Very Important:  KABR Members – Please Join the KABR Teleconference Friday, March 31 at 12:30 p.m.    Dial 1-877-278-8686 and enter code 809216. Please mute your phone until you need to speak.  

Update on 3.2 Discussions

Conversations with grocery and convenience stores regarding the 3.2 issue took a jump forward yesterday when Uncork representatives changed their position regarding a moratorium on future liquor expansion legislation. 

The retailers groups have said that they are willing to explore a solution to the anticipated changes in the 3.2 cereal malt beverage market but would need assurance that the Uncork proponents would not be pushing further liquor deregulation in the near future.

Spokesmen for Walmart and others initially insisted that such an agreement would be a violation of federal anti-trust laws – restriction of trade.  KABR asserted that retailers would need to anticipate a stable regulatory environment for a significant time period. 

Now it appears that the proponents may be willing to state on the record (before the committee and in the committee records) that this 3.2 proposal satisfies their legislative agenda and they would agree that a ten year timeframe is reasonable to allow for the impact of the new law on all licensees to be evaluated and reported by the Division of ABC – before the Legislature considers additional, substantive changes to state law regarding where alcohol products are offered for sale.

KABR proposed language ordering the Division of ABC to submit a report to the 2027 Legislature (in ten years) in order to establish that timeframe.  That report would include numbers of licensees on an annual basis over ten years, tax revenue/sales numbers from CMB and liquor products, density issues – impact on rural markets, social impact – DUIs, theft, etc.

Other issues in contention are:

• 5.0 or 6.0 Alcohol by Volume beer sales allowed for cmb retailers. Uncork requested 8.99 ABV – the Oklahoma law.  The beer wholesalers indicate that the number should be 6.0 ABV.  The Committee Chairman’s recommendation was 7.5%, but he has indicated he had picked up that number from conversations and is not committed to it.  (Liquor retailers sell CMB.)
• Allow liquor stores to sell other products, up to 20% of their sales could come from these other items.  Tobacco and lottery would be allowed, but not considered part of the 20% calculation. This was proposed by the Chair. Convenience stores oppose the tobacco portion, but will consider it for the implementation date.
• Implementation date:   Retailers suggest implementing the law in 2020, but Uncork insists it needs to happen by or before January 1, 2019.  The Oklahoma law begins October 1, 2018 and the Colorado law begins January 1, 2019. CMB retailers have been told that the supply of 3.2 will be in doubt by 2019 because of these law changes.  Read more about this below.
• Moratorium suggested language – “Do the members of Uncork 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?”
• Rules and regulations amended to apply price nondiscrimination rules across licenses (i.e. for CMB and liquor retailers).
• Division of ABC will have authority to implement rules and enforce them in CMB outlets.
• No CMB retailer could sell for less than acquisition cost plus applicable tax except as otherwise provided by law and rules.
• Distributors request provision to establish minimum order quantities by case or dollar value.
• Distributors request provision to grandfather CMB and strong beer franchises as of January 1, 2017.
• Wine is removed from the legislation.

The discussions have been directed and facilitated by the Speaker of the House and the House Commerce Committee Chairman.  The Speaker would like to see a public committee hearing scheduled very soon.   Things are moving quickly and KABR will keep you informed.

Is 3.2 Really Going Away?

We have had the opportunity to speak with many KABR members over the past 2 weeks who ask this question. KABR has not adopted the belief that 3.2 is going away.  Utah and Minnesota have not changed their statutes, and brewers will be making products for those states and for the large sports venues that serve lower alcohol beers.  Read the article.

We do know, however, that the Speaker of the House and other legislators have decided that the decreasing availability of 3.2 products, and the variety of packages, is an issue they want to resolve.  Read the Anheuser-Busch letter being passed around the Capitol.  Numerous legislators have told us that they will support our opposition to Uncork liquor expansion, but they expect the Legislature to address 3.2 supply concerns for CMB retailers.   

