Dear patrons, friends, and supporters of the Blinking Owl Distillery,
Tuesday, November 12th marks the start of a 25-day shutdown for our tasting room here at the distillery in Santa Ana. The California Department of Alcoholic Beverage Control (ABC) has suspended the retail privileges which come with our Type-74 Craft Distillers license. That means for the duration of the suspension we will be closed to the public, including all private events or functions. While we disagree with this conclusion, we will, of course, comply.
This shutdown is the end result of nearly a year of back and forth with state officials. While Type 74 license states that distilleries can only serve up to 1.5 oz. of alcohol per person per day, we are allowed to have private events, in which the drink restriction is waived. It is under this section of code which many small distilleries in the state have found a much needed revenue source by hosting private events or functions. To that end, we segregated private events with wristbands, something we believed the public was accustomed to and well understood the meaning of, and we subsequently operated in a manner we understood to be in complete compliance.
In October 2018 an undercover ABC trade enforcement officer, Agent Gray, called our distillery and put his name on the Private Event list for a party of 2 guests that day. Undercover Agent Gray and Agent Groff, came at the time he requested, checked in with tasting room staff, received a wrist band identifying him as “private”, and sat down at our bar. After ordering a cocktail, another patron entered our tasting room and also sat down at the bar. This patron had not arranged a Private Event and was informed by our staff they would only be served the statutory limit of 1.5 oz of spirit, which they understood and followed. At this point, Agent Gray and his guest ordered a second cocktail, drank it, paid his bill, and left our establishment without incident.
Agent Gray followed up with the distillery owners one month later. He expressed that many craft distilleries had confusion on this new license type, and he had taken on the task of helping us understand this law. Although the law does NOT state a private event requires “physical segregation or separation”, the agent insisted that this was “obvious” interpretation of the law, and wristbands were not sufficient. He explained several types of what he deemed as events (including the right to throw events for our members) and stated is was fine to hold private events while we were on to the public, but they had to be in a different area, thus, on our patio.
Immediately following our meeting, the Blinking Owl eliminated the use of wristbands, decided to no longer answer phone calls for private events (so we would have everything documented by email), and invested thousands of dollars to create an area on our patio that could host our events in compliance with this new interpretation of the law.
Unfortunately, at the time of Agent Gray’s visit, we were on probation for a prior violation regarding a Private Event in November 2017. After ABC Agent Plotnik visited, he followed up with an advisory that, once on the premises, our patrons could not join or suddenly book a private event for that day. He did not comment on our wristband usage nor not allowing events in our tasting room while the public was there, but stated that bona fide event was something that needed a guest list and the public could not suddenly join. Following that warning, another undercover ABC Agents Ward and Rushing came to visit and while there they were invited to join the owner’s own private event. Agent Ward was a known patron who frequented the distillery and became friendly with the owners (yes, she even got a welcome hug that day). We violated the law, acknowledged the severity of our mishap and paid a $3000 fine. We then abruptly perfected our practices to avoid any other compliance issues.
In May 2019, 7 months after the Agent Gray’s visit, the distillery received the letter from the ABC stating we had TWO counts of violations by allegedly over serving both Agent Gray and Agent Groff in October of 2018. The ensuing months found the Blinking Owl team in meetings with our legal team, delving into the minutiae of the law, engaging ABC officials, and in and out of “ABC court” as we have attempted to understand the basis for the allegations levied against us. The state has the option to recommend actions against its licensees when an alleged violation has occurred. In this case, the ABC’s position is that we violated the law knowingly and has chosen that we are deserved of a 25 day removal of our retail privilege. In light of the excessive cost of taking our case to a higher court, our team has decided to accept this punishment under great protest in lieu of pursuing further legal action.
At its root our shutdown hinged on the interpretation of one section of the Business and Professions Code which you can read in its entirety here:
23508. (a) A licensed craft distiller may also have upon its licensed premises all beers, wines, and distilled spirits, regardless of source, for sale or service only to guests during private events or private functions not open to the general public. Alcoholic beverage products sold at the premises that are not manufactured or produced and bottled by, or manufactured or produced and packaged for, the licensed craft distiller shall be purchased by the licensed craft distiller only from a licensed wholesaler.
No formal ruling has been given on what constitutes a private event nor the required separation between public and private other than the following ABC Industry Advisory for the Type 74 license:
“Private events” and “private functions” do not include events, activities, or functions for which anyone (the general public) can purchase or obtain tickets, or otherwise gain entry. For example, the Department would not consider a cocktail-making class that anyone could attend to be a “private event or private function”.
