A (Small) Step Forward For Virginia Distilleries

Silverback Distillery CEO Christine Riggleman.

Silverback Distillery CEO Christine Riggleman.

Virginia distillers continue to labor under some of the worst distilling laws in America, but their outlook is set to get (at least slightly) better. Virginia has the the 3rd highest distilled spirits taxes in the country, requires all liquor sales to take place through government-run liquor stores, and restricts the amount of tastings and servings a distillery can provide to on-premise visitors to a mere 3 oz. of spirits.

Even worse, the state’s notorious “NET 30” payment scheme requires distillers who sell their own bottles in their tasting rooms to send 100% of the proceeds of the sale to the Virginia Alcoholic Beverage Control Authority (ABC). Then, only 30-45 days later, ABC sends back the distiller’s portion (which amounts to a mere 46% of the sale price after Virginia’s high mark-ups and taxes are factored in).

Unsurprisingly, this antiquated process creates tremendous cash flow problems for craft distilleries since they are not even able to touch the money they derived from bottles sales until over a month later. To add insult to injury, the state also charges distilleries handling fees even for bottles sold inside the distillery (and thus handled exclusively by the distillery’s own employees).

Despite these burdensome rules, the state legislature has been resistant to even small changes to the law. Finally, this year, a modest step forward was achieved. An effort led by Silverback Distillery CEO and Founder Christine Riggleman resulted in Virginia lawmakers passing legislation that ends the NET 30 payment scheme and eliminates on-site handling fees (although the law doesn’t take effect until 2020). The team reached out to Riggleman, whose distillery is located in Afton, Virginia, to get her reaction to the news.

“[The legislation] allows us to have the working capital on-hand to meet demand,” Riggleman said. “With the flow of tourism and customers, you can’t predict always what the demand for the products will be, so you need the funds on-hand to be able to gear up for busier times.” Riggleman specifically cited the need to have adequate cash flow to invest in bottles and labels in preparation for periods of heightened sales, like around the holidays—something that is hard to do when the Virginia ABC holds their sale proceeds for over a month.

While Riggleman was relieved that her efforts resulted in real change, she was quick to note that more work remained to bring Virginia’s laws on distilled spirits in line with how it treats beer and wine. “This is just a band-aid; I still want full parity [with beer and wine],” Riggleman said. “We’re still hemorrhaging every month in Virginia trying keep up with customer demand as well as all the laws.”

In fact, Silverback Distillery recently opened a new production facility in Pennsylvania rather than expanding in its home state of Virginia. Riggleman noted that, in contrast to Virginia, Pennsylvania has no on-premise tasting limits and even allows distilleries to serve beer and wine.

Ultimately, Virginia will need to continue to grapple with the fact that its many Prohibition era laws are continuing to hamstring a promising growth industry. Hopefully Riggleman’s efforts will lead to more Virginia distillers joining the push for reform.

(R Street’s Jarrett Dieterle has previously profiled Christine Riggleman and her family’s experiences dealing with Virginia alcohol laws).

Virginia Passes Legislation to Phase Out Dry Counties


Virginia is one of a handful of states that continues to have “dry countries” within its borders, but that could be changing soon. Although beer and wine sales are legal throughout the state, 9 counties—mostly clustered in Southwest Virginia—continued to fully ban liquor. According to the Distilled Spirits Council, Virginia has now passed legislation making the whole state “wet” (unless countries specifically opt-out):

Virginia Governor Ralph Northam today signed into law SB 1110, which makes the entire state “wet” but allows localities to opt-out of alcohol sales by referendum, according to the Distilled Spirits Council.

The new law applies to 31 counties that are “dry” or “partially dry.” The bill has a delayed effective date of July 1, 2020 but allows localities to hold anticipatory referendums beginning July 1, 2019…

See the full statement here.

Virginia Happy Hour (Finally) On the Brink of Being Freed


We’ve extensively covered the lawsuit by the Pacific Legal Foundation that challenges Virginia’s law forbidding the advertising of happy hour specials by restaurants. While the case works its way through the courts, however, it appears that the Virginia legislature is on the brink of repealing the happy hour restrictions itself:

For the first time, Virginia pubs and restaurants may soon be able to plug their Margarita Mondays, Wine-down Wednesdays, and $5 Fiesta Fridays.

The Virginia state legislature gave initial approval Wednesday to House and Senate bills diluting the state’s tight laws on advertising happy-hour prices and catchy slogans, stepping up after a legal challenge filed by a popular local restaurateur.

Chef Geoff Tracy, who operates eateries in Maryland, Virginia and Washington, D.C., filed a lawsuit last year against the Virginia Alcohol Beverage Control Board wash away the old-fashioned advertising restrictions on First Amendment grounds…

The legislation allows liquor licensees to “advertise on or off the licensed premises and to advertise the prices of featured alcoholic beverages,” according to the legislative analysis, as well as “creative advertising marketing techniques, provided that such techniques do not induce overconsumption or induce consumption by minors.”

