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May 26, 2023

New Jersey lawmakers consider 'White Claw tax,' easing brewery restrictions and other liquor law changes

These bills are competing with a larger legislative package from Gov. Murphy; both sides are aiming to change the state's Prohibition-era rules

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New Jersey's proposed 'White Claw tax' would impose a $4.40-per-gallon tax on flavored, malt beverages, like hard lemonades, wine coolers and alcoholic colas. But there is concern the bill is not worded narrowly enough. Another would lift limits on food and events at craft breweries, wineries and distilleries.

Assembly lawmakers heard debate on Wednesday about state rules that cap how many liquor licenses New Jersey municipalities can award to bars and restaurants, part of a larger fight to loosen the state's Prohibition-era liquor license laws.

The Assembly's oversight and reform committee weighed several bills that would alter those rules, a package competing with Gov. Phil Murphy's more expansive proposal to increase the number of available liquor licenses statewide.

The package includes measures to allow municipalities to auction off excess retail licenses to their municipal neighbors, create a new type of license allowing food courts to serve alcohol and lift event and food restrictions on craft alcohol manufacturers.

The committee discussed but did not vote on other measures that would drastically raise taxes for hard seltzers, lemonades and similar products and allow towns to lower the retail license population limit through an ordinance.

Pocket license transfers

Restaurant groups, restaurateurs and other industry officials hailed a bill sponsored by Assemblyman Joe Danielsen (D-Somerset), the committee's chairman, that would allow municipalities to snag liquor licenses from their neighbors for use in redevelopment areas.

They said allowing transfers of pocket licenses— a type of inactive license that is not tied to any establishment — would enable a smoother transition that would not disrupt existing license holders' investment.

"We strongly believe that the existing pocket licenses that are out there are the first step of the solution," said Sam Weinstein on behalf of the NJ Liquor Store Alliance. "If we need to continue to go further and make other reforms afterwards, we can have that conversation, but at this point in time, folks are emerging from COVID … We can't rock the ship too much."

Existing license holders fear expanding the pool of available licenses would cut the value of the ones they hold. The state's strict regulatory regime has pushed the cost of licenses into the hundreds of thousands or, in some cases, millions of dollars.

But those who favor expanding the overall number of available licenses said allowing them to be traded across municipal lines would do little to improve access for less wealthy business owners.

"One or two additional licenses in a high-demand community will still sell at the prevailing price," said Courtnay Mercer of Downtown New Jersey, which advocates for downtown commercial areas. "Releasing a small number of licenses will provide no opportunity for those with limited means to get into the game when the going price is half-a-million to well over a million in these communities."

The change would do nothing to help towns surrounded by those facing a similar dearth of licenses. Even some municipalities whose neighbors have licenses to spare would see no benefit, she said, suggesting the bill be amended to allow license transfers within a county.

There were 626 pocket retail licenses in the state as of early May, according to monthly licensing reports released by the Division of Alcoholic Beverage Control.

Danielsen said he'd consider amendments to allow licenses to be transferred to downtowns that are not part of a redevelopment area. The committee approved the bill unanimously.

Population limits

A familiar dynamic emerged around Danielsen's proposal to relax the state's limit of one retail license per 3,000 residents, with existing license holders worried about their licenses losing value and fearing they would be unable to compete once more licenses flood the state.

"By decreasing the population count to get more, you're putting my personal loan at jeopardy. You're putting my home at jeopardy. You're putting my family at jeopardy," said Anthony Calandra, owner of Calandra's Bakery, who said he paid $3.8 million for a liquor license in Caldwell and holds two pocket licenses.

Danielsen's bill resembles Murphy's proposal to ease liquor license caps. The assemblyman's legislation would allow municipalities to pass an ordinance that would phase that limit down to one license per 2,000 residents over five years.

The governor's proposal, which is sponsored by Sen. Gordon Johnson (D-Bergen) and Assemblyman Raj Mukherji (D-Hudson), would decrease the limit by 10% each year — first to 2,700, then to 2,430, and so on — before eliminating the caps altogether after five years.

Murphy's proposal, unlike Danielsen's, includes tax credits to compensate for the loss of value existing licenses, though those one-time credits would reach a maximum level $50,000, a level license holders have derided as inadequate.

Mercer, who also spoke on behalf of the New Jersey Liquor License Reform Alliance, said compensation is key but added license prices must be brought down.

"I feel bad that he had to pay $3.8 million. He's proving the point. Nobody should have to pay that much," she said of Calandra. "It's a license. It's permission to do something. It's not a commodity. You shouldn't be retiring off of it."

More than 110 New Jersey municipalities have fewer than 3,000 residents, per the 2020 census, and are afforded no plenary retail liquor licenses under existing law, though some restaurants there may hold historical licenses outside of the current regulatory regime.

Roughly 80 towns have populations of fewer than 2,000 and would see no changes to the number of licenses they could award even after the five-year phasedown allowed by Danielsen's bill.

The White Claw tax

Numerous witnesses raised concerns about a bill that would impose a new $4.40-per-gallon tax on flavored, malt beverages like hard lemonades, wine coolers and alcoholic colas.

They pointed to definitions in the bill they said would inadvertently capture a deluge of other alcohol products.

"The problem with that definition in this proposed legislation is it captures everything. It captures any beer with added flavoring, any seltzer with added flavoring," said Mike Halfacre, executive director of the Beer Wholesalers Association of New Jersey. "It would capture everything from Blue Moon to Voodoo Ranger to Juice Force."

He added that taxing certain seltzers — like White Claw, which is brewed in a process similar to beer — would put the state out of alignment with federal alcohol regulators and those in other states.

New Jersey taxes beer at a rate of $0.12 per gallon, roughly 37 times lower than the proposed rate for alcoholic malt beverages.

Christine Montorio, business agent for Teamsters Local 469, said the bill, as written, would likely cause layoffs, furloughs or hour reductions at a Newark Anheuser Busch facility whose workers the union represents.

Danielsen, the bill's sponsor, said it's not finalized.

"We're looking at it. We'll continue the conversation. Your testimony, from everyone, is well heard and it's not falling on deaf ears," he said.

Lifting brewery restrictions

A bill lifting limits on food service and events at craft breweries, wineries, distilleries and other craft alcohol manufacturers advanced without much conflict, though some in the restaurant industry again aired concerns that the loosened rules could push them out of business.

"It's like the elephant's being eaten a bite at a time, and we wonder when the whole elephant's going to be gone," said Michael Perro, director of operations at the P.J.W. Restaurant Group.

Dana Lancellotti, president and CEO of the New Jersey Restaurant and Hospitality Association, said her organization has drawn a hard line at allowing craft manufacturers to run their own kitchens, which the bill does not allow.

The legislation would remove ABC regulations that cap craft manufacturers to 25 events per year, bar them from offering most food items and even manage the size and content of their televisions.

The bill heard Wednesday would allow breweries and similar establishments to coordinate with food trucks and restaurants to make food available to patrons.

Brian Kulbacki, owner of Jersey City's Departed Soles Brewing Company, said brewers and traditional license holders don't have to compete.

"There are three liquor licenses on the block of my brewery. All three of those holders carry my beer. All three of those liquor license holders contacted you over the last 48 hours supporting this bill," he said. "In Jersey City, we view each other not as competition. We work together."

The committee approved the bill in a 3-to-1 vote. Assemblywoman Kimberly Eulner (R-Gloucester) voted no, while Assemblyman Brandon Umba (R-Burlington) abstained.

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