Interview with Adam Harris

Adam Harris

We have some news that affects how things are going to work between Pennsylvania's brewers and the government, as represented by the PLCB and the Legislature. The Brewers of Pennsylvania (BOP), the state’s official brewers guild, has hired Adam Harris, former chair of Pennsylvania’s House Liquor Control Committee, as the organization’s new Deputy Director.
The BOP said, in a release put out on February 6, “The newly created position (shades of Joe Da CEO Conti!) will further bolster the BOP’s advocacy efforts and its quest for a more fair playing field within Pennsylvania’s antiquated three-tier system (manufacturer, wholesaler, retailer). In conjunction with Dan LaBert, BOP’s Executive Director, the BOP’s Legislative Committee, and Board of Directors, Harris will assist in outreach efforts to BOP members, potential members, elected officials, and other beer-interest entities to strengthen and expand Pennsylvania’s thriving craft beer industry. According to the Brewers Association, Pennsylvania craft beer ranks second nationwide in economic impact ($5,788,000) and first in barrels of craft beer produced per year (3,724,010).” (Thank you very much, Dick Yuengling and Jim Koch!)

Harris was hired to lobby the government, although as a recently retired House member, he won't be able to directly talk to House members until December of 2019 because of lobbying restrictions. Beer is his direct focus, of course, but as the former chair of the HLCC he's pretty damned familiar with what was going on with Pennsylvania's booze law changes.

So I asked the BOP if they could set me up with Adam for an interview. I'd met him at a Commonwealth Foundation event five years or so ago, and we had quite an affable conversation.

(One note: I tried my best to keep up with the conversation as I typed, but let's just say that everything I 'quote' Adam Harris as saying is actually a paraphrasing. I've also moved pieces around to make more sense of the flow as we went back to clarify things; there was no intent to change meaning. I tried to stay as true as possible to what we both said, but if there are any problems, I invite Harris or the BOP to send me an email and I'll be happy to discuss it.)

What are your top legislative priorities to create opportunity for Pennsylvania breweries?

The issue that's most time-sensitive is the taproom tax. We pushed it back once already. That would be a killer. The brewers were told in 2015 that the taprooms would be tax-free. So they jumped in. It would be a step backwards to tax that now. The governor wants a legislative fix. Our legislative side is talking to members.

Could you explain what we're talking about in a bit more detail? And I'll note that the tax has been delayed until June 1.

In 2015, the PLCB said, look, if you have a G license, a manufacturer license, you can have a tasting room. Now, a tavern is paying the sales tax on beer, but they're paying it at the wholesale level. They pay 6% on the wholesale price of the keg when they buy it. They want the brewers to pay the 6% sales tax by the drink. That's 4-5 times as much in sales tax. We'd love to keep the tax-exempt status, but we surely don't want to be paying more. Our attorneys are talking to the Department of Revenue, and they're getting that.

How did it happen? Who made the decision, and how did the tax get put in place?

It's hard to track down where this began, or who made the policy decision. There has been no legislation. Ironically, Department of Revenue came out with a statement that the taproom sales would be tax-free, and now they are changing that to a 6% per drink tax. On a premium pint, in Philly when it's already got a per-drink tax, that's a significant increase, and it trickles down to employees: fewer pints sold, fewer people employed. If it goes ahead, brewers are going to pass the tax on directly, and itemize it on the receipt so people know why they're paying more.

As I said, I can't lobby the House members for twelve months, so I'm talking to Senators, and to brewers to make sure they understand the issue, making sure they interact with their legislators. We meet with everyone we can in the Governor's office, and Revenue, and they've been receptive to the idea. The governor's office indicated he'd like a legislative fix to take the gray area out of it.

The thing is, if we run it as a tax code bill, that usually doesn't get passed until June 30. We're hoping we can get it done earlier. If you wanted to change the tax structure, you do it in a tax code bill, but if we're not changing taxes in the budget, there may not even be a tax code bill. But we do a budget every year, and it has to balance.