Some legislators and others have suggested that craft brewers might be willing to fill any gaps that might show up on CMB outlet shelves, but of course, the major CMB retailers are interested in the volume products that have the advertising power of the big brewers behind them.  See note from Minhas and City Brewing.

The discussions that have occurred between the retailers organizations and Uncork have focused only on this 3.2 question.   The primary motivation for this work is to be able to dictate the terms of the discussion rather than negotiating a surrender to a legislatively engineered proposal that would look like many of the broad facilitated “compromise” proposals we have seen in the past.     

If the proposal at hand is approved, it would be a Kansas solution that maintains separate sale and licensing for limited alcohol content beer in CMB outlets and and higher alcohol content beer, wine and spirits in the state regulated, Kansas owned independent liquor stores for the near future.  Kansas would not take the route being taken by Oklahoma expanding beer and wine sales and the Colorado model expanding sales of all beer, wine and spirits.   

It is a risk management question for retailers, and one that KABR takes very seriously.

In Other News

Today, the House passed HB 2362 on a vote of 96-28.  The bill establishes a $20 modernization fee on license applications and renewals for the Division of ABC to use for online technology maintenance and upgrades.

Today, the House advanced Sub HB 2277 to final action Monday.  The bill creates common consumption areas designated by cities and counties.

Yesterday, the House Committee on Taxation passed HB 2395 –establishing a flat income tax rate.

Today, there will be more meetings held to discuss the Uncork bill and whether or not there might be a negotiated solution for the 3.2  issue.  These meetings were requested by the Speaker of the House and House Commerce Committee Chair.

These meetings are exploring the possibility that there could be a negotiated solution to the “crisis” expressed by the grocery and convenience stores – that changes in Oklahoma and Colorado are reducing the 3.2 products available for sale on their shelves and this will only get worse as these neighboring states implement strong beer sales in 2018 and 2019.

Discussion Concepts:

• Resolve 3.2 concerns by allowing grocery and convenience stores to sell beer products up to 5.0 or 6.0 ABV (alcohol by volume) – effective date delayed until 2019 or 2020
• Wine sales removed from the bill – not included
• Moratorium on liquor expansion legislation for ten years
• Allow liquor retailers to sell other products, including tobacco and lottery – sales of other products would not exceed 20% of overall sales except that tobacco and lottery could exceed the limitation
• Create a new definition of beer products between 3.2 ABW (same as 4.0 ABV) and 5.0 or 6.0 ABV that can be sold by both liquor retailers and cmb retailers – and include both types of retailers in the price nondiscrimination regulations for distributors   See list of products with ABV (limited)  See list 2 of products with ABV (some other than CoorsMiller and AB)

Lobbyists have been asked to meet in the office of the Speaker of the House this afternoon.

All KABR members are encouraged to participate in the KABR Teleconference at 4:30 p.m. TODAY for an update from these meetings  Call 1-877-278-8686 and enter code 809216.  Please mute your phone.  We will have an opportunity for questions and comments after the update.

Many of you have emailed your input and that is much appreciated. 

HB 2366 – Keg Registration   Read HB 2366.
This bill has not passed the House Federal and State Affairs Committee, but we expect it may be amended onto one of the following bills on the floor of the House.

Sub for HB 2277 – Common Consumption Areas    Read a description.  Read Sub for HB 2277

The bill was introduced by the House Committee on Local Government at the request of a representative of the City of Lenexa. In the House Committee hearing, a representative of the City of Lenexa and a representative of the League of Kansas Municipalities (LKM) testified in support of the bill. Written-only proponent testimony was submitted by the Lenexa Chamber of Commerce and a Lenexa business owner. Proponents stated creating a place for citizens to enjoy others’ company and to participate in civic, cultural, and social life is part of Lenexa’s Vision 2030 plan and the City intends to accomplish these goals by constructing the Lenexa Public Market, a city building that would allow the sale of alcoholic beverages and the sellers would have booths or kiosks rather than enclosed shops.  The concept is that people could carry their beverage with them throughout the common consumption area. 

