California ABC Type-75 Brewpub license conversions to Type-47 Full Liquor Licenses
This blog pertains to ABC liquor licenses in the state of California and the news is EXCITING!
As of January 2023, restaurants that had been operating with a Type-75 brewpub license can exchange them for a Type-47 full liquor license. The licensees had to have secured the Type-75 license prior to December 31, 2019 (I don’t know why this distinction was made, but this date was the final date applicants could secure an original Type-75 license with the ABC directly).
A Type-75 license allows for small batch brewpubs to sell full liquor and it became a work-around, or alternative, for restaurant owners who operated in counties where Type-47 full liquor licenses are quite expensive.
A little about Type 47 licenses: in many counties in California original Type-47 full liquor licenses are no longer available. An “original” license is one that can be secured directly from the ABC. My understanding is that the ABC issues full liquor license on a quota based on population by county and once the quota is met, they will no longer issue licenses in that county. When that happens, licenses can only be secured in a handful of ways:
- Purchasing one from a current license holder on the open market
- Winning a license in an annual ABC lottery (referred to as a priority drawing). These licenses and they seem to end up in a priority drawing several ways:
- A license holder loses their license
- The county issues more licenses. For instance, Napa County was able to secure 15 Type-47 licenses to be entered into the priority drawing 5 at a time over three years.
Type-47 licenses available for sale on the open market are very sensitive to supply and demand and they can get quite pricey. At one point, licenses in Napa County were $475K. These licenses are appreciable assets and buyers can secure an SBA 7a loan to purchase them. For licenses won in the drawing there can be “statutory authorizations and limitations” mandated by the ABC. These are restrictions placed on the license such as when the license can be sold and how much the license can sell for (for the life of the license). In other words, not all licenses are created equal.
In counties where full liquor licenses can only be secured on the open market, and they’re expensive (let’s say over $70K or so), some restaurant operators who had the space on their premises chose to install small (7-barrell) brewing systems so they could operate with a Type-75 license and serve full liquor. Beside the time it took to build-out, permit and license the brewing system, an operator might spend about $35K on the equipment and installation…a fraction of the cost to purchase a full liquor license. The downside for holders of a 75-license is they must brew a minimum of 100 barrels of beer a year. Licensees either had to hire and train staff to brew or they secured outside consultants. The beer had to be stored and sold on site. What the ABC found with this work-around was that some licensees were not brewing beer at all or if they were brewing it, they weren’t selling it. I think these are some of the primary reasons why the ABC wants to sunset the Type-75 licenses by offering the 75 to 47 exchanges.
OK here is what I know about the exchange. Current Type-75 license holders can:
- Exchange and keep the license for the cost of an original Type-47 license (about $17,000) as well as the annual ABC license fee and exchange fee…roughly $20,000 total. This allows them to sell off the brewing equipment and absorb that space back into the normal operations of the restaurant. In some cases, brewing systems were set-up in valuable dining room space.
- Sell the license on the open market. As long as the license is in good standing, license holders with an active or surrendered license can sell it and during the purchase process, buyers can convert the Type-75 into a Type-47 license. The ABC will not allow the sales price for these licenses to ever exceed the original cost of the license which for the most part is about $15,000. In other words, these licenses will not appreciate.
Here are a few things Buyer’s should note:
- The $15,000 purchase is net to seller, Buyers will typically pay the broker’s commission and escrow fees.
- Buyer will incur the same ABC fees to exchange the license as noted above (about $20K in total).
- The most attractive Buyer will have a fully operational restaurant. The ABC will not issue a license to location that is not ready to operate, and if this is the case, the license will sit in escrow until the location is ready. And the seller won’t get the proceeds from the sale until escrow closes.
- Buyer may have to secure a conditional use permit to serve full liquor in their location. This can be a somewhat arduous process depending on the prevailing municipality
Well, that about covers what I know about the Type-75 exchange, I’m sure I’ll be learning more as my clients buy and sell these licenses.
Ryn Longmaid is a restaurant broker and consultant at Santa Rosa Business & Commercial in the San Francisco NorthBay and the host and founder of the Facebook Live Series, Deep Dish: discussions on the business of restaurants for restaurateurs, restaurant buyers and sellers and the restaurant curious.
As well as being a licensed real estate broker, Ryn is a CBB with the California Association of Business Brokers (CABB), a CBI with the IBBA and she holds an MBA in Sustainable Business Management. In addition to being a proficient business broker, Ryn has over 20 years’ experience in the restaurant, hospitality, and food industries. She has served as the executive chef for Amy’s Kitchen, personal chef to actor Don Johnson, she founded and operated a successful and longstanding restaurant. She has also held teaching posts in restaurant management at the Art Institute-San Francisco and The Culinary Institute of America-Greystone.