Why does it seem that it's always everything that needs to get done gets jammed into the last half of June?!

(Laughs) It does appear that June's when it all takes place. It all gets done in one month, and it's a hot month.

Drinking the good stuff. 

What's the Beer Equity program?

You have the manufacturer – the brewers – and the wholesalers, who have franchise rights to the brands once they contract to sell them. Those rights, that contract, runs in perpetuity. That's a PLCB ruling, from about a decade ago. There are very few opportunities to get out of those. Usually it's a great relationship, but a few aren't, and those people literally cannot get out those relationships. They can be traded to another wholesaler, or go to court, which isn't easy. We're trying to find a better way to open these contracts. We want legislators to know this is an issue for us. The wholesalers are great for us, and get the beer out where we couldn't. But the few exceptions, that makes it harder for a brewer to think about signing that contract. It causes a great deal of stress and anxiety. 'We're making great beer, getting great reviews.' But they don't know what to do. If the contract was just ten years, and had to be renewed, that would be better.

We got the end of the case law, and the regulatory workaround that allowed grocery stores to sell beer by installing a 30-seat “cafe” and buying a tavern license. Are there numbers on how much those two measures actually benefited PA brewers: sales increases, numbers of outlets?

Let me check on that. It was a huge win, no doubt, to see them spring up all over the state, give consumers that option.

On the flipside, there are problems with the grocery store beer sales situation. Taking limited restaurant licenses to use for grocery stores makes those licenses more expensive and scarce for on-premise businesses. The system is inherently unfair to smaller grocery stores. It does little to bring beer sales to convenience stores, a major sales outlet in other states. What we clearly need in PA is a grocery store license. Why can't that happen here?

It's becoming the game only the big guys can play. The rep in Carbon County has way too many R licenses and they're worth nothing, while in Chester County, how can a young couple start a small restaurant when the license costs $500K? Any time you talk about new licenses or transferring, you get into a fight that stalls out. We talked about transitioning D licenses, but there was considerable pushback. There are some distributors who are still doing really well, if they're willing to push the envelope. The landscape has changed.

You want to do what's right for the consumer, but this is people's livelihood. That sixpack sale, for instance, is how the tavern-owner pays their mortgage. My comeback was video gaming terminals for the taverns. We'd be down a whole new rabbit hole with that.

Why is the legislature so reluctant to take substantive action on creating a more open retail situation that would directly benefit both Pennsylvania brewers and Pennsylvania consumers? This is not the first time the PLCB has taken independent and somewhat arbitrary action that effectively rewrites the Liquor Code; they made a case a 12-pack, for instance, and then the legislature did away with the limits altogether. The Board has often shown no reluctance to defy the stated desires of both the legislature and governor. Is there any interest in the legislature to limit this power?

They are a bit of their own little fiefdom.

But the only negative feedback we had from brewers on the case law changes was, 'Hey, you just gave us 12-packs, and we re-did the package lines, now a few months later you give us singles. Could you stop giving it to us piecemeal?'

It really is strange. The ultimate backstop is that anything the legislature passes and gets signed is then the law. It might seem like they [the PLCB] spring surprises, but they're open about process. I don't think they anger people enough that we'd limit what they do. [Adam interjected at this point that PLCB member Mike Newsome has gone over to the Governor's office, so it's a 2-member board right now.] We could always call over to them and get things done. It never got personal or unpleasant. [He should know, but I'll note here that at PLCB hearings I was watching it most definitely got unpleasant on occasion.]

As the former chair of the House Liquor Control Committee, can you give me some insight on why it always seems that the interests of the FOURTH tier, the actual consumers, come last in considerations of alcohol legislature?

