The Liquor Quota System, a Montana Relic, Must Go

by Cowgirl

In most of the United States, a liquor license for a restaurant costs only a few hundred dollars, or a few thousand at the most.

In any major city in Montana, a license can cost as much as a $1,000,000, and rarely will cost less than $500,000.  Many Montanans are not even aware of this.

Montana has a “quota system” which severely restricts the number of liquor licenses in each county.  We are in fact one of the only states in America still operating such a regime, which has been in place since the decade following the repeal of Prohibition when liquor was still considered an evil that must either be kept illegal or else heavily controlled by the state.  That was the thinking 70 years ago.  Today, the system today is defended only by its beneficiaries, who have become wealthy under it and must protect their interests.

When you want to open a restaurant or bar in Montana you are required to purchase a liquor license from a private party who already owns one.  In other words, you must hope that somebody is ready to close down their establishment, so you can buy a license from them.  The state rarely issues new ones, and so in our large cities there are only a few dozen licenses in existence (hence the “quota”), a number that has barely increased over many decades, not at all keeping pace with the growth of population and commerce. The licenses are thus ferociously expensive, worth a thousand times their weight in gold.

For example, when Famous Dave’s opened a few years ago in Kalispell it paid $965,000 for a liquor license.  The Red Garter casino in Helena paid $650,000 in 2011.  Famous Dave’s is a chain and can absorb the cost. A casino can also afford it because full gaming privileges come with the license. But a small entrepreneur who wants to open a little place and have a full bar in the restaurant? Forget it.

It is the opposite of what we might call a progressive policy.   It is a private market kept artificially inflated, by which anybody seeking to open a restaurant must buy into a quasi-monopoly, created and perpetuated by state government, for an outrageous price.

The supposed justification for this policy, the preposterous fiction behind it, is that the drinking of alcohol might get out of hand, might become a huge societal problem, if there is an abundance of locations where citizens can buy a drink.  And therefore it must all be carefully controlled. As you can see, the policy does not work very effectively.  Statistically, Montanans drink more, and drink and drive more, than citizens of most other states.

Everybody, even the participants in the scheme, admits that there is no real purpose to the policy other than protectionism.

License-holders are desperate to keep the system as is.  I suppose I have some sympathy for them.  Some bar and restaurant owners paid peanuts for their licenses decades ago and these licenses are now worth a fortune on the market.  These players have made life financial planning decisions around this.  Others bought their licenses more recently and had to literally take out a mortgage to afford it.  Either way, license-holders cannot afford to see Montana convert to a normal system like 95 percent of America.  It would cost the license holders (known collectively as Tavern Owners) dearly.

Tavern owners, via the Tavern Owners Association, thus push hard at the Montana state legislature to keep the law as is, and also make donations to help legislators and other politicians get elected.  Lobbying by tavern owners includes much more than simply trying to prevent a tearing down of the quota system.  Other reforms are also opposed, sometimes successfully, sometimes not.

For example, in recent years there have been efforts by the legislature to  loosen certain rules so as to allow brewers and distillers to serve their products, beer and whiskey, on the premises.  Tavern owners have fought hard against all of these.  Sometimes they win, sometimes they lose.

Economically, the system creates a sizeable hardship for small businesspeople, namely for aspiring restaurateurs.  The rule of thumb in the restaurant business is that one must generally expect to make 50 percent of revenue from serving booze.  And even then it’s brutally tough to succeed.  As somebody once said, the restaurant business is like owning an elephant.  It costs a fortune, and will eventually shit on your head.  Now add to this challenge the additional expense–an upfront, three-quarters-of-a-million dollar fee for the right to do business– and you can see that Montana is a very tough, nearly impossible, place to try your hand at opening a place of your own.

This may be why Montana does not have quite the gourmet food scene that has bloomed in other places in the West.  In Portland, Oregon a license costs $350.  In Missoula it costs almost $900,000.  If you were an aspiring, talented chef, considering moving somewhere in the West to open a place, you would not view Montana with trepidation?

