have all agreed to the terms as described by Chairperson Mason.
Representative Carmichael asked if this agreement was in writing and had these companies signed it. Mr. Palace stated it would be a violation of anti-trust laws to sign such an agreement, but they have stated earlier to agree and follow the decision made.
Representative Phillips asked Ms. Campbell if there is a board of directors for her association and has it voted on this proposal. Ms. Campbell said there are 750 liquor stores in Kansas; the KABR represents 150-160 businesses. The board is divided into 12 districts that are geographically distributed across the state with 25 board members. Any retail liquor store can be on the mailing list without being a member, and they receive updates on what is going on. So yes, there are individual liquor stores that do not have the information but their email distribution list does. Additionally, information from the distributors was sent to every liquor store telling them that these conversations were happening in the Legislature.
Representative Phillips asked what the impact would be if the substitute bill did not pass. Ms. Campbell responded that she felt very strongly that the substitute bill was the best chance for Kansas to establish within its laws a 3.2 targeted solution that addresses the concerns from many members of the Legislature about the changes to 3.2 beer that are occurring over the next several years. The year 2019 is viewed as something of a policy cliff, and the fear is that the closer the liquor industry gets to 2019, the less leverage for a positive outcome in legislation.
Representative Clayton asked for clarification from Ms. Campbell about what was stated earlier regarding organizations signing something. It was mentioned earlier that future legislatures could not be bound, but is there a possibility that the legislatures would be bound to not take any action for the rest of the biennium. Ms. Campbell answered there is no way to design a limit that could not be overturned by the next legislature that wants to change the law. Ms. Campbell would prefer legislators to record their intentions behind this compromise because there is a long history of trying to create a record of legislative intent. It would not bind anyone, but it shows what the 2017 Legislature intended.
Representative Kessinger, observing that cigarettes are the number one sales and profit item in convenience stores and cigarette buyers buy more beer in convenience stores, and concluding the ability for a liquor store to sell cigarettes is sort of a balance or a wash, asked whether there are any consideration to adding cigarettes to off-balance the loss of beer sales to a grocery store. Mr. palace responded he is not aware of any study. He looked at the 20% of non-alcohol products that is separated by themselves. Tobacco and lottery sales would be over and above that. Normal tobacco sales are 35%-38% of convenience store sales. It is hard to give a number or determine how it offsets that number.
Representative Kessinger asked if cigarette sales are the most profitable for convenience stores. Mr. Palace would not say cigarettes are the most profitable. There are other items that have higher profit margins. He believe liquor stores would sell tobacco because it is one of the highest sellers.
Representative Baker asked if 3.2 beer is on its way out, observing it is not a convenience factor. Mr. Duncan answered that the direction of the industry is that the number of packaging will be reduced. Due to Oklahoma and Colorado changing their laws and Utah being the only other state that has not changed, 3.2 beer will be considerably squeezed.
Jason Watkins, Kansas Beer Wholesalers Association, stated its members have already received notices that the Oklahoma date is October 2, 2018 and Colorado is January 1, 2019. Shiner Bock and Corona Light will discontinue producing 3.2 beer. Anheuser Busch, Coors and Miller will be changing supply and distribution dates on 3.2 once Colorado and Oklahoma laws comes into effect.
Representative Baker asked if the larger chains would be coming out with a private label of beer. Mr. Duncan stated no; it must be offered to all licensees who sell that product in Kansas. Pricing will be a level playing field. There will be no pricing, no sales below acquisition cost plus tax, and the prices to all categories, all products, have to be the same.
Representative Whipple inquired if grocery stores that have restaurants which are licensed to serve alcohol would be prevented from selling strong beer. Mr. Duncan stated this will not change, licensing will not change.
Representative Seiwert asked if breweries start to do away with the 3.2 beer, will the small liquor stores be able to stay in business if the larger stores are able to buy in volume. Ms. Campbell stated small liquor stores are not selling 3.2 beer; so that is not an issue. When talking about the allocation of products that are more rare, such as Dom Perignon champagne, within the marketplace, it is true that if one is a smaller liquor store, that store is not likely to have access to allocated products. This substitute bill would not change this.
