Everything You Need to Know About Michigan’s New and Improved Liquor Laws #DetroitFood

Rachel Szlaga’s hands are shown pouring a dark coffee stout called Night Heron into a stemmed glass from a silver tap.

Under new state legislation, small breweries now have opportunities to self-distribute more of their beer to bars and restaurants before signing on with a costly distributor. | Michelle Gerard

In July, the state approved a batch of 16 laws that could have a far-reaching impact for local bar and brewing industries

Bars and restaurant owners have been shifting at every turn during the pandemic, aiming to keep their customers and employees safe while keeping the lights on. Amid all the worry, new legislation has lifted some of Michigan’s liquor restrictions, many of which had been in place since Prohibition.

In early July, Gov. Gretchen Whitmer signed a 16-bill package for the hospitality industry. The package primarily made revisions to provisions of Michigan’s extraordinarily detailed and extensive liquor control regulatory regime. Others made amendments to the Michigan Liquor Control Commission code with aims to keep Michigan’s local breweries and the craft beer industry competitive.

The new laws legalize to-go cocktails and delivery of mixed drinks, and allow patio dining without the need for extra permits. Likewise, the package makes it possible for cities to establish so-called social districts for outdoor drinking and provides bars and restaurants with larger discounts on liquor, temporarily improving their profit margins on liquor sales. Other sections of the package rework old rules surrounding distribution and increase the amount of beer a brewery is able to self-distribute to a retailer, such as a restaurant or liquor store, from 1,000 to 2,000 barrels. Finally, the liquor law overhaul package makes it possible for the Michigan Brewers Guild to operate beer festivals without tokens and tickets, grants out-of-state breweries who signed on with a distributor to sell their product in the state an opportunity to switch distributors so long as the company’s beer is not sold in Michigan for two years, and lifts strict regulations on registering beers with the state for both in- and out-of-state breweries.

Here’s everything you need to know about the new bills:

A red frozen cocktail in a bottle with an orange cap next to two jars of that same cocktail. — To-go cocktails became legal for sale and delivery in Michigan on Wednesday, July 1.

To-Go Cocktails Sales

Among the biggest changes in the package for consumers and bars alike is Senate Bill 942, which allows restaurants and bars with a Class C liquor license to sell to-go cocktails and permits businesses with a third-party facilitator service licensee (a license that allows delivery services to transport alcohol to consumers) to deliver those cocktails, beer, and wine to customers. When using a third-party delivery service such as Doordash, customers are now able to add their favorite alcoholic beverage to their order, and, after showing proper identification to the delivery driver, have it dropped directly on their porch now through 2025.

Sandy Levine, owner of the Oakland in Ferndale, shut down his cocktail bar in March and has been waiting for the right moment to reopen with less risk to employees. “Opening at 50 percent capacity didn’t make much sense financially, and the risk versus reward wasn’t worth it,” Levine tells Eater. “The new legislation at least allowed us to put together an offering of to-go cocktails, and we only recently just began offering delivery.” Despite the new opportunities for to-go sales, the Oakland is still struggling. “As of right now our sales are around a third of what they were, but that’s better than zero, and hopefully it will continue to allow us to cover the cost of operations,” he says.

A cocktail with ice, a purple liquor, and a blackberry garnish sits on a tile floor. — Bars and restaurants in the short-term are allowed to purchase liquor from the state at a larger discount than they could pre-pandemic.

Increased Discounts on Liquor for Bars and Restaurants

The new legislation also provides temporary benefits to businesses that buy liquor. The Michigan Liquor Control Commission (MLCC) holds the monopoly over spirits distribution in the state. There’s a 65 percent markup on hard liquor in Michigan, which helps cover the MLCC’s costs and generates revenue for the state. Then, retailers such as restaurants and liquor stores are given a 17 percent discount on that liquor so they can turn a profit on sales.

But the new legislation adjusts that. The discount on spirits purchased from the commission increased from 17 percent to 23 percent for on-premise licensees for a 12-month period until July 12, 2021. That means that each purchase of to-go cocktails customers add to orders between now and next year will go further toward supporting the local hospitality industry.

To-go cocktails and increased discounts on liquor particularly benefit bars that are currently prohibited from offering indoor service and didn’t have the permits to sell beer and wine to go during the stay-at-home order. Many bars in the city found modest success with curbside cocktail kits sans the booze, but getting the opportunity to offer those drinks with actual alcohol improves the experience for customers and allows bars to charge more for their products.

At Kiesling in Milwaukee Junction, the bar team has opted not to reopen for in-person service. However, the new liquor laws still give the cocktail spot options for providing service.

