If you’re thinking about opening a business involving the manufacture, distribution, or sale of alcoholic beverages within Massachusetts, you will need to acquire an alcoholic beverage license from the State’s alcohol licensing agency - the Alcoholic Beverage Control Commission (and sometimes from the federal government and/or local licensing authority, depending on the business). Acquiring such a license can be a consuming process, taxing both time and money, but with the proper planning you can make sure it goes down as easy as your favorite after-work drink.
One of your first considerations should be what type of license will you need to open and operate the business. Typically, most businesses fall into clearly defined categories when opening a restaurant, liquor store or brewery, for instance. But the boundaries of traditional businesses are becoming blurred with new and creative concepts.
The most important aspect in identifying the appropriate license is to have a clearly defined business model with an understanding of how it will operate. This will allow you, or your counsel, to properly identify what corresponding license to apply for.
This article identifies the major licenses available in Massachusetts. Many of the licenses are referred to by their statutory designation under Massachusetts General Law Chapter 138, which governs alcoholic beverages in Massachusetts. One note of caution is that the laws regulating alcoholic beverages have many prohibitions, in particular on holding two distinct licenses at once, making it important to unite your business plan with the appropriate license.
Section 19 Manufacturers Licenses:
The best categorical starting point is with the manufacturers who create the many alcoholic renditions we drink every day, because without them the rest of the licenses would not exist. With Massachusetts becoming a hotbed for innovative manufacturers, choosing the most appropriate type may not be so obvious.
*Each of the following licenses requires federal approval from the Alcohol and Tobacco Tax and Trade Bureau, which will be covered in a later post.
Section 19 Manufacturers License: The original state license to produce alcoholic beverages within Massachusetts is a Section 19 Manufacturer’s license. The Section 19 licensee can manufacture wine, beer and/or distilled spirits. The Section 19 licensee must distribute their product through licensed distributors. Self-distribution is not an option. Few companies hold a Section 19 license in Massachusetts because there are more appealing options.
Several years ago, Massachusetts unveiled a series of new manufacturers licenses designated as a “farmers” license – Section 19B Farmer-Winery License, Section 19C Farmer-Brewery License, and Section 19E Farmer-Distillery License. These licenses have gained significant popularity due to their flexibility in manufacturing and distribution. The original intent of the law was to encourage the development of domestic farms and their products requiring licensee’s to obtain the majority of their ingredients in-state, however regulators have eased these restrictions and the beverage industry has run away with it.
Section 19C Farmer-Brewery License: The craft beer industry within the Commonwealth has exploded in the past decade, with the Farmer-Brewers License becoming the most popular choice for brewers to operate their businesses. Not only does this license allow the holder to manufacturer their own beer, but it authorizes the holder to sell its product on-site, self-distribute to restaurants and liquor stores or choose to work with a wholesaler to distribute their products, and other benefits not otherwise allowed under a Section 19 Manufacture’s license. Tastings are permitted under this license on the premises, but if you want to sell your beer for on-premise consumption you will need to obtain an additional permit from the local licensing authority.
Section 19E Farmer-Distillery License: Like the craft beer industry, Massachusetts has recently experienced a renaissance of craft distillers with most, if not all, choosing to obtain a Section 19E Farmer-Distillery License. The license operates like the Farmer-Brewery License by authorizing the holder to manufacture their own distilled spirits, sell the product at retail on its premises, self-distribute the product to restaurants and liquor stores or utilize a wholesaler to distribute the products, and offer tastings on-site.
Section 19B Farmer-Winery License: Vineyards also have taken advantage of the farmer license series to manufacture, distribute, sell, and offer tastings just as the other farmer licensees. In addition to wine producers, cider manufacturers operate under this license.
Section 19H Farmer Series Pouring Permit: Massachusetts recently enacted a new law clarifying the Farmer Series Pouring licenses. The new Section 19H Pouring Permit authorizes a brewery, vineyard, or distillery to sell any of its manufactured products not only on their licensed premises, but on the farmland or vineyard where that operates appurtenant and contiguous, and in conjunction with, the licensed premises.
Section 19D Pub-Brewer’s License: The final manufacturers license is a Section 19D Pub-Brewer’s License, which operates as a blend between a restaurant (Section 12 on-premise license, as described below), and a section 19C Farmer-Brewery License. The Pub-Brewer is authorized to manufacture its own beer to sell at the restaurant for enjoyment on the premises. They may also sell at retail for off-site consumption, but only what they manufacture themselves. Unlike the other farmer licenses, the Pub-Brewer is authorized to sell products other than those it self-produces as long as it is not more than half of its total alcoholic beverages sold on site. Finally, the Pub-Brewery is not authorized to self-distribute directly to other restaurants or liquor stores and therefore must use a licensed wholesaler to distribute its product.
Section 19G Tenant Brewer License: Massachusetts recently enacted another law creating a new manufacturers license for tenant brewers, where two or more people/entities take turns using the same facility to manufacture malt beverages (beer). Previously, the ABCC required the tenant brewer to acquire a manufacturers license under the existing laws – either a Section 19 Manufacturers of Section 19C Farmer-Brewers. In addition, the tenant brewer now must acquire the Section 19G license, as well as the appropriate federal permits.
