Category Archives: Compliance

NALCP Conference in New Orleans: Great First Day

NALCP Conference in New Orleans: Great First Day

We just wrapped up the first day of the educational programing for the National Association of Licensing and Compliance Professionals (“NALCP”) Conference in New Orleans!  Who dat?

The first day’s agenda was packed with interesting content.  Most notably for the Pacific Northwest, Rick Garza–the director of the Washington State Liquor and Cannabis Board–discussed trade practice issues that have recently come to light in Washington.  He described the Board’s renewed focus on trade practice issues in Washington resulting from both recent occurrences in Washington and trends nationwide.

In short, licensees at all three tiers in Washington should consider themselves on notice that the Board will be investigating how they interact in marketing and promoting their alcohol beverage products.  For example, Washington retailers should be wary of receiving money or money’s worth from suppliers or distributors unless clearly covered by a statutory exception, or letting suppliers or distributors take a material role in determining the marketing or arranging of alcohol inventory at their location.  These are just two examples of potential trade practice related issues.

After focusing on the role out of cannabis in Washington for the last several years, Washington licensees should be prepared for a renewed focus by the Board on alcohol regulatory compliance issues.

Now, the conference turns toward its social agenda for the evening.  Northwest Alcohol Law is the proud sponsor of Colin Lake–the musical entertainer for tonight’s meet and greet.  We’re then heading to John Besh‘s Borgne for dinner followed by a night cap at Legacy Kitchen.  Let me know if anyone has a suggestion for late night entertainment in NOLA.




Cautionary Tales for Suppliers and Distributors Playing Fast and Loose with Trade Practice Laws.

Cautionary Tales for Suppliers and Distributors Playing Fast and Loose with Trade Practice Laws.

Spoiler alert. Violating trade practice laws can be expensive, both at the federal and state level. Suppliers and distributors should be cautious in the pushing the boundary in their business practices and promotional efforts. Just because everyone else seems to be doing it won’t be a defense when you are the company that is the subject of an investigation.

Both suppliers and distributors have been in the news recently for alleged trade practice violations. What’s eye catching are the large dollar amounts involved in the settlements: $300,000 and approximately $2.6 million. Amounts that make paying attention to what sometimes can appear to be laxly enforced and esoteric trade practice regulations matter. Interestingly, one settlement is at the federal level and the other at the state level.

The first example centers around the US’s largest brewery—Anheuser-Busch InBev (“InBev”) and reflects action at the federal level.

The Alcohol and Tobacco Tax and Trade Bureau (the “TTB”) recently accepted a $300,000 offer in compromise from InBev. The settlement stemmed from allegations that the company violated Federal Alcohol Administration Consignment Sales provisions under FAA Act 27 USC Section 205(d).  The prohibition is drafted expansively.

More specifically, the TTB alleged that InBev violated the prohibition on alcohol suppliers and distributors from selling their products with the ability of the retailer to later return them. In the TTB’s summary of the offer in compromise, the TTB claimed that violations stemmed from A-B’s Shock Top Lemon Shandy and Shock Top Pumpkin Wheat Ale “end of season buy-back co-op programs.” The program resulted in nearly 541,000 cases being sold to wholesalers last year.  For the math challenged, that breaks down to a fine of about 55 cents a case.

The second cautionary tale comes from Massachusetts.

The largest distributor of craft beers in Massachusetts entered into a settlement and will pay a fine of 2.6 million dollars to avoid a 90-day suspension of its liquor license. Such a sanction will be a record-setting penalty in the state. The basis for the sanction was that the company was caught paying retailers to stock its alcoholic beverage products.

An investigation by the Massachusetts Alcoholic Beverages Control Commission found that the distributor—Craft Brewers Guild of Everett—ran a “pay-to-play” scheme in violation of state alcohol laws for years. Its sales representatives and managers routinely gave retailers in the Boston area thousands of dollars in exchange for stocking beers from Craft Brewers Guild and keeping out products from competing wholesalers.

The company had the option of either serving a 90-day license suspension or paying a fine instead. The sanction was reportedly in the ballpark of $2.6 million.  The Company is likely holding its breath for a call from the TTB.