On the other hand, the Olive Garden or Chili’s have large corporate parent companies that can easily plunk down the money for a license, and amortize the cost over many years. Though even some of these players refuse to spend the money to buy the license when the going rate has gotten too high.  Some cities, sadly, have no Outback, Chili’s, Buffalo Wild Wings or TGI Fridays.  ~Sigh.~

It’s also why so few independent new restaurants succeed.  Think of some of the establishments that have gone bust in Helena, after trying to serve foul tasting slop for exorbitant prices. (Then again, think of such places that are succeeding–they share liquor licenses or have large corporations behind them, or provide gaming).

To fix our system, current license owners would have to be compensated in some fair way.  Simply opening the system up and dragging down to zero the value of something that was purchased for hundreds of thousands of dollars would be unfair.  There would have to be some compensation, some scheme to phase out the quotas.

It might as well be now.  Maybe we can have a bipartisan legislative overhaul.  Or maybe a ballot initiative, taking the question directly to voters.   Certainly the quota system does not fit the dogma of any political party.  Republicans purport to believe in free enterprise and in protecting business from the yolk of burdensome regulations.  Democrats believe in this too, but also in affirmatively fashioning policy so that large, monied interests don’t get a leg up over ordinary people.  And both parties profess a great interest in “economic development,” which I take to mean the opening of new businesses, especially small businesses (or “Main Street” businesses, as our politicians like to say) on which communities depend and thrive.

And who in Montana might serve as the public face of such an initiative?

We’ve been hearing from Max Baucus’s camp lately that Max is not only a major advocate for small brewers (he’s the head of the Senate Brew Caucus, in fact), but is also not afraid to stand up to tavern owners.  So perhaps this is an historic opportunity for Max, to do what’s right for Montana. Heck, if he brought down the quota system, I might even consider voting for him.

At any rate, there was one positive development this week.  Tavern owners tried to get a few of their buddies in the legislature to pass a law against Bringing Your Own Booze to a restaurant.  It went down in flames.

This was a nice rumbling.  Maybe an earthquake is coming.

Posted: March 11, 2013 at 6:43 am

This post was written by Cowgirl

30 thoughts on “The Liquor Quota System, a Montana Relic, Must Go

  1. Drunks for Denny

    Excellent post, Cowgirl. You hit the ball out of the park on this one.

    If we come up with a means to compensate license holders, this should be supported by everyone left of the extreme religious right.

    I have always thought that there should be a way to transfer the liquor license to become more of a gaming license, to use the license as a means to control the number of establishments with poker and keno machines.

    Montana’s liquor laws are as wacky as Mississippi’s.

  2. W.H.

    I’ve always believes that his was one of the things stopping Montana from being a world -class tourist destination. Well this and our rash of casinos and pawn shops. Who would want to open a nice place here if they can’t make money without taking out a bank loan for a state license. The BYOB problem is absurd too. The tavern owners donate a lot of money in political races however- and apparently they get what they pay for. It would be interesting to see who’s getting how much.

    1. pc

      Not even the entire state of hawaii is a world class tourist destination. Thank God the entire state of Montana isn”t because then you’d probably be bitchin about the crowds.

  3. Norma Duffy @Ilikewoods

    Got some friends who want to move here from California to retire, ones a Cordon- Blu Chef in San Francisco… The other owns a small group of great gormet Hamburger joints in the Bay…. they checked out the Liquor license BS here, and decided they will retire on the west coast. Neither want to sink that kind of money. Our state could use their talents and the extra Jobs made by them and wont get the chance.

    The Liquor license fiasco was the very reason.

    1. pc

      So how is this cordon blu chef going to get the money for the rest of the his restaurant that he wants to retire on? He could have just as much money backing him as chili”s or applebees. This state has many talented chefs (and restraunteurs) that have played by the rules, put in the time, and taken the leap in purchasing and liquor license. So are we supposed to just lay down and take the blow because your friend wants a restaurant. Many have survived and thrived on beer and wine alone and unless you have a reasonable way to compensate liquor licence owners who actually did pay the price (without big corporate money), then i’m sorry, i do not feel you or your friend’s pain.

  4. Right and Proud

    Well folks, maybe Democrats may want to check their ledger. The owner of Lucky Lil’s, who owns about $40 million worth of liquor licenses, gives big, big, big money to the Democrat party. Tavern Owners are usually big Democrats.