In furthering our efforts for compliance, we flew to Sacramento as representatives of the California Artisanal Distillers Guild to discuss the confusion experienced by multiple Type 74 licensees. Here are the meeting notes regarding “PRIVATE EVENTS” that were approved by ABC General Counsel, Matthew Botting and Director of the ABC, Jacob Appelsmith following a meeting on July 1st, 2019:
Events - "I want to hold an event here" vs. the licensee holding their own event, the former being fine, the later not so:
- The "private event" or "function" needs to be "for a particular purpose"
The licensee holding an event for their club members does not meet this standard, but a group of people getting together "for a particular purpose" initiated by them is okay. Members = public.
A licensee can have multiple separated private events occurring simultaneously
A licensee is not required to close their entire facility for private events
Separation is the key to holding an event. The licensee must be able to demonstrate that the private event was kept separate from the general public. "...best practice to have private event separated, but not required."
"You can't use this to operate a bar." If it looks or feels like a bar then the licensee is probably operating out of compliance.
In a follow up email with Agent Gray, he stated, “The Department has maintained in the past that “private events or private functions” do not include events or functions in which tickets are sold to the general public. Examples of private events or functions which are hosted by a customer may include, but may not necessarily be limited to, the premises or a portion of the premises being rented for private wedding receptions, private retirement parties, private birthday parties, etc.”
“Business and Professions Code 23363.1 are the tasting regulations that allow 1 ½ oz per person per day. If a member of the General Public is allowed to be served more than that it is a violation, a simple phone call is not an extra step that changes the General Public into a private party and that is the violation that I have witnessed.”
In a recent phone call with the head of the Trade Enforcement Unit, Agent Riegler stated that arranging an event over the phone on the same day was ok if it was a true event looking for a last minute space and we were able to accommodate them. BUT she did not feel that a smaller gathering, such as a birthday party, counted as a private event. She could not comment as to a number that constituted “smaller”.
As the casual reader can see, the guidance varies when it comes to how one defines or monitors what a private event or function is. It is like being allowed to drive on a road with no posted speed limit and the only thing you are told is, “Don’t speed”. We do understand that the ABC must draw a line of interpretation, and over the past few months they have been very communicative and have made efforts to help the confusion of many craft distillers. They did not write this law but it is their duty to enforce it. Our worry is, with varying definitions of a “Private Event” we are merely at the mercy of who is interpreting the law at the time.
The solutions provided to us by ABC were twofold: 1. “Just open a restaurant”, and 2.“Don’t do it if you aren’t sure”. “Just opening a restaurant” is a couple hundred thousand dollars, and while we certainly do see that as a solution, we have been actively trying to raise funds to complete the kitchen. In the meanwhile, operating in fear makes no financial sense. It is nonsensical for a business to not maximize the income from ALL of the legal privileges allowed under the law.
Removing our tasting room retail privileges for nearly a month amounts to approximately tens of thousands in lost revenue for our small business as this is right in the middle of our holiday season. This revenue is what enables us to purchase organic grain from California farmers, pay 11 local employees, and generate the state sales tax. We ask you, our friends and neighbors, does this make sense? Does the punishment match the alleged crime for which we still do not know how to abide by?
This is just the tip of the iceberg when it comes to these and other issues the growing craft spirits industry faces in California. As an industry we need some of these archaic, restrictive, anti-small business and anti-California laws to change. We are working on making these changes a reality, but we are barely hanging on as an industry in the face of what sometimes amount to arbitrary fines and shutdowns which most small businesses do not have the capacity to push back against.
The Blinking Owl Distillery will come through this shutdown and will be flying our very own “BLINKING OWL WHISKEY REBELLION” flag. It is our hope that our “Whiskey Rebellion” campaign catches the attention of lawmakers to see that these laws need to change. We ask for your support in our Whiskey Rebellion by purchasing Blinking Owl spirits at your local bars, restaurants and retailers. While the tasting room revenue constitutes the majority of our income, we are extremely thankful that the ABC has allowed us to continue production, distribution and sales to our accounts during this time.
We look forward to opening our doors again so you can come back, take a tour of our distillery, have a cocktail, and yes, even book a bonafide private event! Community is everything to us, and if you are reading this you are part of that community, and we can not wait to see you and serve you again soon.