Long story short here, while enforcement of certain trade practice prohibitions can appear to be uncommon and, thus, unlikely, the magnitude of the repercussion should be front and center when considering entering a grey area, or even a not so grey area. Further, what appears not to be an enforcement priority today can quickly become tomorrow’s top enforcement priority. Staying in compliance with state and federal law is the best practice.

The TTB Issued New Guidance on Kombucha

The TTB Issued New Guidance on Kombucha

The TTB continues to be interested in kombucha.  The federal agency recently published new guidance.  The term “kombucha” refers to a fermented beverage produced from a mixture of steeped tea and sugar, combined with a culture of yeast strains and bacteria.  Some kombucha products also have fruit juice or other flavors added during production.  The combination of sugar and yeast triggers fermentation, which may produce a kombucha with an alcohol content of 0.5% or more alcohol by volume. The TTB is the federal agency that regulates alcohol in the United States and it’s that last issue that has garnered the TTB’s attention.

Kombucha is increasingly popular and hitting more shelves everyday. Manufacturers are lining up to take advantage of the opportunity, but must be mindful of the special regulations that apply to beverages that contain alcohol, or may contain alcohol at some point. The way in which kombucha is made naturally produces alcohol and sometimes in amounts that rise above the 0.5% threshold that triggers regulatory requirements. In such cases, the manufacturer must have the appropriate state and federal permits in order to make and sell the kombucha.

Kombucha can be classified as a beer or wine depending on the primary fermentable ingredient. It would be classified as beer if the predominant fermentable material is sugar or a similar sweetener. It would be classified as wine if the predominant fermentable material is fruit or fruit juice as the fermentable material. Both beer and wine products must also comply with the TTB’s and FDA’s labeling requirements.

The following TTB chart highlights the analysis that each kombucha manufacturer must go through to determine if their kombucha is actually an alcoholic beverage.

Kombucha is AT OR ABOVE 0.5% alcohol by volume at any time

Correct TTB Regulations

Kombucha is NEVER at or above 0.5% alcohol by volume during production, at time of bottling, or after bottling

Correct TTB Regulations

Of course, it’s not so simple because even if the product leaves the manufacturer under the 0.5% limit, the threshold can still be met if the kombucha continues to ferment in the bottle.

In short, a manufacturer must have the appropriate federal and state permits before producing kombucha that contains more than 0.5% alcohol. At the federal level, such a manufacturer would need a Brewer’s Notice if the kombucha is classified as a beer or a Winery Basic Permit if the kombucha is classified as a wine. The manufacturer will need the corresponding state permit also—typically a brewery or winery liquor license respectively.

In addition to the new permitting and labeling requirements, the status of a kombucha product as an alcoholic beverage will also change how the product is distributed and sold at retail.  Navigating the alcohol regulatory environment is truly an adventure.

The TTB Suspends Pending Wine Growler Rulemaking

The TTB Suspends Pending Wine Growler Rulemaking.

Good news for Oregon licensees selling wine growlers.  The TTB has suspended its pending TTB Ruling 2014-3 entitled “Bottling Taxpaid Wine in Growlers or Similar Containers for Consumption Off of the Premises.”

In short, the ruling held that the filling of growlers with taxpaid wine for consumption off of the premises (in plain English, “to go”) was a bottling activity subject to the taxpaid wine bottling house provisions of the Internal Revenue Code of 1986.

Thus, the ruling held that businesses filling wine growlers were required to meet a number of requirements:

  1. Apply for approval as taxpaid wine bottling houses,
  2. Label their growlers,
  3. Keep certain records, and
  4. Comply with other regulations regarding their operations.

The end result would be mountains of extra paperwork for licensees and the TTB with virtually no public safety or protection of revenue benefit.  For more information, see my earlier post on the subject.

The TTB was likely inundated with negative feedback from industry members across the country, but particularly Oregon, including from U.S. Senator Ron Wyden.  As a result, the TTB backed away from the ruling, but tried to save face at the same time by stating that “our existing regulations were intended to cover traditional taxpaid wine bottling activities, rather than the filling of wine growlers.”  Agreed.

