Liquor License Lottery Illustration

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In light of the well-documented growth in the Gallatin Valley, Montana’s population-based alcohol license quota system has become a hot topic among local proprietors.

Passed in the 1930s after the repeal of Prohibition, the quota laws were put in place to control the sale and distribution of alcohol across the state. The number of available licenses, which include one for beer and wine restaurant sales as well as the coveted all-alcoholic beverages sales license, are based on yearly U.S. Census Bureau statistics.

The licenses are awarded through a lottery overseen by the state Department of Revenue’s Liquor Control Division. In last year’s lottery, 17 winners were selected from 1,000 applicants across the state.

The high demand and low supply has created a secondary market for the licenses, one that critics argue prevents entrepreneurs with less capital from starting bars or restaurants.

Over the last five years, more than 40 licenses have been bought and sold in Gallatin County. The average price was $320,000 — with a high of $800,000 for a single all-beverage license. Prior to the recession, licenses in Bozeman and Missoula sold for $1 million.

Due to cost and limited availability, many restaurant owners enter into concession agreements, effectively leasing licenses from their owners. Cindy Brown, owner of the Desert Rose in Belgrade, was in one such agreement until the license owner recently decided to sell. Though Brown and her husband were given the opportunity to purchase it, the $350,000 the owner wanted was far out of their price range.

Without the license and despite attempts to boost sales with kombucha and homemade soda, the restaurant’s business has been cut in half, Brown said. Alcohol sales are often necessary to keep a restaurant afloat, she said, but the cash required to buy a license is out of reach for many owners.

“If you look at a loan to buy a license, you’re looking at $5,000 to $7,000 to cover it each month. It’s ridiculous. You can’t sell that much beer and wine, especially in Belgrade,” Brown said.

Brown also bemoaned the licensing structure. Because they’re close to each other, Bozeman and Belgrade are considered a single entity under the system. Between them, the cities have a quota of 37 all-beverage and 29 restaurant beer and wine licenses.

“I’ve had people say that their restaurants have no value, that it’s the beer and wine that has the value. I find that unfortunate because the restaurant is what has the value,” Brown said.

Several license owners, however, said that they view the system as a long-term investment.

“If the quota system went away and the value of my license went away, I would lose a lot of my retirement,” said Jim Johnson, president of the Montana Tavern Association. “If you want to go into business, that’s what you pay.”

“It’s definitely retirement, it’s definitely investment because the demand is there,” added Bozeman restaurateur Casey Durham.

Durham’s various projects — Copper Whiskey Bar & Grill, Red Chair Café and Bar and most recently Toro Urban Cantina — have spent more than $1.5 million acquiring licenses over the last two years, and the Bozeman native said he sees both sides of the argument.

“It’s a lot of overhead whether you’re trying to go out and buy one or going to have to come up with 20 percent for a down payment (for a loan for a concession agreement). And nobody is selling right now so you’ll have to go over market value to buy one,” he said. “If you have a liquor license you absolutely love them, but if you’re starting a restaurant or bar it’s a struggle. It goes both ways.”

“As a business, it’s like, holy cow, it’s a big expense. But it’s fiscally unfair for it to change because so many people are vested in them and treat them as an asset at this point,” added Toro manager Rhett Tschache. “I wouldn’t see it changing anytime soon.”

Brown noted that much of her frustration lies with the imbalance of the system, one that she said favors those wealthy enough to purchase a license outright or resourceful enough to find a workaround.

“They continue to allow things like that to happen with people with money, but people like us without money, they grant us no grace,” she said. “People in Bozeman have the money, and they will put it down because it’s a guaranteed return on investment.”

Last year more than 600 applicants in Bozeman and Belgrade put their names in for four licenses, and those familiar with the system said they expect that number to continue to rise as both the demand for and value of the licenses grow.

“The privatization of liquor licenses in Montana is definitely a hot topic,” said Christie Magill, spokeswoman for the state Department of Revenue.

She said the Liquor Control Division monitors existing licensees and permit holders and responds to issues related issues and infractions of law, rule, policy and procedure.

“Beyond that,” she said, “because liquor licenses are sold in the secondary market in Montana, it is naturally a market-driven process.”

But that market dampens healthy business competition, according to longtime Bozeman developer Michael Delaney.

“Unfortunately the laws of the state of Montana aren’t set up for anything but restricting (license) supply,” said Delaney, whose projects include Montana Ale Works and Ferguson Farm off Huffine Lane. “Newcomers are at a huge disadvantage over those who have been here a while; they’ve really really got to want to come to Bozeman.”

“People are vested in not changing the system. All the restaurant and bar owners have their own monopoly and they don’t want new people coming in,” he added. “It’s a huge negative. As a result, it’s enough of a hindrance that it turns quality people away. If it wasn’t such a hindrance, we would have more high-quality developers and restaurant owners who would come to the shores of Bozeman and build beautiful bars and restaurants.”

While some have proposed changing the system from a lottery to a bidding process or relaxing the quotas while compensating current license holders, owners said there is likely no solution that would satisfy everyone.

“I don’t know if the system is broken or anything needs to change,” Durham said. “I don’t know if it’s better or worse. It’s just unique and you have to deal with it.”

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Kendall can be reached at lkendall@dailychronicle.com. Kendall is on Twitter at @lewdak

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