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Latest effort to change Minnesota liquor laws would leave grocery stores high and dry

By giving all the players in the state’s liquor industry — with the significant exception of grocery stores — something they want, the bill that surfaced last week in the state House might actually have a chance of passage.

Currently, brewers can have taprooms but they can only sell growlers and crowlers as long as they produce 20,000 barrels per year or less. The bill would increase the production cap to 150,000 barrels.
Currently, brewers can have taprooms but they can only sell growlers and crowlers as long as they produce 20,000 barrels per year or less. The bill would increase the production cap to 150,000 barrels.
Photo by Adam Wilson on Unsplash

Is there a five-year rule when it comes to changes to Minnesota’s strict regulation of alcohol? If so, it could suggest that a bill that surfaced last week in the state House might actually have a chance of passage.

It was 2011 when the Legislature passed the so-called Surly Bill, named after the brewer, which allowed for the sale of beer on site in taprooms. And it was 2017 (six years instead of five, but close enough) when the Legislature finally allowed private and municipal liquor stores to open on Sundays.

Now, five years after that comes House File 2767, a fledgling “Free the Growler” deal between key and formerly warring segments of the alcohol business in Minnesota that includes an agreement that none of the parties will return to the Legislature to significantly change Minnesota liquor laws for … five years.

Peace in the valley?

A year ago, House Commerce Committee Chair Zack Stephenson was criticized for not holding any hearings on bills proposing to change the state’s liquor laws. But the Coon Rapids DFLer spent the time between last session and this one traveling around the state and meeting with liquor store owners, brewers and distillers. The bill that resulted from those negotiations makes several changes to Minnesota’s rules, specifically around who can sell beer and spirits for off-site consumption — and in what amounts and in what packaging.

State Rep. Zack Stephenson
MinnPost photo by Peter Callaghan
State Rep. Zack Stephenson
“I think we’re on the cusp of having a really strong agreement,” Stephenson said Friday before the bill passed his committee 14-1. “This is a big step forward.” 

The bill “sets the stage not just for peace for one year but for a period of time — five years — where we can allow the liquor industry to grow and not be pounding down our doors … every year asking for changes.” 

The Republican lead on the committee, Rep. Tim O’Driscoll of Sartell, used what amounts to a magic phrase around the Capitol to describe the bill: “We may have peace in the valley,” O’Driscoll said, referencing a demand by legislative leaders that they’ll take up changes to the law only all of the different segments of the state’s liquor industry agree. Lawmakers are reluctant to referee industry disputes because many have support in all camps: small liquor stores; craft brewers and distillers; the Teamsters Union and wholesalers.

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Stephenson’s bill, however, gives all of the players — with a significant exception — something they want.

The makers of beer and distilled spirits, many of which are startups or small businesses, would get an increase in off-sale limits. Currently, brewers can have taprooms but they can only sell growlers (64 ounce glass jugs) and crowlers (32 ounce aluminum cans) as long as they produce 20,000 barrels per year or less. Since the Surly Bill passed, five brewers have surpassed the limit and had to stop selling beer to go: August Schell, Summit, Surly, Fulton and Castle Danger.

State Rep. Tim O’Driscoll
State Rep. Tim O’Driscoll
The bill would increase the production cap to 150,000 barrels, which is more than any Minnesota brewer produces, said Bob Galligan, the government affairs director for the Minnesota Craft Brewers Guild. A change for smaller brewers would allow them to sell to-go beer in 12 ounce cans and bottles, if they sell no more than 7,500 barrels a year. Slightly larger brewers — those with production of up to 13,500 barrels a year — could also sell to-go cans, but only until they have grown their production by 2,000 barrels from where they are when the bill passes.

Most of the 170 brewers in the state produce far less than these caps. Under the bill, Minnesota distillers would also be allowed to abandon smaller 375 milliliter bottles they were limited to under a 2015 law.

“Is it enough?” Galligan said. “It isn’t. But it is a step in the right direction and it is progress. Working together is ultimately going to benefit all tiers.” 

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Tiers refers to the state’s post-prohibition regulatory scheme designed to keep any segment of the industry — production, distribution and retail sales — from being too powerful. The Surly Bill was a hard-fought exception to the system, allowing a brewer to sell both on site and to-go beer to customers, and the other segments of the industry demanded limits on those activities for producers.