As a result, the TTB will now engage in formal rulemaking on this issue to “modernize” their regulations on wine growlers.  This will allow the TTB to balance protecting revenue (which was never at stake since the vast majority of wine growlers are being filled by retailers using taxpaid wine) without unduly burdening businesses that want to sell wine growlers (as with beer growlers, just get out of the way).  The rulemaking process will enable all interested parties to provide input.  Expect plenty of input.

Fearless prediction–the TTB’s rulemaking will clear the way for wine growlers across the country.  Wine growlers–great wine with less environmental impact and for less $$$’s.  Everyone wins.


OLCC Priority Violations

OLCC Priority Violations.  There are 1000’s of licensed businesses in Oregon.  This can be great for Oregonians, but can present a real challenge to the OLCC in terms of monitoring them for compliance.  The OLCC must decide each day how to allocate its enforcement officers and focus its efforts across the state.  In order to maximize the effectiveness and coverage of their enforcement efforts, the OLCC focuses on a subset of licensed businesses and a subset of violations.

Licensees can benefit by understanding how the OLCC prioritizes their efforts.

That doesn’t mean that the OLCC is simply turning a blind eye to other businesses or violations.  For example, the OLCC’s minor decoy program involves visits to randomly selected businesses across the state.  In addition, even if a violation is not a “priority violation,” the OLCC may still take action if the violation is discovered.

The OLCC typically focuses on businesses with documented compliance problems.  The compliance problems may be documented from calls for service from local law enforcement, citizen complaints, or prior warnings or violations from the OLCC.  The take-away for licensees is that they should operate their business in a manner that minimizes calls for service and citizen complaints.  And, maybe even more importantly, licensees should take note if their business starts getting visits from local law enforcement or starts to receive citizen complaints.  These may be early warning signs of problems and provide a licensee with an opportunity to take corrective action BEFORE the issues develop into problems with the OLCC.

The OLCC also has identified what it considers priority violations and include the following:

Category I Violations

• Failure to maintain liquor liability insurance or bond (see Section 200L)
• Licensee convicted of a felony
• History of serious & persistent problems (HSPP)
• Restriction violation
• Unauthorized interest in a business (involves an unlicensable person)
• Operating while suspended

Category II/II(a) Violations

• Interfered with investigation
• Material false statement
• Under the influence of intoxicants on duty
• Failed to call police at Inspector’s request
• Denied Inspector/police officer access to premises (during business hours)
• Failed to promptly admit Inspector/officer (when premises is or appears closed)
• Unlawful drug activity on the licensed premises (II(a))

Category III/III(a) Violations

• Failed to verify the age of a minor
• Permitted minor to consume alcohol
• Sale to VIP
• Allowing VIP to consume alcohol
• Permitting disorderly activity
• Permitting unlawful activity

Licensees should understand the nature of these violations and be vigilant to ensure that they do not occur at their business.  Well drafted house policies, ongoing training efforts and trustworthy management and staff are essential to operating a profitable and compliant licensed business in Oregon.

How Can Barbershops and Salons Give Clients Free Beer and Wine Without a Liquor License?

How Can Barbershops and Salons Give Clients Free Beer and Wine Without a Liquor License in Oregon?

Many barbershops and salons offer this clients free beer and/or wine before, during, or after their service in Oregon.  In many states, this would be illegal unless the business had a liquor license.  Some barbershops and salons in Oregon have liquor licenses that allow them to sell beer and wine to their clients, but that is typically more the exception than the rule.

The OLCC allows business that do not sell food or beverage for on-premises consumption to provide beer and wine free of charge to guests. You primarily see this at barbershops, salons, spas, etc., but there is no reason that an art studio or other business that did not sell food and beverages could not do this provided that they complied with the requirements.

The requirements are as follows:

  1. No sales or charges for the wine;
  2. Wine must be provided to anyone in the business without discrimination.  In other words, there business cannot require that a customer make a purchase to obtain the free beer or wine.  In practice, although such a business must make the beer or wine available to anyone that walks in the door who asks, it typically is limited to customers by virtue of non-customers being unaware of the requirement.  That being said, there is the possibility for abuse;
  3. The business cannot sell food and beverage for on-premises consumption.  Such businesses need to have a liquor license;
  4. The provision of beer or wine at no cost cannot serve as an inducement to purchase entertainment or other services.  In other words, the business cannot offer a one hour service or class for $20 with all you can drink, and then at the end of the service or class, offer another class for $20 with all you can drink, etc.  The provision of free beer or wine must truly be incidental to the primary business which is not food and beverage related.