Say we wanted to get something done for the consumer. We'd pull the committee in, and we'd want to change things, and...personal relationships with voters and businesses in legislative districts stalemate things. The consumer is finally getting a few wins, but slow and steady wins the race in Pennsylvania. We'd do a big omnibus bill, and you'd get a lot of things. Some of it you liked, some you didn't. We've gotten away from that. The consumer's more engaged. They get more and they want more. I will say that I don't think there's that many anti-alcohol advocates in the general populace or the legislature as there were even ten years ago. For some of them it's a revenue issue, but with Uber and Lyft, there's no reason anyone would have to drive drunk.

Look, we're playing catch-up for sure. Got to get our guild solidified, talking to their legislators. I grew up in small-town Pennsylvania, in Juniata County, and all we knew was Yuengling. But there's no animosity among the brewers, there's cooperation. More than I saw in the legislature.

And that's that. Thanks, Adam Harris. 

Beer in Supermarkets: the Down Side

Giant Market plans to sell beer at their Stone Mill Plaza store in Lancaster County!

Weis Market opens beer cafe in Mechanicsburg!

Yeah, really, beer in Da Grocery Store in Da Commonwealth!!!!

Is this great? Or is it pathetic?

I asked that question seven years ago, when I first bought a beer at a Pennsylvania supermarket. It's high time that the question was asked again, because things are accelerating. We're seeing more and more big supermarkets adding "beer cafes" and selling sixpacks, and there are going to be consequences; we need to look ahead at what may happen and consider action to head it off.

It's a simple problem. It's great that Pennsylvania supermarkets have figured out a way to sell beer, a workaround that involves sacrificing part of their building to create a "cafe" where people could have a beer if they really wanted to (but mostly don't, with a few cool exceptions where the idea's been embraced) and buying a tavern license, which can be wicked expensive (check by county; hello, Chester!). But clearly the big chain supermarkets -- Giant, Wegmans, Weis, Whole Foods, Giant Eagle -- have found that the profit is worth the cost, because it seems like a month doesn't go by without another opening.

Why is that a problem? A few things. First, Pennsylvania has a "quota system" for liquor licenses: one per 3,000 people in a county. It's essentially a broken system, as it's never really kept up with population shifts, and there are a ton of "grandfathered" licenses in counties that have lost population, and there are a number of exceptions (The Almighty Liquor Code has a silly number of kinds of licenses), but essentially, there are no new tavern licenses being issued. If you want a liquor license, you have to buy one on the open market, because the Legislature foolishly made them transferable and salable. I say "foolishly" because when a liquor license -- a piece of paper issued by the State with no intrinsic value except what the State-enforced "quota system" has given it -- is sold in Chester County, for instance, for $270,000, the State gets next to nothing. Even though the full value of that license only exists because of State law. Yeah, I call that foolish.

That's a problem, because every time a supermarket simply wants to sell beer, it buys up another of these limited licenses, which then become more scarce, and therefore more expensive if you want to buy one to open an actual bar, tavern, brewpub (you need a license to sell anything other than your own beer or Pennsylvania wines at a brewpub), or restaurant. As licenses get more expensive, you get more chain restaurants and fewer independent operators opening (because they don't have the deep pockets); you get more nuisance bars (because they have to sell more booze to make their loan payment), and you get more high-end places with expensive booze (which isn't bad in and of itself, but if the ratio is unbalanced, people have fewer choices).

Another part of the problem is that it creates two tiers of grocery stores: the ones with beer and the ones without. I recognize that some grocery stores don't want to sell beer; especially in rural Pennsylvania, where there are some family-owned places that simply don't hold with alcohol at all. Fine, no reason to force stores to sell beer, but there are stores that would like to and simply can't afford the ridiculous unnecessary expense of buying a tavern license and tying up a substantial amount of retail space and equipment in a "cafe" with separate beer cashiers.

