Pints-On-Premises: Breweries Can Now Sell Beer On-site Without A Brew Pub License.

by / Tuesday, 02 June 2015 / Published in Blog

11536324_ml rsWe broke the news this past Friday that the regulation allowing Pennsylvania breweries to sell beer for consumption on-site without the need for a brew pub or other liquor license was going to become law on Saturday, May 30, 2015. We have been following this regulation closely since we first discovered it was being proposed this past October. Although the nearly eight-month time between when it was proposed and when it became law may seem like a long time, this regulation has been years in the making.

Some background:

Back in late 2011, the Liquor Code was amended. Prior to this amendment, the Liquor Code prohibited breweries from selling beer for on-site consumption unless the brewery held a brew pub license. The 2011 amendment changed the law to allow breweries to “sell malt or brewed beverages produced and owned by the [brewery] to individuals on the licensed premises for consumption on the licensed premises….” Seems pretty straightforward – the amendment suggests that breweries could serve beer for on-premises consumption for the past several years. However, the amendment also stated that sales of beer for on-premises consumption had to comply with the Liquor Control Board’s regulations. Unfortunately, the Liquor Control Board’s regulations only allowed beer to be consumed on-site if the brewery obtained a brew pub license or other retail liquor license. Consequently, despite the Legislature paving the way for on-premises beer sales back in 2011, it took over three years for the Liquor Control Board to fully implement it.

What has changed?

In short, a new section has been added to the Liquor Control Board’s regulations governing Pennsylvania Breweries (40 Pa. Code §3.93). The new regulations will allow anyone who obtains a brewery license to sell beer for consumption on the brewery’s premises. Breweries have been allowed to sell beer directly from the brewery for off-premises consumption for some time, but could not sell a pint to a visitor until now. Of course, there are some conditions that have to be met in order to sell on-site, including: (1) the beer can only be consumed between 10:00 am and midnight; (2) only beer produced and owned by the brewery may be sold (if the brewery produces beer elsewhere, it can still sell it at any one of its brewery locations; (3) the brewery has to have at least 10 seats; and (4) it must have basic food service available while beer is being consumed. The food service requirement can consist of, at a minimum, chips, pretzels, and other snack foods. One other thing to note is that if a brewery already has a brew pub, restaurant, or other retail license, it needs to follow the regulations for that particular license until it no longer holds such a license.

What’s the impact?

Immediately, breweries in planning will probably be impacted the most by this regulation. Brew pub licenses can cost between approximately $1,000 and $2,000, depending on where the brewery is located and what other permits it obtains. This might not seem like much, especially in comparison to the overall cost of a brewery, but that is money that can go a long way in other aspects of the operation. The most significant cost savings will be seen in the fact that a brewery will no longer need to create the food preparation facilities that are required for a brew pub license. Instead of needing at least 300 square feet and enough food for 30 people, a brewery can have a taproom with as few as ten seats and only chips and pretzels for food. While some brew pubs were able to save costs and still satisfy the food service requirement by simply using a hot dog roller and a microwave, reducing the food service requirement could save thousands of dollars. It would also likely mean a far less involved Health Department inspection.

For existing breweries with a brewpub license or other retail license, the impact is probably not very substantial as they still need to comply with the regulations governing the license they currently have. If they surrender or sell their license, then they could then take advantage of the new pints-on-premises regulation.

One potential big benefit for an existing brewery is that the Liquor Control Board has given its approval for breweries to sell pints-on-premises at their “storage” locations. See Advisory Opinion 2015-227. Each brewery licensee has the option of obtaining two “storage” facility licenses in addition to its brewery license. A storage facility is typically used to store materials and beer in order to free up space at the brewery. Breweries have been able to sell for off-premises consumption from these storage facilities for some time, though not many do so. Now, a brewery will be able to create “outpost” brew pubs using its storage facility licenses, as long as each “outpost” meets the requirements for on-premises sales (10 seats, snack foods, etc.). For example, if you own a brewery in Lancaster, but want to tap into another market somewhere else in Pennsylvania, you could apply for and obtain a license for a storage facility in that market and create a tap room there without the need to have another fully operational brewery. In other words, a brewery could potentially have three taprooms from just one brewery license. That could be significant for a brewery that wants to test the waters in a market before fully committing to expanding brewing operations there. Similarly, breweries have always been able to locate in “dry” municipalities; however, they were never allowed to obtain brew pub or other retail licenses. With this new regulation, it appears that a brewery could locate its operations in a “dry” municipality and have a tap room there by virtue of its brewery license. Whether or not that is a wise business decision is a different matter.

As with anything, there are some drawbacks to not obtaining a brew pub license. One is that a brew pub license allows the brewery to not only sell its beer but also wine produced by a Pennsylvania limited winery. Although it is probably not a large revenue stream, some breweries may find the costs of the brew pub license are more than offset by wine sales. A brew pub license also is capable of staying open later and obtaining an amusement permit. As of now, it is unclear whether the Liquor Control Board will allow a brewery to obtain an amusement permit. Without it though, a brewery is limited in its entertainment options for its taproom. For example, no live music would be permitted. Each brewery will need to weigh the pros and cons of obtaining a brew pub license, but at least there is now another option for serving consumers in Pennsylvania.

We will be following along to see if there is any additional guidance from the Liquor Control Board on the new regulations.