Any business considering offering free beer or wine in this manner should carefully develop policies for how to do so in compliance with Oregon law and regularly train their staff to ensure that the business does not expose itself to liability.  Such business practices can garner the attention of local law enforcement, the OLCC, or neighborhood associations and can result in regularly problems or general liability if not done correctly.

To see if a barbershop near your offers free beer, you might want read this article.

Can Licensees in Oregon and Washington “Comp” Drinks?

Can Licensees in Oregon and Washington “Comp” Drinks?  The answer is yes, but …

“Comp” drinks can be a useful tool for licensees in some situations.


While comping drinks is okay under limited circumstances in both Oregon and Washington, advertising “free” drinks or having business practices or promotions involving “free” drinks is generally prohibited.  The OLCC and WSLCB will scrutinize any such program and licensees should take to stay within the rules.

In Washington, comping alcoholic beverages to guests is permitted under limited circumstances, such as:

  1. For special occasions, such as birthdays or anniversaries;
  2. To compensate a guest for a bad meal or poor service; or
  3. To allow the guest to taste the product before purchasing it.

Importantly, free alcohol cannot be used or advertised as a business promotion.

In Oregon, comping alcoholic beverages to guests is permitted under similar circumstances.  That being said, businesses should be careful about establishing sound policies and practices around “comping” drinks to avoid abuse.  For an interesting take on this, read a blog post from Jeffrey Morgenthaler here.

However, advertising free alcoholic beverages is generally prohibited.  Also, alcoholic beverages cannot be offered for free as a “prize” or similar.  Generally speaking, licensees should be mindful of promotions or advertising that involve any reference to “free” and should confirm that they are permitted before moving forward with the program.


Can an OLCC Licensee Accept a Canadian Driver’s License?

Can an OLCC Licensee Accept a Canadian Driver’s License?

Acceptable Forms of ID. Under Oregon law, licensees may accept only the following forms of identification alone as proof of age:

1. A valid state driver’s license with a photo;
2. A valid ID card issued by a state with photo, name, date of birth, & physical description;
3. A valid passport; or
4. A valid U.S. military ID card.
ORS 471.130

Foreign Driver Licensees. The OLCC interprets the word “state” in ORS 471.130(1)(b) to include driver’s licenses issued by US territories and states/provinces of foreign countries including Canada and Mexico. However, if a licensee cannot determine from the license the person’s age or whether the ID is a valid/authentic license from another country, the OLCC recommends that the licensee require another form of ID such as a passport.

The Licensee Assumes the Risk. In short, a licensee takes on the risk when it accepts a foreign driver’s license as the only evidence of age. If it turns out the identification is not authentic, the licensee is at risk of receiving a violation from the OLCC. For this reason, some establishments will not accept foreign driver’s licenses as a matter of policy, but they will accept passports. Generally speaking, most out-of-country visitors to the United States should have a valid passport that they used to gain entry to the US and that can be used as proof of age.

Take Away and Best Practices. In summary, a licensee can accept foreign driver’s licenses as proof of age, but it likely involves more risk because it is more difficult to determine if a foreign driver’s license is authentic or not. If a licensee decides to accept foreign driver’s licenses as acceptable identification, a best practice is to require a manager sign off to ensure that there are at least two sets of eyes on the identification. In addition, or alternatively, a licensee may decide to accept only foreign driver’s licenses for a limited number of countries, such as Canada and Mexico, and obtain resources that describe these forms of identification. The ID book that you currently use may include a section on some foreign forms of identification.

Age Verification Equipment: Should You Agree to Use It to Resolve an OLCC Violation?

Age Verification Equipment (“AVE”): Should You Agree to Use It to Resolve an OLCC Violation?

