Three Commonly Misunderstood Concepts About California Alcoholic Beverage Licensing

The laws concerning alcoholic beverage licensing in California have their roots in the prohibition era. As such, they can seem old fashioned and counter-intuitive. In my practice as an attorney with 25 years of experience advising restaurants, hotels, grocers, and convenience stores about alcoholic beverage licensing, conditional use permits, and other regulatory land use entitlements, the following three points of confusion are the most commonly misunderstood concepts:
1. California Alcoholic Beverage Licenses Are Owned By People But The License Rights Belong To The Land (Location):
People opening businesses involving the sale of alcoholic beverages in California often believe that once they are approved for a license they can simply move their license to another location and have all the rights they had at their old location – Wrong.  It is true that an ABC license belongs to the person (including business entities) and, unlike a conditional use permit (“CUP”), not the land. (CUPs are municipal permits; Alcoholic beverage – “ABC” – licenses come from the state) However, whether the license owner will be allowed to sell alcoholic beverages, and if so how,  is based on the specific location. For example, even if the license is allowed at a particular location, it may be restricted in many ways such as hours of service, whether live entertainment or dancing will be allowed, and many other common restrictions. Once issued and conditioned at a particular location, the license entitlements apply only at that location. In fact, if the license owner closes its business at that location, a new license owner may bring in a different license of the same type within 90 days, and acquire all the rights of the previous license. The application for the new license receives an expedited process, which is largely clerical and non-discretionary. In contrast, the previous licensee, upon attempting to relocate his license, will have to go through the same difficult discretionary process as when he or she first applied for the license.  Thus, ownership of an alcoholic beverage license and the right to sell alcoholic beverages (and how) are two very different things.  License ownership is just a first step.
2. Full Liquor Licenses in California Cost Big Bucks; Beer and Wine Licenses are Free:
California alcoholic beverage licenses allowing for the retail sale of “spirits” are limited in number by statute. Retail beer and wine licenses are not. Therefore, full liquor licenses have a market value based on supply and demand. While the purchase price of such licenses can vary widely, they are usually in the tens of thousands of dollars (significantly more if tied to a location with valuable entitlements). The ABC conducts an annual drawing (commonly referred to as a license “lottery”) for a limited number of new full liquor licenses. However, the terms “drawing” and “lottery” are misleading because they are not free. Rather, these licenses require purchase prices that, although typically lower than actual market value, are nevertheless supposed to be based on prevailing market values. In contrast, beer and wine licenses have no separate market value. Thus, an applicant for beer and wine need only pay the license application fees ($650), and any professional fees he or she wishes to incur.
3. New Applicants for California Alcoholic Beverage Licenses Do Not Have a Right To Be Treated Equally Compared To Prior Applicants:
In my California law practice, one of the most common mistakes people make is assuming that one license in an area justifies another, i.e., that it serves as a precedent. They apply their notions of fairness and equal treatment. However, alcoholic beverage laws are concerned with the welfare of the community rather than the individual license applicant. These laws start with the premise that a concentration of licenses is bad for the surrounding community. Accordingly, if a community already has a night club, it is less likely to need another – at least in the eyes of the Department of Alcoholic Beverage Control (aka “the ABC”) and local law enforcement and planning agencies. Typically, the earlier license applicants have an easier application process than do later applicants. State law uses a formula based on population and crime rate per census tract to determine how many license are justified in an area. Typically, this number is low relative to modern urbanized standards. After this number is met, an applicant for a new license must prove a need for the license based on “public convenience or necessity.” Often, this burden of proof can be met. However, if the area has a particularly high crime rate or number of retail licenses, there may be an actual or de facto moratorium on new license applications.

Applying for a license  can be a time consuming and expensive process. Without realistic expectations, funding, and expertise, it can doom a venture to failure. An experienced alcoholic beverage license application consultant or attorney can be very helpful in the process.

About William Adams

Attorney at Norton, Moore, & Adams, LLP.
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