Young and Hungry

License to Swill: D.C.’s Unique Booze Laws Allow a Way Around the Middleman. Guess Who Isn’t Happy?

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The Beer Issue

Pizzeria Paradiso bar manager Greg Jasgur pops the cap off a bottle of unfiltered cider from Maine’s Urban Farmhouse Fermentory and pours a glass at the Dupont bar. The small-batch brew is light and refreshing with a funky finish, and outside of the Pine Tree State, you can only find it here.

Jasgur picked up two cases of the cider earlier this summer during a trip to Portland, Maine, and decided to put it on the menu at Pizzeria Paradiso. Anywhere else in the country, that would be illegal; all alcohol purchases in the 50 states must be made through state-licensed wholesalers. But not in D.C. The District’s one-of-a-kind alcohol import permit system allows bars, restaurants, and retailers to buy directly from suppliers, bypassing wholesalers when they don’t offer a certain product, or enough of it. The paperwork to do so is inexpensive and low-hassle. For each shipment, Jasgur fills out a one-page importation permit from the Alcoholic Beverage Regulation Administration and pays a $5 fee, plus sales tax. He then can claim the cachet of serving brews no one else does: “It makes Pizzeria Paradiso look like a premiere place to go drink beer.”

The same system also allows D.C. breweries, like 3 Stars Brewing Company, to self-distribute with no middle man. Even breweries from other states that are too small to distribute through wholesalers or want more personal control over distribution, like Virginia’s Mad Fox Brewing Company and Maryland’s Franklin’s Brewery, take advantage of D.C.’s unique “gray laws” to make their products available exclusively in their home states and here, where they often have a better chance of gaining buzz. As a result, D.C. has one of the most diverse beer scenes in the country. “It’s great for the customers here in town, it’s great for the bars, and it’s great for the beer scene,” Jasgur says.

Great for everyone, in other words, but the wholesalers. Which is why, for years now, the D.C. Association of Beverage Alcohol Wholesalers has tried, and failed, to narrow the loophole.

The wholesalers want D.C. to create a new licensing regime that would apply to anyone who wants to bring in alcohol from sources other than D.C.-licensed wholesalers. The issue last popped up in May, when the group lobbied D.C. Council Chairman Phil Mendelsohn to slip an amendment into the fiscal year 2014 budget that would have created a new licensing requirement with a $250 annual fee for nonlocal suppliers and wholesalers to import alcohol into D.C.

The Restaurant Association Metropolitan Washington rallied its members in opposition, with an email headlined “Competition is healthy! Act now to help preserve D.C.’s alcohol import system.” The call to action, signed by RAMW President Kathy Hollinger, claimed the District’s alcohol wholesalers have sought to outlaw, license, and tax the import system “out of existence for years, to further their own competitive advantage...This attempt to impose taxes on potential competitors of the District’s wholesalers represents the ultimate insider, special interest, legislation.”

The restaurant association’s lobbyist Andrew Kline says the wholesalers would “rather have all the business” and that additional fees and licenses, like those proposed, would put a “chill” on the existing system, which allows for more booze diversity in D.C.

But D.C. Association of Beverage Alcohol Wholesalers President and General Counsel Paul Pascal takes issue with that view. He says his dozen members have no problem with the import permit system and have never sought to outlaw it, contrary to the restaurant association’s claims. “From our perspective, seeing a robust industry with a lot of interesting products is in everybody’s interest…It creates a buzz in the market when there’s a lot of interesting products,” he says. “That system is ingrained in the city and it serves a purpose because the wholesalers can’t really distribute all the products that are out there.”

Rather, Pascal claims the wholesalers’ goal is to create a level playing field and consistent regulatory oversight. “My clients are licensed and are subject to a multitude of laws and regulations, and some of the people they’re competing with aren’t,” he says. He points out that if ABRA needs to investigate a product, it has records for all the D.C.-licensed wholesalers readily available. For instance, when Four Loko was recalled, ABRA was able to track down everywhere Four Loko was sold. “If you have a nonresident wholesaler who’s not licensed, you would be unable to do that,” he says. Pascal adds that his association has proposed waiving hypothetical licensing fees for those who use the import permit system on a limited basis or in smaller quantities.

Ultimately, Pascal’s arguments were for naught. The amendment never made it into the budget. But Pascal says the issue isn’t going away.

Although the wholesalers’ proposed changes would affect the import of beer, spirits, and wine alike, Pascal says he’s not especially concerned with beer. In June, 37,359 barrels of beer were brought into the city through wholesalers compared to 200 barrels of beer coming through the import permit system—a “negligible” amount, according to Pascal. (Anecdotally, Jasgur says he uses the import permit system for only 1 to 5 percent of the beers at Pizzeria Paradiso. The rest comes through wholesalers.) And beer wholesalers don’t seem to have a problem with that. In fact, Tim Nelson, an area sales manager for the beer distributor Legends, calls the import permit system a “blessing.” “It helps people to stay excited,” Nelson says. “No one is going to make a living from buying beers off the shelves in other states and importing them.”

But wine is a different story. Pascal says one out of six bottles brought into D.C. comes through the import permit system. That’s because there are far more small wineries than craft breweries.

At Schneider’s of Capitol Hill, 60 to 70 percent of the wine comes in through the import permit system. Co-owner Josh Genderson says D.C.’s laws allow the shop to offer rarer and older wines that you can’t find anywhere else. His team travels to Europe, California, and elsewhere, meeting with small producers and shipping containers back with wine and spirits. Because they’re buying directly from wineries, Schneider’s can offer their wines to customers for less than they might if they went through the wholesalers. (Other operations, who are self-importing products from out of state only occasionally or for novelty, often buy retail, meaning their prices are marked up higher.) Genderson says additional licensing fees would not stop Schneider’s from self-importing wines, but it might affect prices. “Any fee you pay for a product ends up hurting the consumer,” he says.

Genderson says the wholesalers walk a thin line because their biggest and best customers are also importing. “Every so often a change is proposed, and we raise hell,” Genderson says. “We’re basically saying to them, ‘Good luck, if you’re going to do that to us.’ And then they drop it.” He doesn’t believe wholesalers will succeed in changing the system because it’s ultimately very good for the consumer. “The esoteric wine and liquor scene is growing, and it’s become very hot,” Genderson says.

While only a very small proportion of beer is brought in through the import permit system, local retailers and bar folks say they see more and more businesses taking advantage of it. “With the amount of competition that’s come in the D.C. beer scene, so long as we continue to have the laws that we have, you’re going to see more people reaching out to smaller and smaller breweries further and further away just for the novelty of it,” says Granville Moore’s Beverage Director Matt LeBarron.

LeBarron adds that the allure for smaller, self-distributing breweries to take advantage of D.C.’s import laws is also strong. “It’s a premiere market. You have people from all over the world that come through the city and through the city’s bars,” he says. If a brewery can gets its beer in five or six D.C. watering holes—even if the only other place it’s available is in Idaho or North Carolina—“the publicity and the cred that that gets you as a brewery is a lot,” LeBarron says.

As for the  D.C. Association of Beverage Alcohol Wholesalers, Pascal says he has no immediate plans to reintroduce changes to the import permit system. But that doesn’t mean he’s given up. “Let’s put it this way,” he says, “We’re taking a pause during the summer.”

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Photo of Pizzeria Paradiso's Greg Jasgur by Darrow Montgomery

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