Overview: Licensing of Alcohol Establishments

A fundamental premise of the State regulatory systems is that alcoholic beverages are potentially hazardous products and, therefore, should be subject to special conditions not applied to other commercial goods and services. Licensing affects where, and how many, outlets can exist in specified areas; what types of outlets are permitted (on- or off-premise consumption, allowing the sale of beer, wine and/or spirits); who can own, manage, sell and serve alcohol; and how the outlet can conduct its sales and serving practices. Research indicates that these variables are critical to public health outcomes. For example, Gruenewald and Ponicki (1995) found that single-vehicle nighttime traffic fatality rates are strongly affected by beer sales, moderately affected by spirit sales, and relatively unaffected by wine sales. The same study also found that a decrease in alcohol availability, through restrictions on the number of outlets for example, was associated with reduced crash rates, in spite of speculation that fewer alcohol outlets could mean that impaired drivers might drive increased distances. In other words, reductions in sales due to restrictions on the physical availability of alcohol may result in reductions in single-vehicle fatal crashes without increases in crashes due to increased travel. In addition, many researchers have reported relationships between alcohol outlet densities and violence, including youth violence (Alaniz et al., 1998; Gorman et al., 2001; Lipton and Gruenewald, 2002; Roncek and Maier, 1991; Scribner et al., 1995; Speer et al., 1998; and Stevenson et al., 1998). A more recent study demonstrated that the presence of laws regulating the service and availability of alcohol are associated with lower rates of drinking and driving among college students, a group at risk for problems associated with both binge drinking and alcohol-related traffic crashes (Wechsler, et al, 2003).

The enactment of the 21st amendment in 1933 ended the United States’ experiment with national Prohibition. The amendment gave States the primary authority for determining whether alcohol could be sold legally and, if so, how. Since that time, numerous different alcohol control systems (in each State, the territories, and the District of Columbia) have evolved. While each alcohol distribution system is unique, each State and/or territory typically falls within one of two general classifications: control States and license States.

In the control State systems, the State is involved in the sale of alcohol beverages at the wholesale and/or retail level. Currently, there are 18 control States that operate as the sole wholesalers of distilled spirits within their borders. Retail distribution, however, is conducted differently in each control State through State operated retail stores, contract agency retail outlets, private retailers, or a combination of State, agency and/or private stores. Control States, like license States, regulate the activities of other persons engaged in the sale of alcohol beverages through licensure (NABCA, n.d.).

The license States do not participate in the sale of alcohol beverages at the State level. However, some license States may allow municipalities to operate retail stores in certain circumstances. For example, Minnesota allows cities with a population of less than 10,000 to own and operate a municipal liquor store (§340A.601, Minnesota Statutes 2003), while in Maryland, each county decides the type of distribution system it will use. Montgomery County, Maryland, is a control jurisdiction with exclusive wholesale authority for beer, wine, and spirits, and exclusive authority for spirit sales at the retail level.

Both control States and license States regulate alcohol industry members through licensure. Alcohol beverage licenses are treated as a privilege rather than a right, and their issuance is conditioned on a set of restrictions and qualifications. Each State has developed its own licensing method. Three different systems exist:

  1. Exclusive State Licensing: The State licensing authority has exclusive power to license alcohol establishments, but in certain cases may allow local governments to influence the licensing decisions to some extent. States may require local approval before the State license will be approved (e.g., through a conditional use permit process), permit local control in only limited circumstances (e.g., regarding where the establishment can be located), or give local communities an advisory role in the licensing process. Nevertheless, regardless of the approval process, the State is the only entity that may issue a liquor license.

  2. Dual Licensing: In these States, alcohol retailers must obtain two licenses, one from the State and one from the municipality in which they are located. In most cases, this gives the primary responsibility for determining alcohol availability to local governments, subject to minimum standards established by the State. Both governmental entities may investigate and regulate industry members.

  3. Local Licensing Only: In a few States, the licensing authority is delegated to local governments, and the State does not issue State licenses. The States, however, may impose regulations that local governments must honor.

The chart in Appendix A lists the control and license States and further categorizes the type of licensing system used by each State for granting retail (on- and off-premises) licenses. Note that the chart does not include information regarding the licensing systems required for wholesalers, importers, or distributors. The majority of the States use the State licensing system, often in conjunction with some form of local approval process. In the States that have Alcoholic Beverage Control Departments, there is often a licensing section that deals exclusively with license applications approval and renewals. In the States with smaller departments, enforcement agents may also be charged with processing all license applications in addition to their regular enforcement duties. In a few States, the ABC Commission, which is usually comprised of commissioners appointed by the governor, approves each license application.

These licensing categories should not mask the variation among the States and the complexity of the State/local licensing issue. A key consideration is the role of local jurisdictions in the licensing process. Even in States with exclusive State licensing, citizens and local governments are often able to voice their concerns during a licensing approval process. The majority of States require licensee applicants to announce their intention to apply for an alcohol license either through the local newspaper or by posting the application at the place of business for a specified amount of time before the license is approved. This process allows community members to find out about prospective alcohol outlets, and to contact either the local or State government if they wish to comment on the license application. Many States require that the local government approve a request or, at a minimum, enter a recommended approval or disapproval for a license before the application is forwarded to the appropriate State licensing department. In at least a few States, notices are mailed to residents within a specified distance of the proposed outlet in addition to posting the application at the proposed location.

Several States permit local jurisdictions to prohibit alcohol sales, usually through a vote by local citizens. In some States, the sale of alcohol is permitted on a jurisdiction-by-jurisdiction basis. In “wet” jurisdictions the sale of alcohol is permitted, while in “dry” jurisdictions alcohol beverage sales are either prohibited or limited to certain methods of distribution or certain types of alcoholic beverages (Reitz, 1998).