Liquor Licenses: What is the Deal?!
I’m a restaurant broker in the state of California, so what I’m sharing in this blog is most specifically aligned with the laws and regulations of my state. But no matter where you operate, the license that allows for the service of alcohol needs to be on the radar of both restaurant buyers and sellers. Because alcohol sales and service are legislated at the federal level, there are similarities between states, but there are also a lot of differences. For now, my discussion will be concerning how liquor licenses are related to the sale, purchase, and operation of restaurant bars and cafes in the state of CA and most specially in the San Francisco NorthBay region.
Two Timely Announcements
If you are an operator in the state of California, you know that September and October account for the season of the ‘priority drawing.’ This is the term used by the CA Board of Alcohol and Beverage Control when expensive and somewhat scarce licenses that are normally only available for purchase on the market, are available in a drawing for the cost of an original license. And this year, there are a lot of Type-47 priority, full-liquor licenses available across the state. To name a few, there are 15 in the County of Napa, 25 in Los Angeles County, and 23 in Stanislaus County.
The deadline for submission was September 24, 2021, and the drawing will take place in October. In the County of Napa, 15 full liquor licenses will go into a lottery. The winners could secure a license for the cost of the application (around $16,000) vs paying the market rate for a full liquor license in Napa, which can be somewhere in the $400,000-$450,000 range. In addition to the priority drawing in the counties I mentioned, there are many other counties with various license-types available.
The other announcement is (and I’ve been publishing this the Deep Dish Delivered Monthly newsletter), the ABC license annual fee waiver. Last February, Governor Newsom signed a Covid relief package that included fee waivers for many ABC licenses holders through February 2023. The most important stipulation to note about these waivers is to request them while the license is active and in good standing.
ABC Beer & Wine & Full Liquor Licenses
But what is the deal with ABC Beer & Wine & Full Liquor Licenses? Why is the pricing from listing to listing all over the map? Should you get an original license or transfer an existing one? Why do full liquor license prices vary from county-to-county?
First, I want to clarify the terminology, as my clients always correct me if I refer to their ‘beer and wine’ license as an ABC ‘Liquor’ License. Culturally, we use the term ‘liquor’ when referring to hard alcohol. But in terms of the ABC, the term ‘liquor’ is used for all alcohol beverages whether the license is for beer and wine or distilled spirits.
And secondly, there are a lot of liquor license types that depend on whether the licensee is an alcohol producer, an importer, wholesaler, broker, or retailer. There are specific licenses for B&Bs, museums, shippers, and farmer’s markets. There is one license, a Type-87, that authorizes the sale of beer, wine and spirts in specific census tracks in the City of San Francisco.
As a restaurant broker, I work with many types of licenses: Type 40, 41, 47, 48, 58 and 75, just to name a few. In addition to the designations, there can be all kinds of restrictions and additional licensing and permit requirements depending on the location and type of operation of the licensee.
Two of the most popular and sought-after license types in CA are Type 47 and Type 48 On-Sale General, full-liquor licenses. They allow the licensee to sell spirits in a retail setting. Type 47s are for bona-fide eating establishments where 51% or more of gross sales are attributed to the sale of food. A Type 48 license is for the sale of spirits in bars and nightclubs where there is limited or no food service. Establishments with a Type 48 have the 21-age restriction whereas there is no age restriction for a Type-47. Type 47s are very attractive licenses to restaurant operators for many reasons, one of which is the high profit margin on cocktail service. Under certain conditions, Type 47 and Type 48 licenses can be exchanged. In other words, a 47 can be exchanged for a 48 and vice versa, but there can be strict protocols for exchanges at the ABC and municipal level.
With the exception of the somewhat rare occasion when Type 47 and 48s are available in the ABC priority drawing, these licenses are only available for sale on the open market. The license prices are very sensitive to supply and demand, and prices vary widely from county to county. For instance, Type 47/48 licenses are currently around $185K in Sonoma County, $450K in Napa County (as I mentioned earlier), about $150K in Nevada County up in Lake Tahoe, roughly $100K in Orange County, and $50K in Almeda County in the San Francisco East Bay.
When searching for a full-liquor license to purchase on the open market, most of them will be listed by a restaurant broker or a liquor license broker. As you may remember from previous posts, in the state of CA, restaurant brokers must be licensed real estate agents. And as a licensed real estate agent, I have to have a listing agreement with the holder of a liquor license in order to sell and advertise it. Additionally, I have to include the commission in the list price. This fact highlights two major differences between restaurant brokers and liquor license brokers who don’t have to have any type of licensing. These differences are liquor license list prices and the actual (vs perceived) availability of the liquor license.