The identical bills breezed through their initial votes, with a 90-4 vote in the House and 40-0 in the Senate. The measures must still be read and voted on in the other chambers before going to Gov. Ralph Northam…

Read the rest here.

Virginia ABC Using Taxpayer Dollars to Defend Speech Censorship


We have previously weighed in on the Pacific Legal Foundation’s legal challenge to Virginia’s happy hour advertising ban, which forbids restaurants in the commonwealth from publicly advertising drink specials and discounts. This week, PLF’s Anastasia Boden updated what’s been going with the lawsuit in the Washington Post, including describing how the state is using taxpayer dollars to be as intransigent as possible in defending its censorship:

It’s been almost a year since Geoff Tracy and his restaurant, Chef Geoff’s, filed a First Amendment lawsuit asking a federal court to strike down Virginia’s happy-hour advertising laws. In the Old Dominion, it’s legal for businesses to offer happy hour. It’s just illegal for them to talk about it. Those that dare to advertise the happy-hour price of a beer or use creative terms such as “Sunday Funday” to pitch the demon rum face big fines or a suspended permit from the state’s Alcoholic Beverage Control Authority. Virginia may be for lovers, but it’s not for lovers of free speech.

After many months of litigation, Tracy is eager to present his arguments to the court. Given clear Supreme Court cases declaring it unconstitutional to restrict people from communicating truthful information about their legal business practices, one might expect ABC and the attorney general’s office, which represents it, to have abandoned the policy of censorship. Instead, the two are doubling down on their efforts to defend Virginia’s paternalistic law, recently adding some of the state’s most senior government lawyers to the case and escalating fights in discovery — which needlessly intimidate plaintiffs and drive up everyone’s expenses. In what ought to be a simple case with nary a disputed fact, the government demanded several depositions of Chef Geoff’s employees, most of whom have nothing to do with the First Amendment case. They also sought thousands of pages in financial reports detailing the sale of every item sold by the hour — every hour going back six years — from nine restaurants (six of which aren’t even in Virginia). So far, Chef Geoff’s has produced more than 68,000 pages of sales information. ABC wants more.

Depositions and document requests are expensive and entail opportunity costs. Don’t high-level officials at the attorney general’s office have serious crimes to prosecute?…

Read Anastasia’s full piece here.

It's time to free happy hour in Virginia!


R Street's Jarrett Dieterle and Christina Pesavento took to the pages of the Richmond Times-Dispatch to argue that Virginia's ban on happy hour advertising goes against the entire idea of happy hour! Happy hour is supposed to be fun, social, and collegial, which all runs counter to prohibiting restaurants from speaking about it. They also highlighted the Pacific Legal Foundation's recent lawsuit challenging the law on First Amendment grounds:

Everyone knows the first rule of happy hour: You have to talk about happy hour.

Unlike the 1990’s movie “Fight Club” — which exhorted participants not to talk about their activities — happy hour has long been synonymous with socializing, networking, and celebrating the end of the long workday.

But in Virginia, talking about happy hour is illegal. Believe it or not, current regulations forbid restaurants from marketing specific drink specials beyond their premises, including on social media. Violations can trigger week-long liquor license suspensions and fines of up to $500.

Fortunately, our system of government provides an important check for laws that restrict speech — the Constitution...

Read the whole piece here.

R Street's Jarrett Dieterle also previously appeared in a video with PLF's Anastasia Boden discussing Virginia's happy hour advertising ban and other crazy drinks laws from around the country.

Virginia lawmakers have (yet another) opportunity to fix state's backwards booze laws


Virginia's antiquated distilling laws are a topic of frequent conversation around these parts, and R Street's Jarrett Dieterle has written about Virginia numerous times (see here and here, for example). The Virginia legislature now has its best opportunity in years to start reforming its backwards system, and Jarrett took to the pages of the Richmond Times-Dispatch to argue that it's far past time for state lawmakers to finally deliver:

"Virginia is one of 13 'control states' at the retail level, meaning that a government entity — in Virginia, the Department of Alcoholic Beverage Control (ABC) — is in charge of all sales of hard spirits in the state.

The Virginia ABC has become notorious for its outdated regulatory model, and any honest survey of the legal obstacles Virginia distillers face shows why.

Despite this oppressive legal regime, prior reform efforts have mostly failed to make it through the state legislature. Now, lawmakers in Richmond have their best opportunity in years to pass meaningful reform — if only they can find the courage to follow through...

ABC imposes a jaw-dropping 69 percent markup on every bottle of hard spirits sold in the state, in addition to the state’s 20 percent excise tax on liquor. When taxes and the state-imposed markup are added together, distilleries receive only 46 percent of the purchase price of every bottle of booze they sell. This gives Virginia the third-highest effective tax rate on hard spirits in the nation....

This session, the Virginia legislature has considered numerous reform bills that would overhaul the state’s backward booze system. While most failed to gain traction, at least one bill now has a shot at passage. SB 803, which would allow distilleries to keep the markup money from on-premise liquor sales, recently cleared the state Senate. The ball is now in the House of Delagates’ court to decide whether to take up the Senate legislation..."

Read the whole piece here.

