Starting a Craft Brewery – The Regulatory Process, Part 2

Craft beers

Part 1 of this series discussed the State licensing process for establishing a brewery.  However, the California Department of Alcoholic Beverage Control (“ABC”) will not issue a license until the applicant can show municipal or County zoning allows a brewery at the chosen location.  In many places, this prerequisite is often not a simple yes or no proposition.  Rather, whether zoning allows the use is often subject to a “discretionary” process and permit.  In other places or instances, even if zoning allows the use by right, the local authorities still require a discretionary process before the ABC will issue a license.

The most common municipal or county regulatory process for establishing a brewery or brewpub is for a permit typically referred to as a conditional use permit (“CUP”).  Not all cities require a CUP, and some only require it when the brewery intends to engage in targeted activities such as direct sales to consumers. As with the ABC process, the CUP process is what is referred to as a “discretionary” process, which means that the decision maker (typically a hearing officer, planning commission, or city council) has the discretion to approve, deny, or conditionally approve a CUP application based on the individual facts of the application. The CUP application process often requires a public hearing involving notice via mail, publication, and/or posting of the public hearing date.  When an application is “conditionally approved” (typically the only type of approval), the permit includes written conditions such as restrictions on hours of operation, quantities of sale, noise generation, and just about anything that the decision maker feels will address the concerns of the community.  Most CUP hearings include the right to appeal to a higher government body.  CUP application fees can vary widely. For example, San Diego requires an $8,000 deposit and bills its staff time to the applicant.  Typically the fees exceed the deposit.  Other cities charge flat fees closer to the $1,000 range.

Another local regulatory process is what is often referred as the “public convenience or necessity” finding (PCN). This process is required when the business plans to have direct sales to the end consumer for consumption away from the business premises (off-site consumption or off-sale). Additionally, this process is only required when a license is proposed for certain census tracts in which crime is greater than 20% above the city average or when there are more than a certain number of licenses in proportion to the population of the census tract. However, as a practical matter, most commercial areas fall into this category even though state law ominously designates these census tracts as having an “undue concentration” of licenses. In these circumstances, the California ABC requires a determination that a license will serve the “public’s convenience or necessity.” For businesses planning on off-sale, state law delegates this finding to the “local governing body” or it’s designee. Such designees can range from Police Departments to Planning Departments depending on the city. Some cities combine this process with the CUP process so that the granting of a CUP automatically conveys a favorable PCN finding. Other cities forgo a CUP process and have only a PCN process, with varying degrees of formality, ranging from an informal sign-off to a full blown application and public hearing process. At least one city (San Diego) has separate sequential PCN and CUP processes, which are largely redundant and very time consuming and expensive – but only applicable to businesses planning consumer off-sales.

As mentioned, the foregoing permits are “discretionary permits,” making the processes time consuming and expensive. The ABC license is also a discretionary license, especially when planned for an area of “undue concentration.” However, other “ministerial” permits and licenses will also be required ranging from local health department permits to labeling permits from the Bureau of Alcohol Tobacco and Firearms (ATF). Ministerial permits are granted when an an applicant complies with specific regulations and requirements, and do not require a hearing nor allow an agency discretion to conditionally grant the permit.  Accordingly, such pemits are not as expensive or time consuming as discretionary permits but such permits, e.g., a health department permit, can require expensive construction modifications and equipment.

A good place to start is by placing a call to the local ABC which advise which city or county agency must be contacted first for the locale at issue.

About William Adams

Attorney at Norton, Moore, & Adams, LLP.
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