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The Strange World of Montana Alcohol Law
A liquor license in Kalispell can fetch nearly $1 million. Photo by Lido Vizzutti of the Flathead Beacon.

The Strange World of Montana Alcohol Law

David Lewis, chef and owner of Pescado Blanco in Whitefish, is desperate for one of the beer and wine licenses up for grabs Aug. 8.

“If I don’t get it, I’m closing for sure,” he said last week. “It just is not working.”

Lewis works 14-hour days and said he barely pays himself at all. And despite the popularity of his cooking, he still has wildly discouraging moments: like when a 20-person party enters Pescado Blanco, then walks out because a few people want to have a glass of wine with their meal.

“If I had a full liquor license, I would be doing really well,” he said. “People say ‘I want for you to get your license so I can go in there.’”

A liquor license came up for sale three years ago, but the $400,000 price tag was too high for Lewis. Then he underbid for a license to sell beer and wine, also known as a cabaret license, which sold for $150,000. Having previously owned and operated two restaurants in Colorado where he paid $1,500 for a liquor license and $400 yearly to renew it, Lewis is continually shocked at the arcane nature of the laws in Montana that control the distribution of alcohol.

“The liquor laws are just crazy,” he added. “The little guy like me is just trying to make a living doing what he wants and it’s just impossible.” And Lewis is not alone. Dozens of restaurant owners throughout the Flathead have been waiting with trepidation on the results of the cabaret license drawing.

When the state Liquor Control Division issues 20 new licenses to Flathead Valley restaurants to sell beer and wine at the Aug. 8 drawing in Missoula, Lewis has a shot. His name, along with 42 others, will be dropped into a wire basket and spun around. Then the lawmaker behind the expanded allowance of cabaret licenses, Sen. Dan Weinberg, D-Whitefish, draws the names from the basket and they are ranked, with preference given to licensed restaurant owners in the business for more than a year – as opposed to those simply making a speculative investment. For the 124 cabaret licenses available state-wide, 532 businesses and individuals have applied; in Kalispell, 29 applicants signed on for 10 new licenses.

If Lewis’s name is among the top 10 for the Whitefish-Columbia Falls drawing, he’s in, and will pay a fee between $5,000 and $20,000 depending on the size of his restaurant. If Lewis misses, he’ll turn Pescado Blanco into a breakfast joint, where he won’t be at such a disadvantage for not selling alcohol.

This random drawing – which opens up the privilege of selling wine or beer to a few more lucky people and can determine the success or failure of a business – simply marks another chapter in the long, strange saga of the laws controlling alcohol in Montana.

The quota system employed by the state is oppressive, arbitrary and unreasonable, say many Flathead restaurant and liquor store owners. Due to the finite supply of full liquor licenses available, the price of those licenses has skyrocketed to almost $1 million in some cases, setting up an artificial economy and excluding many small businesspeople from a lucrative aspect of the food-service industry. Selling alcohol can often make the difference between a restaurant that turns a profit and one that merely breaks even.

And because liquor licenses have become so valuable, those who own them fight zealously against any measures that might increase the number of liquor licenses in circulation, thus decreasing their value. The community of restaurant, bar and liquor store owners can be close-knit and secretive, with everyone aware of the circumstances and amount of money changing hands over liquor license sales – but few were willing to speak on the record to a reporter.

The roots of Montana’s liquor licensing system date back to 1933, when Prohibition ended and taverns sprung up throughout the state. In 1947, the state enacted a quota system, allowing one tavern for every 1,500 residents of a city. But the taverns in existence at the time were grandfathered in, and what the state considers to be an excess of liquor licenses now exists in Montana cities.

According to state Liquor Control Division Administrator Shauna Helfert, Kalispell has 31 “all beverage” licenses – which allow the sale of wine, beer, spirits and gambling – when it should only have 15. Whitefish and Columbia Falls have 24 all beverage licenses, when they should only have 10.

As a result of the static number of liquor licenses, the price has skyrocketed. The new Kalispell barbecue restaurant, Famous Dave’s, paid $950,000 to the owners of the Bulldog Pub and Steakhouse for its liquor license. The new Blue Canyon restaurant in Kalispell bought its liquor license for $525,000 from a partnership of area businesspeople.

Both Blue Canyon and Famous Dave’s are chain restaurants, and can better afford the investment required for liquor licenses, say restaurant and bar owners interviewed for this story. But for the independent restaurateur, the only other way to stay afloat is to offer gambling – something many who simply want to focus on good food and drink are reluctant to do, despite its attachment to the all beverage license.

“It would be worth it to spend $1 million if I was all about having a gambling location, but I’m not,” Lewis said. The cabaret license does not allow gambling.

Bill Goodman, owner of Red’s Wines & Blues in Kalispell, said when he was planning to open the restaurant his accountant told him: “I would never make a nickel without putting in gaming machines.”

“I don’t want my gambling license, I wish I could strip it off and sell it,” he said. “They really shouldn’t be attached to liquor licenses.”

Goodman won’t install gaming machines and his business has faltered, closing earlier this year and reopening with stripped down menu offerings. But he’s not the best example of someone struggling under the high cost of city liquor licenses. He originally purchased a county liquor license – of which there are currently 16 available outside city limits in Flathead County for the nominal fee of $400 – on land at the southern edge of the City of Kalispell. Shortly after the purchase, the city annexed that land and his county license became a coveted city liquor license.

Goodman was part of a trend of savvy investors in the early 2000s buying up county liquor licenses on the outskirts of growing cities around the state. The Legislature put a stop to that practice in 2005 with a law restricting the use of city liquor licenses from newly annexed land until five years after the date of that annexation.