Virginia's Legislature Contemplates Reforming Distilling Laws (Again)


Every year, the Virginia state legislature considers a bevy of bills to reform the state's woefully out of date and restrictive laws governing distilleries. While wineries and breweries are relatively uninhibited in the Commonwealth, distilleries face limitations on everything from how many ounces of tastings they can provide to on-site visitors to how much of their revenue they must send to the state ABC system. Distillery owners have pushed to ease these restrictions but have had little success given the entrenched interests in the state legislature. According to the Richmond Times-Dispatch, the legislature is once again considering reforms, but only one bill seems to have much chance of success:

"As they’ve watched Virginia’s brewery and wine industries boom, craft distillers have begun to feel the state is unfairly harsh on businesses that make the stronger stuff.

In a General Assembly committee room Tuesday, the spirits industry, with the help of both Republican and Democratic backers, tried to methodically chip away at state regulations, asking a House of Delegates subcommittee to pass legislation letting distillers serve more alcohol to customers, open earlier on Sundays and build remote tasting rooms to expand their clientele.

But the biggest change in state law sought by the Virginia Distillers Association involves money, and distillery owners’ contention that they’re in a state of financial servitude to the Virginia Department of Alcoholic Beverage Control...

Though several other pro-distiller proposals died in the subcommittee, a bill to let distilleries keep the profits on their own bottle sales passed on an 8-0 vote, prompting the bill’s sponsor, Del. Nick Freitas, R-Culpeper, to jokingly thank the panel for supporting his “booze equality bill.”

But because the policy change could cost the state millions in revenue, it also will need a green light from the House Appropriations Committee before it can get to the floor for a full vote..."

Read the rest here.

R Street's Jarrett Dieterle has written extensively about Virginia alcohol laws (see here and here).  He also tweeted reactions to this latest news on Twitter:

R Street's Jarrett Dieterle Featured in Documentary on Distilling

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The Federalist Society for Law and Public Policy produced a high-quality documentary exploring the history and current state of alcohol laws in the state of Virginia and beyond. One of the interviewees for the film was R Street's Jarrett Dieterle, who discusses the three-tiered system and the many burdensome hurdles that distillers face today. Watch the whole film here:

The Last Frontier: The Online Economy and Booze


You can get online delivery of almost every product under the sun these days, but booze remains a stubborn exception. In Forbes, R Street's Jarrett Dieterle takes a look at what's stopping the on-demand and online economy from fully extending to the alcohol industry:

Alcohol chain retailer Total Wine & More recently announced a partnership with the app Minibar Delivery to launch an on-demand booze delivery system in Arlington, Virginia. The service, which includes free two-hour delivery, contained a notable exception: no hard spirits. Amazon Prime likewise started delivering beer and wine last month in Portland, Oregon. But again, the service did not include hard spirits.

Beltway millennials and Portlandian hipsters may be left wondering why their on-demand experience is being restricted in a way that seems so totally arbitrary. The answer is outdated alcohol laws that need updating...

The good news is that there’s hope. Evidence suggests that millennials prefer online shopping to the brick-and-mortar alternative, and many younger Americans have grown accustomed to having the world at their fingertips. It’s unlikely that a young mom hosting a weeknight barbeque in Portland will be sympathetic to rules that say she can have extra hamburgers delivered to her house in under an hour, but not a spare bottle of rum to add to the punch. Likewise, a recent college graduate working in Arizona’s solar fields may wonder why she’s unable to have her favorite small batch Kentucky bourbon delivered to her door within two days, just like the rest of her purchases...

Read the whole piece here.

Virginia's Silverback Distillery Decides to Expand into Pennsylvania Instead of Virginia

Virginia's Silverback Distillery, which opened its doors in 2014 and has gone on to win numerous international awards for its spirits, has decided to expand into neighboring Pennsylvania rather than its home state of Virginia. editor Jarrett Dieterle profiled Silverback's owners, Christine and Denver Riggleman, earlier this year on the legal and regulatory challenges they faced in Virginia. These barriers appear to have taken their toll, as the distillery has decided to seek friendlier legal climes, according to an article in the Richmond Times-Dispatch:

"Silverback Distillery in Afton is expanding into Pennsylvania, owner Christine Riggleman said Friday.

The announcement was made to employees Saturday afternoon.

The distillery, which opened in 2015, has done well for the short time it’s been open, according to Riggleman — snagging 14 international awards — but she said costly regulations from the Virginia Department of Alcoholic Beverage Control are leading the company to expand into another state.

 'Virginia laws are holding us back,' she said. 'Even though Pennsylvania is a commonwealth, the laws are a lot friendlier in terms of expanding, and you can keep more of your money, where Virginia takes more money from our bottle sales.'

Some of the production still will take place in its Afton facility, but Riggleman said some bourbon, whiskey, vodka and gin will be produced in Pennsylvania.

She and her husband, Denver, also hope to open a tasting room and hire between 14 and 17 new employees in Pennsylvania..."

Read the whole article here.

Jarrett's full profile of Silverback and the Rigglemans can be found here.