What the Hell is Happening in New Jersey?
The memes came first. I started seeing them appear on Augie Carton’s Facebook page—he owns Carton Brewing—and then, sans context, on Twitter. Something weird was happening in New Jersey, and it was so disgusting to locals that memes were the only recourse adequate to express their contempt. Tentatively, as one does on the internet, I began to explore. And, also typical of the internet, I found myself descending into an unimaginably dark, twisted tale of human depravity.
On July 1, the New Jersey Division of Alcohol Beverage Control (henceforth ABC) issued rules for breweries that seemed designed to target their business. They were variously bizarre or comically restrictive. Not only could breweries not offer food, food trucks were also out. Even coffee was verboten. There were specific categories of, well, let’s call them “fun” things that breweries were restricted from offering: no live music, no happy hour, a limited number of events—and if you do hold one of these events, ten days’ notice. Some were so specific my spidey senses started tingling. My public policy-brain went to the phrase “regulatory capture.” Could it really be this bad?
Jersey, what the hell are you doing?
The Special Ruling
The current situation dates back to 2019, when NJ’s Alcohol Beverage Control—the state’s alcohol regulatory agency, with the power to interpret laws and create standards for alcohol businesses—issued what it called a “special ruling.” The ruling addressed the “concerns” of NJ bar owners that breweries had figured a way around the highly-restrictive laws that govern the state’s bars. In the current system, New Jersey caps liquor licenses statewide. This forced bottleneck means that a liquor license is basically a permit to print money, and they can be sold—sometimes fetching up to a million bucks. So of course, bar-owners want to protect their investment at all costs.
As craft breweries started to enter the scene, they rather naturally wanted taprooms in which to serve their beer. To bar-owners, however, this looked like a sneaky work-around. Open a nanobrewery for a a fraction of the cost of a liquor license, and you were in the booze business. That would not do. Bar-owners are represented by the powerful trade association, the NJ Beverage License Association, so they swung into action to restrict breweries from encroaching on their turf.
The original special ruling was so draconian it created a rebellion and was never enforced. It created such a big stink, in fact, that the agency director took retirement. Then Covid came along and that further delayed implementation, though the situation nevertheless hung over breweries’ heads. In the meantime, the Brewers Guild of New Jersey, which represents the state’s craft breweries, lobbied the ABC to rework the rules.Well, to catch us up to the currents memes flying around, ABC posted the new rules three weeks ago, reigniting a new round of outrage and rancor. In the revised version of the ruling, some of the worst restrictions were softened, but the rules were basically the same.
Problems with the Special Ruling
All of this is hard for regular folk to track because like so much that happens at a regulatory level, the policies are a nesting doll of rules and laws and governmental structures. Unless you’re deeply connected to the small print that governs business, it’s hard to figure out what’s going on. In order to get a handle on the issues, I spoke to Scott Wells, an owner of Bolero Snort Brewing in Carlstadt and a board member of the Brewers Guild. He began by walking me through the context of the 2019 rules and the background of the New Jersey alcohol system.
Wells acknowledged that the 2019 ruling did actually help alleviate some of the brewers’ concerns. “The best example I can give is this,” he said. “Until the 2019 ruling, if you visited a brewery in NJ today, you had to take a tour of the brewery before you could order a beer. If you came back tomorrow, you had to take the tour again. The 2019 special ruling said you only have to do a tour once annually per brewery.”
However, much of the substance of the special ruling seemed to have one overriding goal. “It was still focused on keeping breweries from becoming consumption venues,” Wells said. Everything about the framework was designed to hamper breweries’ efforts to welcome people into their taprooms. An example: “Literally anything that’s not serving beer is a special event. If I have Olympic curling on, it’s a special event, even if I don’t advertise for it. [And] you’re only allowed 25 a year.”
He continued, pointing out how far the state would go to keep food out of a brewery. “They’re interpreting having a food truck operate near a brewery as a loophole to a brewery operating a kitchen. Even if there's zero coordination between a brewery and a food truck, or prior knowledge, the brewery can be held responsible and punished by the state. In effect, the state is using its alcohol regulatory body and its authority to regulate food truck activities that don't have anything to do with the brewery at all.”
What happens if Bolero Snort violates any of these myriad new rules? Nobody knows. “Another thing that everyone’s missing is they put these conditions on our license. It’s kind of been in effect for three years, but we’ve never been told what the penalties are. So if I brew a pot of coffee right now, I don’t know if that’s a ten-dollar fine, or a suspension of my license.”