The Section 18 wholesaler is authorized to purchase packaged alcoholic beverages produced by a manufacturer and sell for resale to Section 12 On-Premise and Section 15 Off-Premise (as described below) licensees. The wholesaler (or distributor, as used interchangeably) is the middle-man between the manufacturer and your local restaurant, bar, or liquor store. However, many of the Section 19 manufacturer licensees are authorized to self-distribute, thereby circumventing the Section 18 licensee.
*One note of caution for manufacturers entering into distribution agreements with wholesalers - Massachusetts is a “franchise state,” meaning it is extremely difficult for a manufacturer (think brewery) to terminate a distribution agreement once entered into. Therefore, complete your due diligence and choose wisely when entering into a distribution relationship.
Before the Section 12 On-Premise and Section 15 Off-Premise licenses are discussed, it is helpful to understand the license categories that apply to each. A prospective licensee can obtain either an All-Alcoholic Beverage License or Wine and Malt Beverage License. The All-Alcoholic Beverage License allows the holder to sell wine, beer, and liquor. The Wine and Malt Beverage license holder is authorized to sell only wine and beer. If desired, the Wine and Malt Beverage holder can obtain an additional Cordials License, which allows them to sell liqueurs, a liquid high in sugar content pursuant to a formula set out in M.G.L. c. 138 (think Baileys or Limoncello). A business may make the determination to obtain one or the other due to lack of available licenses or the purchase price, as described below.
The Section 12, or on-premise, license is one of the most common available licenses as they include restaurants, hotels, and general taverns. The Section 12 license authorizes the holder to sell alcoholic beverages directly to customers for consumption on their premises. Typically, the Section 12 On-Premise license is coupled with a common victualler license, which allows the business to sell food. However, in certain circumstances the local licensing authority may issue a general tavern license to operate without food, but this is becoming increasingly rare.
Most municipalities have a set number of licenses they are authorized to issue based upon a quota system established by state law (though there is a recent push to reallocate this authority to the municipalities). Once the quota is reached, those seeking a license often purchase one from an existing license holder. This has created a lucrative secondary market where Section 12 On-Premise All-Alcoholic beverage licenses can go for up to half a million dollars in cities such as Boston.
Section 12 licenses also can be issued based upon “class,” depending whether the licensee intends only to open seasonally for the summer months (think Nantucket bars), or annually, which is often the case.
The Section 15, or off-premise, retail license is the other most commonly acquired license in the Commonwealth. Package/liquor stores are licensed under Section 15 to sell alcoholic beverages to customers for off-premise consumption. Massachusetts has limited the amount of Section 15 licenses common interest holders can own, which currently stands at 7 and will increase to 9 in 2020 (this is why large supermarkets chains will only sell alcohol at select locations).
As a some-what recent addition to the available alcoholic beverage licenses, the Section 12C Caterer’s License was created to authorize catering companies and restaurants with a catering component to serve alcohol on the premises where the operator caters a private event. If the event is located at a premises with an existing license, the caterer must use that existing license. The caterer must purchase alcohol from a licensed wholesaler under Section 18 and hold a Section 22 Transportation Permit to transport the alcoholic beverages to and from locations.
One-Day License: Local licensing authorities may issue a one-day license for the sale of alcoholic beverages, typically used for special events. There are several restrictions on one-day licenses, notably they cannot be granted for more than a total of 30 days per calendar year, cannot be issued to any person that has a Section 15 On-Premise license application pending before the LLA, or cannot be issued to any premises with a current alcoholic beverage license.
Charity Wine Fundraising License: The Charity Wine license authorizes the holder to sell wine for profit at a fundraising event, however only non-profit organizations will be issued this license. The sale of wine at a charitable fundraiser falls within two distinct categories – Charity Wine Auction License (“CWAL”) and Charity Wine Pouring License (“CWPL”). The CWAL authorizes a non-profit organization to auction off bottles of wine during a fundraiser whereas a CWPL authorizes the sale of wine for consumption on the premises during such an event. Each license requires wine to be donated to the charity, without charge, and all proceeds from the sale of wine may only be used for the non-profit’s charitable purposes.
Farmers Market License: Local licensing authorities can issue a Farmer’s Market License for the sale of wine produced by a Section 19B Farmer-Winery at approved agricultural events in Massachusetts. Unfortunately, Section 19C Farmer-Breweries are not authorized to enjoy this same privilege. There has been pending legislation before the State Legislature to change this law, but has not yet been approved.
Section 22 Transportation Permit: The Transportation Permit is used in conjunction with a number of licenses to transport and deliver alcoholic beverages.
Section 18A Agent, Broker, or Solicitor Permit: The Agent, Broker or Solicitor is typically an intermediary between manufacturers or importers of another state or foreign country and Massachusetts distributors.
Section 19A Salesman Permit: A Salesman permit is used by Section 18 Distributors, Section 18A Broker/Agents, and Farmer Series Licensees to promote and sell their products.
If your business is successful and seeks to expand into different ventures, there are a number of laws to take into consideration. Massachusetts law limits the ability for one interested holder to own several different kinds of liquor licenses, depending on the license. Identifying the type of alcoholic beverage license that will fit your business is one of the initial steps a prospective licensee should take. Obtaining it is another issue that will take time, money, and knowledge of the complicated licensing process that often confuses applicants and can delay projects.