Your Blinking Owl Team
Our suspension signs were hung by ABC agents on Tuesday, followed by a two-hour meeting with our Blinking Owl team, the Head of the ABC Trade Enforcement Unit, Lee Riegler, and the undercover trade enforcement agent who cited the violation, Eric Gray.
During our meeting Tuesday, Agent Riegler admitted that the laws defining a private event were “clear as mud”—a much different statement than that we had received by Agent Gray in 2018 (“it’s obvious”) as well as the Administrative Law Judge D. Huebel who’s ruling against us stated, “In looking to the plain and common sense meaning of the language of the statute is clear…..the Respondent was keenly aware that it was required to keep “privateevents orprivatefunctionsnot open to the general public” and, in response to our system of separation by use of wristbands the judge stated, “This argument fails because the Respondent permitted persons from the general public in the tasting room/ Licensed Premises while other persons wearing wristbands were “deemed” private parties, with no separation among them.”
After year of legal back and forth, Agent Riegler stated guests of a private event COULD IN FACT be in the tasting room at the same time as the public. And, barring they went through the correct channels to arrange their event COULD IN FACT be a small group. This was also stated to us by the Director and General Counsel of the ABC in our July 2019 meeting with them. They added that separation and segregation of a private event is “best practice” but not required.
As we sat with the Agents going through dozens of actual event request emails, what did become “obvious” to all is how difficult it is to draw a legal determination as to the judgement on what makes a private event for both the licensee as well as the ABC. That being said, we discussed ways engage in best practices such as keeping events in a separate area and navigating how to judge/ justify our event requests. In the end, the onus falls on the licensee to be the moral police on the private event debacle.
Our 25 day shutdown, especially over 1.5 ounces of alcohol, needs to been a wake up call to lawmakers, distillers, and the public. The laws, restrictive and vague, need to be changed.
Why didn’t we open a restaurant in the first place?
Until 2016, the California Craft Distillers License Type 74 did not exist and prior to 2016 it was illegal for an owner of a distillery to also hold a restaurant or bar license. Blinking Owl business plans were made in 2013 and architectural submittals in 2014. When we finally opened in 2016, we were able to get the brand new Type 74. The 74 license now allows us to add a kitchen without additional licensure as well as allowing us to own 2 additional bar or restaurant licenses, so we have been diligently seeking investment to make this a reality.
CONTACT YOUR STATE REPRESENTATIVES IN SUPPORT OF BLINKING OWL AND CALIFORNIA CRAFT DISTILLERS!
If any of this seems weird to you, here’s how you can make a difference. Reach out to your elected state representatives and tell them you want this to change. Don’t know who represents you, not to worry, just go to findyourrep.legislature.ca.gov
and you can quickly and easily find out who represents you in Sacramento. Remember, your elected officials want to hear from you, so let your voice be heard. Tweet them, email them, call them, write them a letter, it all works!
Need some suggestions to get you started? Not to worry. Take these and make them your own:
Twitter - Dear @(Fill in your rep.), the @CA_ABC is shutting down @TheBlinkingOwl over an arbitrary legal interpretation. We need the Craft Distillers License to work for, not against, small businesses. #AmendAB1295!
E-mail - Dear (Fill in your rep.), A small business I support is about to be shutdown by the California Department of Alcoholic Beverage Control. The Blinking Owl Distillery located in Santa Ana, Orange County’s first craft distillery to open since Prohibition, is facing a 25-day suspension of the retail privileges on their Type-74 Craft Distillers license after an Administrative Law Judge upheld an action brought forth by the ABC regarding allegedly overserving an undercover agent. This action is being justified under a piece of the Business and Professions Code that has been arbitrarily interpreted outside the bounds of the intent of the law. This small business will suffer a tremendous and undue burden which will cripple their ability to pay employees, buy California-grown raw ingredients, and even pay state taxes.
The Blinking Owl was operating under what the average citizen would consider to be a fair and reasonable interpretation of the code. This is a clear case of piece of code that was written to help new and growing craft spirits industry that was turned it into an arbitrary limitation that will hamper small business in our state. While the current code is vague, the larger issue is the restrictive Type 74 license type. I ask you, if I can go into a brewery and drink 3 beers, or go to a winery and open a full bottle of wine and even join a wine club, can you see the disparity in the current law for craft distilleries?
I want the Blinking Owl Distillery to stay alive, I want them to have the ability to operate a responsible business without fear of being closed over an inconsistent interpretation of code, and I want your help in supporting this growing vital contributor to our local economy.
Sincerely, your constituent,