This was brought up at the McIlhinney Hearings in 2013, by a representative from Redner's Warehouse Markets, and Senator McIlhinney's response was essentially 'that's nice, but that ain't gonna happen.' Since then, there have been attempts to come up with a separate license for grocery store sales (of course, another type of license is exactly what we need!), none of which went anywhere. Given the tenacious opposition of the beer distributors to any expansion of grocery store beer sales (and the likely opposition of the already-licensed groceries), I doubt this will fly, and...

That is going to mean we'll have this half-assed workaround forever. The stores that got a liquor license won't be happy with anything that devalues that major investment, so they'll be fighting it. And Pennsylvanians are pathetically grateful for anything that even looks like buying beer in grocery stores (and having a liquor license actually puts the stores one tiny step away from selling wine, as there's already been a push to allow taverns to sell "to-go" bottles of wine), so if we think we have it, we're not going to push for it; we're just going to go to the stores that sell beer. That means that more and more supermarkets are going to go after tavern licenses, which is going to accelerate the scarcity issue (more chains and more nuisance bars!), and put even more pressure on the family-owned supermarkets to sell or close.

Well, hello, unintended consequences!

More crappy nuisance bars. Friendly neighborhood bars will sell their licenses at top dollar while they can, and the families will retire. And we get further away from a REAL solution to the problem.

This is yet another fine mess the PLCB and the Legislature have gotten us into, with the help of the MBDA and the behind-the-scenes maneuvering of Bucks County beer mogul (and SEPTA Board and Turnpike Commission member; and did you know he also owns 4% of the Sands Casino?) Pat Deon. Please note that I do NOT blame the supermarkets; they're just playing the hand that was dealt to them, and playing it well.

The only solution to Pennsylvania's alcohol beverage sales quagmire is going to be an all-alcohol solution, some grand bargain that fixes everything. More on that to come.

Why the MBDA is bad for beer and bad for citizens.

On face value, the Malt Beverage Distributors Association of PA would seem like a good thing. The organization is standard fare for a trade association in the sense that it is a group banded together to promote the business of selling beer. If you were to look at their Facebook page, you might see linked articles promoting craft beer, which makes sense, since the trend in beer sales continues to move more and more toward American craft brews.

But this particular association is perplexing, not only to the average citizen, but also to the people within the industry. The surface claim is that this association acts on behalf of those in the industry for the betterment of “strength, service and value” for consumers. This idea of strength, service and value is stated in the headline of their most recent newsletter.

In order to understand how this organization actually contradicts the idea of service and value for consumers as well as strength within their industry, we need to look at its current membership numbers and how the number of beer distributors has decreased over the years.

There are a third less beer distributors operating today than there were in 1970, even though the population has increased by a million and interest in craft beer has increased dramatically. There were about 1800 beer distributors in 1970, 1600 in 1985, 1400 in 2000 and there are approximately 1200 today. This is an average loss of over 13 distributors per year. Maybe this is why out of the 1200 in existence today, only 450 or so are actual members of MBDA, according to their web site.

What happens to those distributor licenses when the businesses close? After a specified period of time, typically five years, the license — kept in a safekeeping account by the PLCB — becomes unavailable to anyone else for purchase. In other words, it disappears. This means that Pennsylvania consumers, already strapped for alcohol retail diversity, have even fewer choices of where to shop for their beer.

This is where the conundrum begins with regard to the MBDA. The MBDA did their best to maintain the status quo in all of the liquor privatization efforts because they said it would hurt their numbers. How can the numbers dwindle more than they are already? More than 13 small beer businesses have disappeared each year during the last 44 years

P.W. Botha, the last president of apartheid-era South Africa, said, “We are moving into a changing world; we must adapt, otherwise we shall die.” The MBDA has chosen to avoid adaptation and refuse compromise over and over again when discussing change in Pennsylvania’s beer and liquor laws. They insist on package reform that would permit beer distributors to sell singles, six packs, and twelve packs, but will not agree to terms to allow other liquor licensees to sell cases. This inability for a collaborative approach to change has set the stage for the biggest threat to the beer retailing industry in Pennsylvania.