“The new legislation gives us a blank canvas for a different and potentially more creative style of service, and also forces us to be creative in ways we never thought before, which is pretty exciting, actually,” says James Downs, general manager of Kiesling. “The one thing it does not change is what service workers are doing constantly during every shift, making adjustments on the fly. This is simply another opportunity … to do that, and still remain relevant.”

Two socially distanced tables are set up outside Mink on a sunny afternoon. — Under new legislation, cities may establish social districts where businesses can acquire permits and allow customers to consume alcoholic beverages off-premises within a defined area.

More Outdoor Drinking

One of the most exciting pieces of legislation in the package was a bill allowing cities and municipalities to establish new outdoor drinking spaces known as social districts for restaurants and bars that purchase a $250 permit. The social districts go hand in hand with carryout cocktails, allowing customers to purchase to-go drinks from adjacent bars and drink them off-premises as long as they remain within a designated area. This legislation provides potential benefits to restaurants and bars within approved areas of each other, though, thus far, no metro Detroit cities appear to have established social districts.

“Local municipalities have done a really good job at responding quickly to allow bars and restaurants to expand their outdoor seating prior to the social district legislation being passed,” Dayne Barscht, managing partner of Eastern Market Brewing Company and Ferndale Project, tells Eater. “In Detroit, the city responded within a few days and approved our permit to close the street between Eastern Market Brewing Company and Detroit City Distillery through October. And in Ferndale, we extended the patio into our front yard and the MLCC approved it within a week.”

A reddish colored beer in a smaller glass stands next to a cloudy, amber colored beer in a taller glass. — Beers from Nain Rouge Brewery in Cass Corridor.

Expanding Brewery Self-Distribution

For small breweries in Michigan, a more important piece of legislation allows breweries a bit of breathing room with the amount of beer they produce in their taproom and self-distribute to local bars, restaurants, and liquor stores. Michigan has a three-tier system where producers can sell their products only to wholesale distributors that then sell to retailers, which then to consumers.

Prior to the new legislation, brewers could only sell their beer directly to bars and retailers without the middleman if they produced fewer than 1,000 barrels in a calendar year. The barrel limit also included taproom and on-premise sales. After that threshold, they were required to sign a contract with a distributor which in effect changed price structures and margins on products sold to consumers outside of their four walls.

Eastern Market Brewing Company was instrumental in initiating the conversation that led to the now-passed House Bill 5343, which increases the amount of beer brewpubs and microbreweries can deliver to a retailer from 1,000 to 2,000 barrels. The bill also specifies that on-premise sales are no longer included in that barrel limit, making it possible for small breweries to self-distribute for a longer period of time and get a feel for their local market without spending extra money contracting with a distributor. That also provides more opportunities for breweries to share their stories and connect with customers, as opposed to relying on a distributor with a large portfolio that makes it difficult to focus on promoting individual products from brands.

“The first few years of owning a brewery, most don’t factor distribution into their business model, because there’s not much money to be made at a low volume while using a third-party [distributor],” Barscht says. “This bill is instrumental in allowing breweries to really understand the market, their brand, how their product engages with consumers, and make some money. Though this was all pre-pandemic it will hopefully help smaller breweries now that are not yet signed on with a distributor.”

A person wears a pretzel necklace and a plastic cup of light beer at Michigan Brewers Guild festival in 2014. — In the future, Michigan beer festivals won’t be required to provide tokens or tickets to visitors doing tastings.

Far-Reaching Impacts

The legislation package will have benefits even after the novel coronavirus is under control. House Bill 5347 allows breweries both in and out of state to no longer have to register their beer on the state level for festivals or taproom sales (a tedious step after registering on the federal level). Out-of-state breweries whose products were previously sold in Michigan’s market, but removed their brand from Michigan completely due to disagreements with distributors, are now able to sell their products in Michigan’s competitive market with a new distributor after remaining out of state for two years.

If an out-of-state brewery left Michigan due to disagreements with a distributor, its brand was removed from tap lists and retail selections and became no longer available for purchase in Michigan. Once a brewery (in or out of state) signs on with a distributor, it is locked into the contract, and unless it or the distributor breaks that agreement, it is unable to sell its products through a different distributor (the third party that is required after breweries hit their barrel limit, or if out-of-state breweries want to sell their product in Michigan). Originally, the brewery would have to negotiate its contract, if possible, and the original distributor could price its brand at an outrageous price so others would be unwilling to purchase the rights to sell its product. Now, if a brewery remains out of the state for two years, it is able to reenter with a different distributor and its product becomes available for purchase again, no broken contracts and no negotiations required.

And once beer festivals are able to begin hosting ticket holders again, the Michigan Brewers Guild can host events without the exchange of tokens. Until we’re safely able to raise a pint together, the future of festivals is one to look forward to.

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• Michigan Breweries Push for New Rules to Double Self-Distribution Limits on Beer [ED]
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