Apparently, it wasn’t enough for the New Jersey Division of Alcoholic Beverage Control (ABC) to implement new rules in 2022 designed to cripple the fledgling craft brewery industry. After being sued by Clarksboro-based Death of the Fox Brewing Company, ABC now claims that its rules are unenforceable “guidance.” But ABC’s claims are contradicted by its actions.
First, some background. In 2012, the New Jersey legislature recognized the national trend toward local craft breweries and updated state law to allow the industry to grow. So long as breweries stick to generous production limits, do not serve food, and give tours to customers, they can operate tasting rooms on their premises and sell their products directly to customers.
The liberalization worked. By 2019, New Jersey had about 130 breweries, up from fewer than 10 in 2012. But not everyone was happy with the growth.
Claiming a need to “balance” competition between the fledgling craft brewery industry and the more than 6,000 bars, restaurants, and liquor stores, ABC issued a “Special Ruling” in 2019 setting out a litany of new rules and restrictions for craft breweries. For example, the Special Ruling placed strict limits on the number of “special events” breweries may host and on the size and number of televisions breweries can install.
The arbitrary limit of 25 special events has been particularly damaging to the bottom line of this fledging industry. Defined as any event advertised outside the four walls of a brewery — trivia night, open mics, televised sports playoff games, etc.—these “events” are the lifeblood of small breweries. Most craft breweries cannot rely solely on distribution through bars, restaurants, and liquor stores, so they focus on making their tasting rooms as inviting as possible. Indeed, those bars, restaurants, and liquor stores are the very ones that urged ABC to adopt the 2019 Special Ruling because they don’t like the competition.
In the summer of 2022, ABC began enforcing the restrictions from the 2019 Special Ruling as conditions on all craft brewery licenses — even though no one had an opportunity to make public comments on these new rules, as required by the New Jersey Administrative Procedure Act. In response, one brave brewery, Death of the Fox, sued ABC to challenge the validity of the rules, represented by my firm, Pacific Legal Foundation.
Since then, multiple legislators have introduced bills that would reverse ABC’s rules. Governor Murphy recently called for a complete overhaul of the state’s liquor laws while voicing support for the state’s craft breweries.
While those potential solutions could return craft breweries to the world envisioned by the legislature in 2012, breweries face an uncertain future.
During our litigation, ABC makes the head-scratching claim that its rules aren’t meant to be enforced. Rather, according to ABC, they’re just helpful “guidance” to assist breweries in understanding what state law allows. But ABC’s claim is contradicted by its actions.
Multiple ABC documents, including communications directly from ABC to breweries, declare that the rules are “fully enforceable.” But it’s not just their words. On at least two occasions ABC has cited breweries for failing to comply with provisions of the 2019 Special Ruling. ABC has even denied event permits to breweries, again citing the Special Ruling.
At bottom, it is nonsensical that ABC would have gone to the effort to create the detailed Special Ruling, include its rules on brewery licenses in 2022, and issue special exemptions and relaxations when petitioned by breweries dealing with the economic fallout, if the rules were voluntary. But this is what ABC is asking New Jersey courts to believe.
Such agency misbehavior is precisely why the Administrative Procedure Act exists. Before government agencies can create new rules, they must engage in a formal notice-and-comment process that gives all industry members, as well as the public, the opportunity to give feedback. After that, the agency must seriously engage with that feedback and submit final rules to the legislature for approval. Only then can a rule take legal effect. ABC complied with none of those requirements in creating its 2019 Special Ruling.
The courts, legislature, and New Jersey citizens should demand more from ABC. Hopefully we’ll soon be raising a glass of craft beer to a healthy dose of accountability for New Jersey’s power-drunk booze regulators.
This op-ed was originally published in The Star-Ledger on June 20, 2023.