There are fewer than 150 breweries in New Jersey, and six thousand bars. The revenue generated by the bars is in the billions—orders of magnitude higher than the revenue generated by breweries selling pints out of their taproom. Wells emphasized that breweries were never created as an end-around the liquor laws. Like breweries in the other 49 states, they just want to be able to make and sell their beer. “We want to be able to showcase our products as best as we can to support the brand. That's difficult to do when you can’t offer your guests a welcoming environment. We're forced to push customers to other businesses and in many cases that means to businesses that do not carry our beers or any beers made in the state.” And in fact, the license to sell beer in a taproom is vastly more attenuated than a liquor license, which allows holders to offer food and entertainment and sell not just beer but all kinds of alcohol. The potential harm breweries present to established bars is, by any reasonable measure, tiny.
Regulatory Capture
In public policy, there’s a well-known form of corruption that perfectly describes what’s happened in New Jersey: regulatory capture. That is, a regulatory agency becomes captured by the industry it was ostensibly created to oversee. (I want to emphasize that I’m providing this analysis and Scott Wells never described the state of New Jersey or ABC as corrupt and never used the term regulatory capture to describe the situation in New Jersey. This is me talking now.) In the case of New Jersey, the state artificially imposed a limit on the number of outlets licensed to serve alcohol. This is terrible for anyone who wants to get into the business, but it’s awesome for anyone who already has a license. Over time, bars became power brokers, and bent ABC to their will. The special ruling was a power play to brush back competitors.
Like most states, ABC was formed just after Prohibition and was founded with a goal of limiting consumption. Over the decades, the system has calcified into one not regulating bars, but one serving them. It leaves breweries in a catch-22 they can’t escape. The state doesn’t want more on-premise consumption and so at least nominally, it demands production brewing alone. But because things are so restrictive, breweries have nowhere to turn. There’s no incentive for those holding liquor licenses to buy local, and the vast majority don’t.
According to Wells, “As best as we’ve been able to figure, between all of our breweries and of the six thousand bars in the state, only 800 of them buy beer made in New Jersey. You’re asking us to be model suppliers, but the system has created such disparity that we are handicapped to compete with breweries from out of state.” He continued:
“I honestly understand this from a business perspective since they make their money supporting out-of-state brands. But I'd argue that if a handful of consumption license holders that profit off of the system in the state are seeing their businesses negatively impacted by people buying local beer from local breweries, most of those parties involved aren't offering their customers the local beers from those local breweries to satisfy their needs. Which in turn means these regulations make it harder for a small but loyal customer base to access the products that they want. They want us to be distributing breweries, but I can’t distribute because of our liquor system.”
The problem is a long-standing one and involves layers and layers of different interests and power structures. Retailers seem to hold the whip-hand, but distributors have their own agendas (which don’t appear to line up with local Jersey breweries), and last come the breweries themselves. In other states—Oregon springs to mind—the laws were relaxed early on and the calculus shifted in favor of the breweries, who now hold enormous power to torpedo idiotic laws like the special ruling. But because New Jersey has this calcified protectionist system, the breweries don’t have clout in the state.
This is, of course, not lost on Wells. “The brewery problem is a small compared to the overall liquor license system in the state, which needs to be reformed. The reality is, they’re not going to reform it, and even if they did, it would take years.”
The Next Chapter
I’m not especially well-positioned to comment on the political strategy needed to resolve this issue. The Brewers Guild is working with legislators to address some of the biggest problems. Of all the restrictions in the special ruling, only three are tied to statutory law. Still, the legislature might be the best source of recourse. ABC is an agency of the state, and it must follow laws the legislature passes.
The bigger problem isn’t unique to New Jersey. The structure of liquor laws in most states were created decades ago to serve the social and political needs of a country just emerging from Prohibition. Liquor has always been an lucrative trade, so corruption has been endemic for centuries. It’s far worse when the regulatory chassis was built on social mores that are a century out of date. The problem, in Jersey and elsewhere, is that established players have a vested interest in the status quo. They have lobbyists, funds, and deep relationships with the people who make law. The only way to break up these old relationships is by changing the incentives.
Currently, it’s in everyone’s interest to keep the system as it is in New Jersey. For those at the table, business is good! Change happens when the people who make the laws are confronted by angry constituents who demand it. If you’re a beer drinker in NJ, you can help out by creating as much heat as possible. Spread those memes! But more than memes, it takes specific legislation and a will to see the laws change. So find out who your local state reps are and get ready to email and call them. Legislators are far more attentive to the people that have the power to boot them from office.
For someone in the relatively enlightened state of Oregon, where liquor laws have helped breweries thrive, this seems like an impossible situation. Godspeed, Jersey breweries. I’m pulling for you.
Update: here’s how you can help!
Cover photo: NY Post