The AVE Option. ORS 471.392 allows the OLCC to use AVE as a tool to reduce underage drinking and helps licensees demonstrate that they are responsible business owners. OAR 845-009-0140 allows a licensee to purchase and use AVE in lieu of a civil penalty or suspension for a first sale to a minor or failure to verify age violation. If a licensee did not select the AVE option for a first violation of this type, the OLCC may give a licensee the option to buy and use AVE to partially offset a civil penalty or suspension for a second violation. A licensee can only use this option one time at a particular licensed location.

Process for Selecting the AVE Option. The licensee must notify the OLCC within 15 days of receiving a Notice of Violation of their intention to get and use the AVE. Licensees must be using the AVE within 30 days of receiving the Notice of Violation. Licensees should carefully review the Notice of Violation and diligently follow the instructions listed in the Notice.

AVE Is For Life. Going forward, the licensee must use AVE at every point of sale used to sell alcohol, and the equipment must be used at each point of sale as long as the licensee owns the business. Failure to use the AVE equipment can result in an aggravated penalty for future violations of this type and possible removal from the Responsible Vendor Program. There is no process for eliminating this requirement from a liquor license other than a change of ownership at the location. In other words, a licensee is agreeing to use the AVE at the location as long as the licensee operates at the location and is subject to aggravated penalties for any subsequent violations if the AVE is not appropriately used. In addition, the licensee will need to pay for upgrades or otherwise insure that the AVE meets the OLCC’s standards for the same time period.

AVE Equipment. The AVE must meet all of the following standards:

(a) The equipment must trigger an age verification process or the equipment itself must verify the age. In either case, the equipment must indicate to the licensee or employee if the customer is of legal age to purchase alcoholic beverages;

(b) The equipment must have a memory function and must be capable of producing a hard copy printout of the results of any verification transaction within the last seven days, either directly from the equipment or through a computer;

(c) The equipment must be able to perform the age verification function for identification from all states in the United States, via either the equipment reading the identification automatically or manual entry of the information; and

(d) The equipment must have the capacity to be updated or upgraded.

Final Verdict. Licensees should carefully consider whether or not AVE is right for them and their business. And, even if using AVE at the business makes sense, licensees should determine whether it makes sense to be permanently bound to using AVE going forward. The short term benefit of an elimination or reduction of a sanction may not outweigh the potential long term burdens of complying with the AVE requirement. Determining how to respond to an OLCC violation requires careful deliberation. Even if settlement is the right option, the details of the settlement matter. In addition, when determining how to respond to an OLCC violation, it is essential to consider the longer view. AVE may not be the best option for all licensees. Understanding your options, what to expect going forward, and how best to ensure future compliance is essential to your business’s continued success when operating in the heavily regulated alcohol regulatory environment.

OLCC Minor Decoy Operations: Recent Results for Troutdale, Oregon

The OLCC uses minor decoy operations to ensure that licensees are vigilant about not serving alcohol to minors. The OLCC and local law enforcement use minor volunteers ages 17-20 who look under the age of 26 to attempt to buy alcohol at licensed locations. If asked for identification, the minor decoy will show their own valid Oregon identification, which indicates that they are underage. Minor decoys do not disguise their real age or encourage the sale of alcohol. Minor decoys may not lie about their age, but can be evasive in their response to direct questions. For example, if asked if they are 21 years or older, a minor decoy can say “it says it right there on my identification.”

The OLCC selects businesses for minor decoy visits on a random and targeted basis. Businesses that have a documented compliance problem may be targeted.

A typical minor decoy operation involves a single minor attempting to purchase an alcoholic beverage with one or two undercover OLCC inspectors or local police officers nearby to witness the sale or non-sale, but the OLCC may use other setups (such as two minor decoys, etc.).

Licensees that fail a minor decoy operation are subject to a category III violation and need to think carefully about their options. The penalties for each successive category III violation within a two year period increases with the suggested penalty for a third involving a mandatory suspension and license cancellation for a fourth. Licensees that fail a minor decoy operation are often revisited at some point to determine if compliance is still an issue.

The OLCC just announced its latest results for Troutdale, Oregon in which seven out of nineteen licensed premisses failed. For more information about the results of recent minor decoy operations, click here.