The Committee established a subcommittee in order to create a bill that could allow this and also provide for liability for the holder of the common consumption area permit and the various licensed retailers or restaurants within the area.  The issue is somewhat controversial because there are other developers with an interest in allowing people to carry alcoholic beverages outside of licensed premises through areas of a city, including streets and sidewalks, and the licensed retailers would prefer to not be liable for the actions of customers once they leave their licensed premises.  The bill would allow this.

This bill continues to make licensees responsible, while allowing for the common consumption areas when a city or county passes an ordinance to allow it.  There are other requirements in the bill, including that each licensee would have to request permission to participate.

HB 2362 – ABC Modernization Fee   Read a description.  Read HB 2362.

Creates a $20 per license “modernization fee” for the Division of Alcoholic Beverage Control to be paid for each license application or renewal.  The bill would reduce the initial application fee for a liquor license from $50 to $30 plus the $20 modernization fee. The $20 modernization fee also would be added to the renewal application fee, which would remain at $10.  Fee sunsets in 2022.  “All moneys credited to the alcoholic beverage control modernization fund shall be used by the department of revenue only for the purpose of funding the replacement of the work processes, computer hardware and software and related equipment associated with the division of alcoholic beverage control's functions related to licensing, permitting and case management and supporting administrative processes, including maintenance, operation, repair and upgrade of such computer hardware, software and related equipment.”  Passed by the Committee on Appropriations March 22.

Meetings are being held to discuss the Uncork bill and whether or not there might be a negotiated solution for the "3.2 issue".  

Where We Are Today:

HB 2282 was referred to House Appropriations Committee instead of receiving a committee vote at the end of February.  The House Speaker asked Chair Les Mason to convene the retailers with Uncork supporters to develop a bill that could go to the full House.

KABR members have seen this top-down pressure before.  In spite of the hours of discussion we have given the issue in the past, Uncork proponents complain that retailers never bring solutions and just say no.  

At this point, no one knows what will happen with the bill next.  It seems that the Commerce Committee members are relatively solid in their view of the bill.  We do not know if leadership intends to move the bill through alternate channels, but we are aware that this issue is likely to pop up as a floor amendment to other bills. 

Certainly, the overall landscape has changed.  With Oklahoma and Colorado adopting major liquor law changes since May of 2016, many legislators are telling us that the 3.2 issue will need to be solved.  We continue to dispute whether or not there is any crisis coming at all.  Legislators have received the message that 3.2 retailers are going to have problems putting 3.2 on their shelves - and will have fewer products to sell after Oklahoma and Colorado implement changes in their beer laws.

Meetings:

Last week, at the request of the committee chairman, Amy Campbell, KABR, and Whitney Damron, KARLL, met with representatives of the convenience stores and Uncork, as well as both the Wine and Spirits Wholesalers and the Beer Wholesalers, to go over a list of amendments or "starting points" suggested by the chairman.   Read the chairman's proposed amendments here.  The chairman's suggestions are only a starting point for discussion.  Key concerns were discussed, including the level of alcohol by volume (ABV) of beer products recommended for sale to replace the potential loss of 3.2 products, a delayed implementation date, and how trade practices and distribution laws would apply to retailers who currently sell CMB and do not operate under the same rules.  The group is scheduled to meet again.  

Over the years, KABR has held numerous discussions about how these bills work or do not work.  Moving forward, Kansas retailers are facing the risks associated with the actions of our surrounding states with Beer and Wine sales given to grocery and convenience stores in Oklahoma, and Beer, Wine and Liquor Sales expanded to grocery in Colorado.  

It is fortunate that most legislators appear to be indifferent to copying these states.  However, there is legislative pressure to address the concerns about 3.2.

KABR will continue to participate in these meetings.  Members are encouraged to join our bimonthly teleconferences or to communicate with our lobbyist or President as we move forward.  

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Amy Campbell, Lobbyist  785-969-1617 Email Lobbyist

Brian Davis, President 316-990-1425  email Brian