    1. Staunch

      Cause Democrats never, ever disagree…..wait….what?
      Not sure this has anything to do with party affiliation. Rather it has to do with the affluent vs. average jane and joe.

  5. Dave Lewis, Helena

    The biggest opponents to change are the bankers. They have mortgages on every liquor license in the state. Unless you want to Pay market value for the licenses we have, there is no way to change the current system. We have met the enemy and it is 70 years of Montana history.

    1. Jack Ruby

      Sure there is a way to do it Dave, you simply put out a bill and vote for it. When you say “there is no way to change the current system” what you really mean is you don’t have the stones to vote for it because you are the shoe shine boy for the banking and tavern lobbys right? Giving somebody a mortgage is nothing more than betting on their credit worthiness to repay the mortgage, they are just greasing you to try and make sure their bets dont go bad.

      1. pc

        You do that and a lot of people will get screwed for investing in a system that gave them no choice. Your comment leads me to believe that you think everyone with a liquor license has lots of money. You are wrong. It’s called debt, used to make the business grow and prosper….as long as you are not affected, right?

    2. Larry Kralj, Environmental Rangers.

      PUT THAT SUCKER ON THE BALLOT, DAVE! Just like you Pubbies are doin’ with everything else! Let the voters decide. Me, I already have. LET THE BOOZE ROLL!

      1. Larry Kralj, Environmental Rangers.

        Methinks that Dave would be afraid to put this one on the ballot! But it’s all ABOUT FREEEEEEEEDUMB!, and Montana history! Let Montana be Montana! We’re a hard livin’ hard drinkin’ people! Allow us to be free!

        I propose a ballot referendum allowing ANYone to hawk booze!, as long as they are tall enough to reach up on the bar!

          1. Larry Kralj, Environmental Rangers.

            Um, yeah. I won’t question you intellect, but you SERIOUSLY don’t know your conjugations, do ya? That’s real sad. Here, I can help.

            Methinks Wethinks
            Youthinks
            He/she/ithinks Theythinks

            There. Hope that helps!

            bwhahahahahahahahahahahahahaa!

            Next up, Ebonics!

            I be bad. We be bad.
            You be bad.
            He/she/it be bad! They be bad!

            And actually, in the subjunctive, this is correct in English too! I’ll let you work on that one a bit before commenting.

    3. Drunks for Denny

      Cowgirl wrote:

      “To fix our system, current license owners would have to be compensated in some fair way.”

      Dave Lewis then wrote:

      “Unless you want to Pay market value for the licenses we have, there is no way to change the current system.”

      I think we are talking compensating the license holders for market value. The cost to the taxpayers for this one time event would easily be offset by revenue gains from new businesses coming to Montana in a few years. This doesn’t have to be difficult,

    4. captbobalou

      It seems to me that a new liquor license fee structure could work something like this:

      New licenses: $1500 per yr. to sell beer/wine/liquor for 3 years. No limits on how many could be purchased and by whom. $1000 would cover state admin costs, $500 would be put into a pool to reimburse existing liquor license holders.

      $50/yr. for a servers license: all employees handling alcoholic beverages would have to have a license to do so, take an online course/pass a test, every year, to teach compliance with liquor distribution laws.

      Existing license holders could choose to either get reimbursed, or have their current licenses converted as pre-payed at the going rate X years into the future. Owners would be reimbursed based on the price they paid for their license, (not the cost they speculate that the current license would make on the open market).

      The current laws keep retail stores (groceries, pharmacies, coffee shops, movie theaters) from selling any kind of alcohol they want, and serve only to keep the quality and quantity of Montana’s restaurants and performance venues down. One only need to visit places (e.g Oregon, Washington) where liquor licenses are both inexpensive and well regulated to see the benefits of allowing low-cost dispensing of alcoholic beverages. Further, compare those states with places that have done this for a while (France, Italy) and compare their vibrant nightlife with what passes for nightlife here in Montana.

      As for the banks holding the mortgages of the relatively few bars/restaurants that currently hold full liquor licenses (and even beer/wine licenses): I suspect their portfolio would greatly expand as opportunities to open small restaurants and performance venues increase.