Frustrated grocery and convenience stores have figured out that they can purchase a restaurant “R” liquor license and sell beer in their stores. They have to turn themselves into pretzels trying to get around the existing restrictions in the law, adding "cafes" and separate checkout areas, but time and time again the court has upheld the validity of their approach. In 2009, the State Supreme Court did not originally find in favor of the Sheetz organization selling beer, but ultimately, with a few changes, Sheetz has been able to meet the obligations of the law and to set up beer sales in some of their locations. At the time of the finding, the court chastised the legislature for not taking action to fix the antiquated laws. Yet, in 2014 we remain chained to ancient legislation and organizations rooted in the past: the PLCB and MBDA..

In 2010, the court upheld the decision that Wegmans could sell beer in their stores with proper separation of registers and departments. The point is, consumers want to try a variety of beer and they don’t want to have to buy a case to do it. With a few tweaks, stores such as Giant, Sheetz, Wegmans, and Giant Eagle are obtaining R licenses (about 200 have done so, putting even more pressure on beer distributors).and providing consumers with what they want. Sort of.

The problem is that the R licenses are not necessarily available in the areas where these particular retailers want to purchase them, and in some counties, the value of the R license has become incredibly inflated, meaning that not only is it impossible for a grocer to buy a license, there are no new restaurants going into those communities either.

This situation is terrible for consumers and worse for beer distributors. So, getting back to the MBDA, you would think that an association wanting to create value for its members and provide service to consumers would be actively trying to make changes. Not so.

Not only are they objecting to any kind of change, they’re actively working to ensure anti-competitive and anti-environmental practices, which works against the good of the citizenry. Here are a few examples of what they tout as achievements, taken straight from their web site:

1. Defeated legislation to allow credit sales among licensees. – Credit makes for easier and smoother business. Even the PLCB uses credit although they were 16 years behind other businesses. Why wouldn’t beer distributors want to use this business tool?
2. Kept mandatory deposit bills and referendums bottled up. – Nice pun on their part but deposits reduce litter and promote recycling which it seems they don’t want to do.
3. Blocked legislation to legalize interstate sales of beer. – That's understandable. Even with government limitations on entry into the business and lower beer taxes than surrounding states, they definitely don’t want people to know it is usually less expensive to buy beer elsewhere.
4. Eliminated language from a bill to permit food stores to sell candy that contains liquor. Why? Is there any candy with beer in it? I’ve seen chocolate with a dab of liquor in it, but cough syrup and mouth wash has more alcohol and I can buy both in a grocery store.
5. Helped secure injunctive relief in federal court against mail-order beer clubs. Yep, don’t want people trying something new that they might buy a case of if they like it.
6. Supported Clean Air Act exclusion for distributors. They don’t want clean air?
7. Drafted and secured passage of the Quota Law. This one is a bit confusing, and on talking to a few beer distributors, they seemed confused too. Is the quota for distributor licenses, or for tavern licenses? We’ll have to pick this one apart in another post sometime unless some MBDA representative wants to clarify it for us.

Can you see what is missing in all of this? There is not one piece of active legislation that the MBDA has INTRODUCED to help their industry in an already transitioned market place. They seem completely uninterested in providing better price and selection for their customers. Given their stonewall opposition to any liquor privatization bill...that's not surprising at all.

What we don’t have….

The latest failed tactic of those who want to keep the PLCB (largely the people who work there, and the unions they belong to) is to counter the “majority of states do it this way” argument with “but only X amount have this” – pick whatever consumer feature you want that PA doesn’t have and that they don’t want us to have.