Representative Whipple observed that through a gentlemen's agreement, perhaps there would be no changes to the liquor laws in the next ten years. There could be piece of mind. However, since the agreement if unenforceable with the potential for unintended consequences, particularly for small liquor stores, the Representative asked what would happen if there was a violation to the agreement; would minor changes to the law be seen as a violation, and would the proponents of Uncork return to add wine. Mr. Damron said if legislation was introduced that attempted to alter where certain products were sold, it would be a difficult challenge for proponents to advocate for change. Every year there are liquor law changes, and changes in the ways products are sold would need to be discussed.
Representative Carmichael asked about legislative intent. Looking at the four documents presented from Standard Beverage, neutral; Kansas Wine and Spirits Wholesalers, neutral (deferring to the agreement of others); Kansans Association of Beverage Retailers, proponent; and Kansas Association of Responsible Liquor Laws, proponent, the representative asked where the record of legislative intent can be found. Mr. Palace stated the stakeholders went to the Chairperson to request it be put in the Committee's record as they had stated earlier in the meeting, stated they agree upon the resolution of the 3.2 issue.
Representative Terrell observed ABC to be barely supportive. Ms. Campbell stated her association was cautiously supportive; looking at this as an overall agreement, the issue about price discrimination is extremely important. The issue of ABC's role and the completion of rules and regulations are very important.
The Davis motion to amend passed.
Representative Carmichael moved, seconded by Representative Whipple, to amend the substitute bill. (Attachment 6)
Representative Claeys asked to hear from proponents and opponents regarding the price fixing proposed in the amendment. Mr. Duncan responded that Kansas had a minimum markup law, and New York patterned its law after Kansas. The U.S. Supreme Court determined that the New York law was unconstitutional and struck it down. Attorney General Robert Stephan wrote an opinion saying Kansas law was unconstitutional, and that law went to court in 1987 to enforce his decision (Stephan v. Lamb, 1987 WL 12158, decided February 28, 1987). Judge Rogers upheld the unconstitutionality of the minimum mark up. Mr. Duncan suggested the proposed amendment would jeopardize the substitute bill.
Representative Carmichael said the substitute bill, as currently written by the Committee, would put 200 liquor stores out of business. The purpose of his amendment is to give smaller liquor stores some coverage for their overhead and cost of labor, so they have money to continue selling their products. The difficulty is the large retailers can sell their nonalcoholic products for a little more and make beer their loss leader. However, the smaller liquor stores have to pay insurance, electricity, and wages out of their beer sales. His amendment attempt to keep those persons in business. The Representative expressed concern that the smaller liquor stores either were not supportive of this agreement or not made aware of it. If small liquor stores go out of business, the larger surviving liquor stores will increase market share due to less competition. At which point, Representative Carmichael predicted, the Legislature will be told it cannot wait for the conclusion of ten years because people cannot find wine in western Kansas without having to drive two counties over; then grocery stores will be allowed to sell wine and distilled spirits, ending the operations of all liquor stores.
The Carmichael motion to amend failed.
Representative Davis moved, seconded by Representative Claeys, to delete the contents of SB13 and insert the text for substitute HB2282.
Reed Holwegner, Legislative Research Department, explained the origins of SB13.
Representative Carmichael, a member of the Judiciary Conference Committee, said the contents of SB13 have been added to another bill.
The Davis motion to amend passed.
Representative Davis moved, seconded by Representative Claeys, the Committee recommend House Substitute for SB13 be passed.
Representative Claeys expressed his expectations that when administering this change in law, ABC would be corrective and not punitive when attempting to keep people in compliance. It would be inappropriate for people who have been liquor stores and suddenly find themselves licensed as a convenience store based solely upon certain types of sales.
Representative Carmichael stated the sale of liquor and strong beer is a serious matter. It should be strictly regulated and it would be his hope that ABC promulgate regulations in a fashion that requires strict compliance and penalties for non-compliance because diversion of alcohol to minors and others is a serious matter.
The Davis motion to recommend the passage of House Substitute for SB13 passed, with Representative Carmichael and Corbet voting no.