  6. Tony

    A point missed in this post is that an out of state entity cannot own more than one license (meant to protect local business) so those famous daves stores are actually franchises owned by montana residents. Not sure this argues for or against your point but certainly an important piece of the story.

  7. Matthew Koehler

    Ochenski took the Montana Tavern Association to task in his weekly Missoulian column yesterday. Also, sort of ironic that the GOP complains about too much government and getting government out of our lives, but if you want to drink a local pint of beer at your local brewery produced with local Montana ingredients the GOP says “No dancing and no peanuts for you!”

    http://missoulian.com/news/opinion/columnists/george-ochenski-bill-is-designed-by-tavern-association-to-cripple/article_2b786cbe-89ff-11e2-80c0-0019bb2963f4.html

    Of course the Tavern Association’s draconian positions extend far beyond the craft brewery businesses, as this post about the liquor quota system shows.

    Fact is, they help stifle the growth and development of many other local businesses, including the restaurant industry, which often needs revenue from beer, wine and liquor sales to keep their doors open (and purchase fruits, veggies and meats directly from Montana farmers and ranchers).

  8. pc

    Question for cowgirl: Imagine you are a restaurant business owner, and you had an opportunity to buy a full liquor license at today’s values to enhance an existing restaurant that is competing with many others who have already taken “the leap”, would you do it? And if you did, would you then defend it against de-valuation knowing the fiscal consequences of a simple law change? Please try to put yourself in our shoes before you respond, and exclude the assenine bill to outlaw brown bags in framing your thoughts….most restauranteurs dont care about a few brown bags.

    1. Drunks for Denny

      I am not Cowgirl…although I may occasionally may play one on TV. ;)

      The question isn’t about devaluing the licenses. The question is about crafting a bill that pays fair market value to the existing license holders as we transition to a new and better system.

      Geesh. I thought I was making myself (and cowgirl’s) point emphatically clear in my previous response to Dave Lewis’s post. What part do you not still understand? I really would like to know, so we can work on the communication issue here.

  9. ldillon

    I completely agree that all of the liquor licenses are getting sucked up by casinos, chain restaurants and those with deep pockets. Small innovative clubs don’t stand a chance.
    How about we allow only the current liquor licenses to have gambling (to protect the value of the license) and start issuing non-gambling, non-transferable, full-beverage licenses at a reasonable cost of $500?

  10. W.H.

    Good lord please do not involve congress- that will make it worse — I think old max is just blowing hot air. He’s good at that.

  11. captbobalou

    Some other points not mentioned in the article:

    1) Liquor license restrictions not only impact the number of smaller, independently owned restaurants, but also the operation of music venues and thus the availability of live music. Helena is a great example of having an abundance of professional bands who have very few places to play locally. Most bars with full liquor licenses don’t have a space to perform (they’re taken up by gambling machines); and places that don’t have full liquor licenses can’t afford to pay bands what it costs to host them.

    2) The cultural consequence of restricting liquor licenses is that nightlife, one of the cornerstones of towns and cities, is restricted to venues where people have to get in their cars and drive to, reducing foot traffic in downtown areas and leading to rather significant increases in drunk driving rates. Compare liberal license state dui/dui fatality rates (e.g. Oregon/Washington) with Montana, and you’ll see that their DUI rates are less than 20% of ours. I don’t think this is because their citizens are inherently more law abiding, I think it’s because they don’t have to drive as far to indulge in their nightlife.

    3) Liquor license restrictions also affect the ability of supermarkets, pharmacies, and non-traditional venues (theaters, fairgrounds, special events) from making money on alcohol sales. One of the driver’s for Washington state’s recent license liberalization was Costco, who saw a missed business opportunity and financed much of the lobbying that went on to rationalize their licensing regime. Likewise, non-tavern owners in Montana could be a possible source of support for liberalizing Montana’s alcohol licensing laws.

  12. Jesse

    The liquor licensing scheme is sham. Just look at the places in Missoula operating multiple bars with a single license. For example, the Badlander, Central, Palace, and others I cannot even name operate with a single license. Likewise, the James Bar and Al and Vic’s have a single license. Don’t get me wrong, I love the James Bar, but it only goes to show how truly messed up the system is.

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