- Liquor license list prices
Restaurant brokers (licensed real estate agents) must include their commission in the list price for liquor licenses, and liquor license brokers (unlicensed sales people) do not include their fees in the list price. As a result, it may look like license prices (within the same county) vary widely, but, in fact, they do not.
Here’s an example: let’s say there are two Type-47 liquor licenses advertised for sale in Sonoma County. One is listed at $185K by a restaurant broker (real estate agent) and the other one is listed for $170K by a liquor license broker. It looks like one is substantially less, but, in fact, the buyer will pay the exact same amount for either license.
The only difference is the liquor license broker lists their licenses at a price “net to seller”. So, what does that mean? The liquor license broker’s fee is stripped out of the list price because they can advertise them that way legally. But the fact is that the buyer will be paying the liquor license broker and additional 10% “fee” in addition to the list price.
- Liquor license brokers take fees upfront
Another important difference between a restaurant broker (real estate agent) and a liquor license broker (unlicensed sales person) is liquor license brokers take their fees upfront. So, if anything happens (and believe me, things happen) and the license doesn’t successfully transfer, the broker’s fee has already been paid and is non-refundable. Restaurant brokers (real estate agents) get paid by commission when the escrow closes. This means that if the license doesn’t transfer, the agent doesn’t get paid.
If you do a web search “Type 47 license Sonoma County”, a ton of websites will pop up showing this exact license in the exact county available for sale. In fact, you could search any license that sells on the open market in any county, and I’ll guarantee a bunch of websites will pop up that look like that exact license is available for sale. However, the truth is that the license may or may not actually be available.
Liquor license brokers will list licenses in every county with that licenses’ prevailing list price (less their fee) regardless of whether or not they actually have a license. When an interested buyer contacts them, they’ll go out and aggressively search for the necessary license. Any of you reading this blog and hold or have held a popular license type know exactly what I mean by an aggressive search.
Liquor license licensees are a matter of public record, and it is easy to find the contact name and address of the licensees. If a license is in distress (a tax agency has a hold on it) this fact is also published in public records. Liquor license brokers spend a lot of time calling and mailing license holders trying to secure a license they can sell.
All ABC licenses selling on the open market are transferred through an escrow process. It can take between 60 and 90 days, depending on how busy the ABC district office is and how long it takes to process the application. So getting the application submitted in a timely manner and making sure the application is completed properly is paramount for a quick(ish) and successful close.
If the seller of a license owes any money to a state taxing agent (CDTFA, EDD or the FTB), those agencies will generally put a hold on the license and those outstanding taxes will be paid for by the proceeds from the sale. In the event that the money owed exceeds the money collected for the sale, escrow will not close until the additional funds are deposited to cover the excess fees.
I’ll continue this topic in next month’s blog, but there is one more point I want to make. Not all liquor license consultants are equal. In addition to paying the liquor license broker’s fee upfront, the buyer is expected to work with and pay a liquor license consultant to get them through the application process. This can cost about $2,500.
In our office, if you list the license for sale with us and we represent both the buyer and the seller, we work very closely with the buyer and seller on the application process. In fact, we manage the entire process because there are a lot of moving parts. If anything is done incorrectly, it can cost a lot of time and sometimes kill the transfer entirely. In addition to me, there are several other agents in our office who will work for a reasonable rate as consultants on the ABC license transfer process if a buyer is securing a license that wasn’t purchased through our office. In other cases, clients win a license in the priority drawing or they’re securing an original Type-41 beer and wine license. I’ll talk more about the application process in the next blog.
Before I conclude, I want to highlight three important aspects about the licenses that are available in priority drawings. It is important to read the details of the drawing for each license in the county in which you want to apply to win as they can greatly affect the use and value of the license. For instance, this year for the 15 Type-47 full liquor licenses, there are several important stipulations. Here are three of them:
- An applicant must have been a resident of California for at least 90 days prior to the date of the scheduled drawing.
- The licenses shall not be sold or transferred for a price greater than the original fee paid by the seller ($15,835). In other words, that can’t be sold for more than they were purchased for, locking them in at the $15,835 lottery-entry price forever.
- If an applicant owes money to any of the state taxing agencies (the CDTFA or the FTB) a claim can be made against the application fee. In other words, whether or not the applicant wins the license, the taxing agencies will place demands for payment on the money submitted for the application and the applicant will have to come current on the outstanding tax bills and, if the applicant wins, pay the application fee.
Next month I’ll cover more about the fascinating topic of liquor licenses in the world of restaurants, and I’ll start with item 2 on the list above.
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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, and 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.