The Challenges Involved in Obtaining Liquor Licenses for Hotels
By Robert J. O'Hara III Attorney, Flaherty & O'Hara, PC | December 16, 2018
Upon the repeal of Prohibition, in fact as a result of the repeal of Prohibition, each state was tasked with coming up with their own schemes for regulating the alcohol industry. (The 21st Amendment to the U.S. Constitution establishes that the states, individually, would have primary control and responsibility over how alcohol is sold within their borders.) Some states settled on a statewide, state-only form of regulation (where the state issues all licenses and makes all relevant regulations over alcohol), and other states further delegated to local control (municipal and / or county) the issuance of liquor licenses and the regulation of sales.
How Did Getting A Liquor License Become So Difficult And Crazy?
The result is that in some states, one license is required for the sale of alcohol at the retail level, at restaurants, hotels, bars and nightclubs, and at package stores, for example, while in other states the same business may be required to obtain two or three liquor licenses – one issued by the state, one issued by the municipality in which the business is located, and one issued by the county. A further twist on how these businesses are licensed, in the first instance or in the case of a subsequent ownership transfer, is that at the repeal of Prohibition, some states became "quota" states and others became "open" or "direct issue" states.
Generally speaking, in quota states, the number of licenses issued to retail on- and / or off-premises locations is limited, typically by municipality or county. And any person or entity who wishes to open a new retail location has to buy one from an existing owner. The price for the sale and purchase of quota licenses is established by the seller, it is a "supply and demand," or "what the market will bear" pricing system, and the state does not receive any of the consideration. In some states, notably New Jersey, Pennsylvania, New Mexico and Montana, the price of licenses approach, and in some cases exceed $1 million dollars.
In open or direct issue states, the system is far less costly, as those wishing to open a new retail licensed establishment simply apply to the state or local agency on the appropriate forms and write the state or local agency a check for license and application fees – which can vary, but which do not typically exceed $10,000 on the high end – and the state or local agency issues the license to the applicant, assuming that the applicant is qualified to hold the license.
Of course, since liquor licensing is a subset of administrative law, it is fraught with exceptions. For example, there are states that have a combined quota and direct issue system, depending on the sort of place that the applicant is attempting to license. California and Florida are such states. And in virtually all states, hotels are exempted from the quota – that is, while restaurants and bars and the like must purchase licenses from existing owners, hotels (typically if they meet certain minimum requirements, such as a minimum number of rooms and they offer meals) – are able to obtain direct issued liquor licenses (rather than pay those potentially exorbitant prices for quota licenses).