What do private and municipal liquor stores get? They block any changes that would let grocery stores sell wine and full-strength beer — and the knowledge that such competition will be kept at bay for at least five years.

Tony Chesak, the executive director of the Minnesota Licensed Beverage Association, which represents private liquor stores and many bars and restaurants, said he likes the Stephenson bill. “The biggest threat to independently owned liquor stores is big box, convenience grocery stores,” Chesak said. 

“No one is walking away with big smiles on their faces but no one is walking away disappointed either,” Chesak said. “It’s a good time for the industry coming off the COVID mess to allow some things to happen in the industry that we’ve never allowed before. We support one another instead of fighting every year. For 20 years it’s all I’ve been doing, it seems.”

The five-year moratorium on additional change does not restrict lawmakers from acting, however. House Minority Leader Kurt Daudt, who could become speaker of the House next year, is a strong proponent of letting grocery stores sell wine and full-strength beer. 

“Chair Stephenson’s goal, our goal, is to have a five-year cease fire,” Chesak said. 

The losers are advocates for grocery store sales who saw the other segments of the industry line up against that major expansion of liquor access.

“Minnesota is the very last state when it comes to modernizing 3.2 beer liquor laws, and unfortunately the House omnibus liquor bill fails to catch our laws up with consumer expectations, demand and today’s marketplace,” said Red, White and Brew MN, a coalition of the state’s retailers, grocers, service station and convenience store owners and operators. “It’s long past time to allow Minnesotans the convenience of picking up a six-pack of full-strength beer or bottle of wine at grocery or convenience stores.”

The reference to 3.2 is the state’s law that allows such stores to sell beer that is 3.2 percent alcohol by weight. (In the more-common measure of alcohol content, alcohol by volume, 3.2 beer translates to 4 percent alcohol.)

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While craft brewers and distillers support less regulation, they recognized that this deal helps them by solidifying the existing business relationship with liquor stores. “At the end of the day for us, we’ve been selling to these small stores for a long time,” Galligan of the craft guild said. “We’ve built up a relationship with them. We support liquor stores and we want to see all tiers grow.”

The Joint Council of Teamsters did not respond to requests for comment, but the union has told others involved in the deal that they will support it.

What about the state Senate? 

Senate Commerce Committee Chair Gary Dahms, R-Redwood Falls, has been an advocate of slow change in alcohol laws. Dahms, however, said he would look at so-called peace-in-the-valley deals by the industry players.

State Sen. Gary Dahms
State Sen. Gary Dahms
“I appreciate the work of the stakeholders to come to an agreement on these changes. While a lot has been done in the House, the Senate will take a thorough look at the House bill before we move forward on any decisions,” Dahms said in a statement. 

Senate Majority Leader Jeremy Miller said he had not yet read the House bill yet.

But there are members of the GOP caucus who support changing liquor laws, including Mark Koran, R-North Branch. “I’m a free market guy,” Koran said. He sees the regulation of grocery store sales, growler size limits and other restrictions as protecting the current system from competition. 

“It’s peace-in-the-valley for those who agree to lock out the others they won’t let in the valley,” is how he described a deal that blocks grocery store sales. 

Still, if the Stephenson bill reached the Senate floor it would win a majority of Republicans and a majority of DFLers. The Senate GOP, however, gives great latitude to committee chairs, so Dahms could decide not to hear the bill or not include it in the Senate omnibus bill.

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“It has majority support, it is just a matter of getting through the stranglehold of the chair to move on it,” Koran said. 

While not what he would prefer, Koran said the bill is a positive. “It’s dozens of incremental steps without fundamentally realizing that it should be a free, open and fair market,” Koran said.

Gov. Tim Walz
REUTERS/Brian Snyder
Gov. Tim Walz
Gov. Tim Walz has been supportive of helping craft breweries and distilleries in the past and last year suggested a summit of industry people to try to reach a deal. That is what Stephenson did, albeit more informally.

When asked about the issue Monday, Walz said he would think about once a deal on unemployment insurance funding and bonuses for pandemic frontline workers is reached. “I’m glad they’re multitasking, but let’s do the essential workers and the UI and then move on to the growlers,” Walz said.