The Legislature has a way of halting or diluting any serious efforts to reform Montana’s liquor licensing system or increase the number of licenses available. Weinberg said his push in the 2007 Legislature to expand the liquor, beer and wine licenses available were stymied by the lobbying efforts of the Montana Tavern Association and even some banks which offer loans based on the equity in city liquor licenses.

“Politically, it’s a very tough area,” Weinberg said. “You start off wanting to change the world and end up changing a part of that world.”

The bill he passed, allowing for more cabaret licenses, was a compromise, he said. “To change the full liquor and gambling licenses would be impossible,” he added, while conceding that current law “inhibits commerce and competition” and does nothing to reduce rates of alcoholism in Montana.

Helfert, of the Liquor Control Division, said the state’s current liquor laws are deeply entrenched, but still represent an effort by the state to keep an addictive substance like alcohol from causing a huge cost to society if not controlled and regulated.

“It’s not toothpaste,” Helfert said. “We try to make sure it gets into the right hands.” Helfert added that the rising cost of liquor licenses are a result of whatever the market will bear, and the state does not receive any of the proceeds from a liquor license sale between two private entities. Nor does she expect the system to change significantly any time soon.

“There are subtle things that we can do to improve our system,” she said. “It’s years and years of history that have made it this way – I don’t know how you unwind it.”

About Daniel Testa

Comments

  1. Colonel Bain says:

    It not only Montana that has battled the saga of liquor licenceing.. all states do…From Drive up windows to minors in areas of comsumption.. its a never ending political bag of discussion in all states. I say one thing I am glad my family does not own a liquor licence any more !!
    Giddup…

  2. Becky says:

    Who cares about “unwinding” it, Shauna? Scrap the whole goddamn thing and start over with a fair system based on the just notions of supply and demand in a capitalist economy, Surely Colorado, the example of a fair free-market license distribution and renewal system used in this article, cares just as much about alcohol distribution in their state as we do. That whole toothpaste analogy is a red herring. Montana shouldn’t be in the business of propping up area bars and casinos at the expense of small businesspeople across the state. It’s time the people take control of this outdated, corrupt, and inflationary license application process back from the Tavern Owners’ Association.

    Where does Schweitzer stand on this issue? Would he be willing to sign any bills coming out of the Legislature that completely (don’t get me wrong, the expanded cabaret licenses are a start, but the whole thing needs to go) reforms the system?

  3. Patia says:

    I agree, the liquor and beer/wine licensing system in Montana is out of date and silly. I’m not a big drinker, but it’s ridiculous to go out for dinner at a nice restaurant and not be able to have a glass of wine or a beer. Or to have a craving for a decent margarita at a Mexican restaurant, but only be able to get one made with wine.

    And the existing system is totally unfair for small business owners.

  4. TZ says:

    Businesses that buy a liquor or beer/wine license are speculators. They are not paying the paper value of the license, but are paying what the market for these licenses will bear. Of course, the market price for those licenses can go up, or they can go down. That’s the chance they take when they buy from the market. There is no guarantee that they might lose most of the value of the license, and that seems to be a chance that the business owners are prepared to take.

    But, that doesn’t mean the state of Montana should harbor and support that business gamble. The conversation our legislators should have is one of how many outlets for the sale of alcohol that we want. Of course, the Republicans in particular are caught between a rock and hard place on this issue. On the one hand, they do not want to be in the game of controlling, manipulating, and regulating business activity. But, on the other hand, they are prudish enough not to want to be encouraging the illicit behaviors that go along with alcohol (gambling?). As a result, it is a worst nightmare for a Republican to have to take a stand, and many choose simply to avoid the issue.

    But, as with many hangovers from the Prohibition era, the fundamental question remains why the state insists on regulating the sale of alcohol. In Montana, isn’t it perverse that we still have government controlled liquor stores, limits on the amount of beer that a brewery can offer to onsite customers, the inability to legally import wine from out-of-state wineries and wine merchants, and a prohibition on wine merchants offering wine tastings?

  5. matguy says:

    Hey, let’s do other licences this way too! Cars are deadly, right? It’d be safer if fewer people were driving, so let’s cap the number of license plates available and let people sell them to each other! Guns are deadly too, so let’s cap how many there can be in the state and then let people sell their permits back and forth as well.

    Seruiously, gut the system and start a new one that pays for its administration through a reasonable licensing fee. This system is putting an ill-needed damper on the hospitality industry here in Montana.

  6. Holly says:

    I totally agree! I am just one of the many people attempting to better my life by something I’d really love to do and its frustrating to be totally unable to even TRY because of lousy laws from 60 years ago! Montana needs to get with the rest of the world on the bar and restaurant industry. In Washington you just apply, meet certain criteria (like a certain amount of food and kitchen space) and then pay a fee of 2,000.00 It takes about a month. That’s how it needs to be here. I don’t see why they won’t just throw out the old system and start over. Montana really is made up of some surprisingly educated people, but who are these idiots running the system and holding onto antiquated laws? The law favors certain wealthy people and excludes the regular working man. Im in Missoula and here it seems like there’s this weird attitude about not stepping on anyone’s toes or getting in anyone’s face about anything, but in this case it seems like all the people who have been financially hurt by the laws would get together and sue the state for change. If enough of them did it, they would win, I’m sure of it. Signing petitions only takes you so far. We need a damn good lawyer.

  7. steve says:

    They need to change the law. It really upsets me that we lose a bunch of good companies. Not only family restaurants and corporate. If I was a large chain I would not come to MT due to the cost. Why come here when they can find somewhere cheaper. I will not bring my restuarant here until than.

  8. Johnimo says:

    I actually have a reasonable plan to end this nonsense. A reasonable liquor license cost, such as Colorado has, with a portion of proceeds going to legacy license holders for a lengthy period of time. Let’s get on with it and join the real world, finally.