The one I like best is “only 15 states have one stop shopping for food and alcohol.” Of course, Pennsylvania isn’t one of those states and heaven forbid we try to lead the way instead of lagging behind. Truth be told is that 39 states have one stop shopping for alcohol including six of the so-called control states. Pennsylvania is a control state, and the most onerous of them all, because while only PA and Utah control wine and spirits retail, you can still buy some beer in Utah in a grocery store (by the case, if you really want!), but you can’t do that here, except in the few stores that have gone to the trouble and expense to buy a tavern license and put in a "cafe" and even then you still can't buy a case at one time.

So in in 39 states you only have to make one trip to buy a case, a six-pack, a bottle of wine and some bourbon; in 10 states you have to make 2 trips; but only in the Commonwealth...do you have to make three trips.

Perhaps if we didn’t have to waste so much time we could write our legislators and list this idiocy as yet another of the myriad of reasons to get the PLCB out of all retail and wholesale.

Privatization – the ultimate modernization.

The Selection Lie

When the PLCB Partisans have made their statements about how dangerous privatization is -- ignoring the fact that it doesn't seem to be causing chaos or undue harm in the states that have it -- and how many jobs it's going to cost -- their jobs, usually, which isn't exactly objective, and ignores the jobs that privatization will inevitably create (if we don't do it the stupid way Senator McIlhinney wants to; yeah, Senator, I said stupid, and if you want to talk to me about it, you already have my email) -- and how much 'revenue' it will cost the state -- which 1)it won't, and 2)that's not the point anyway -- they often get around to saying something like, "And you know, privatization will mean less selection. The private stores don't carry as many different wines and liquors as the LCB does, and supermarkets won't carry a lot of your craft beers; they'll only carry what sells."

Can we just say "bullshit" and be done with it? Because you'd have to be feeble-minded to believe that argument (which really makes me worry about my own state representative, Frank Farry, who actually quoted it to me as the main reason he voted against HB790). All you have to do, quite literally, to disabuse yourself of this notion is go to one of the 160-odd Pennsylvania grocery stores that are now selling beer and look at their beer selection. The Wegmans in Downingtown, for instance, where I bought this bottle of Brooklyn Local 1.

Or you could go to the Whole Foods in Plymouth Meeting, where they even have six taps for filling growlers. But before you make this silly argument, do the really simple thing and just go look at what privately-owned supermarkets are already selling in Pennsylvania! And then stop blathering this ludicrous "talking point" that the state store clerk's union or the Malt Beverage Distributors Association gave you.

It's not just beer, either. Want to see what wine and liquor selection looks like in a privately-run store? Just go look at one! They're right across the border: Joe Canal's, Total, Roger Wilco, Moore Brothers... Are there corner bodegas in the side streets of Trenton that have tiny selections? Sure there are, just like the "grocery" selection at a 7-11 is dwarfed by what you can get at Wegmans, or Giant Eagle, or at an Aldi's, for that matter. That's the point: they don't all have the same stuff, so some of them have a lot more.

But really. If you're making these arguments, or even thinking about considering them as possible...Just. Go. Look. It's all you have to do to realize that they're pure delusion, lies, distortions of truth. If we break open wholesaling in this state -- and it can be the same "system" as the beer wholesalers, they're doing a great job supplying us with multitudes of beers! -- the private stores will get the selection. And it will be the selection you want, not the selection some PLCB committee in Harrisburg has decided you're going to get.

Tell Senator McIlhinney and your state senator that you want real privatization in Pennsylvania: privatized retail and privatized wholesale. If we don't get it all, there's no point. Happily, McIlhinney does get one thing:

"The committee's chairman, Sen. Charles McIlhinney, R-Bucks, also attacked part of Corbett's justification for selling private wine and liquor store licenses, the idea that a windfall of $1 billion or more would result. "If this is about a money maker, I don't think that's really where we should be going with it," McIlhinney told reporters after the hearing. "If we're going to do privatization and try to make more convenience out there, it shouldn't be some way to generate a billion dollars and then give it away."

Right on that one, Chuck. Now get your head straight on the rest of it. Don't compromise with people who aren't going to make a deal.