Modernization of N.C. Alcohol Laws During 2022 Legislative Short Session

The North Carolina General Assembly passed legislation to modernize North Carolina’s alcohol laws during the 2022 legislative short session. These bills create parity for distilleries, create new definitions of “restaurants” (to only require 10 indoor seats) and “bars” (to eliminate membership requirements), create a transitional permitting period following a change in ownership, and clarify open container social districts and common area entertainment permits. Governor Cooper signed these bills into law on July 7, 2022. Most provisions of the bills take effect immediately. 

House Bill 768, the 2022 ABC Omnibus bill, makes the following changes to ABC laws:

• Repeals the limited winery permit, which was redundant and only provided an existing winery the ability to provide free samples.
• Creates a new commercial packager and logistics permit effective on August 1, 2022, to allow packaging companies to receive beer, wine, and spirituous liquor in closed containers from suppliers in order to package, repackage, store, and label these products.
• Eliminates the commercial transportation permit, which previously was required for people transporting more than 80 liters of malt beverages other than kegs, 20 liters of unfortified wine, or eight liters of fortified wine or liquor.
• Creates a 60 day transitional period in which a new owner can obtain a new ABC permit for an establishment. Current law states ABC permits expire immediately upon a “change of ownership,” as defined in G.S. 18B-903(c). The new law provides flexibility for business owners and attorneys to obtain the required inspections and other documents necessary to obtain new temporary ABC permits and prevents a “last minute” scramble for all parties and for attorneys at closing. The law expressly authorizes businesses to enter into management agreements or other arrangements to provide for a smooth transition of the business.
• Allows the sale of alcohol at professional sporting events held at stadiums owned by community colleges.
• Eliminates the existing “private bar” permit that requires membership lists and annual dues and creates a new “bar” permit. A bar is defined as an establishment primarily engaged in the business of selling alcoholic beverages for on premises consumption. (See also Senate Bill 470 herein). and A bar does not include a brewery, winery, or distillery. The reason the new “bar” definition is important is because in North Carolina, in order to sell mixed beverages, an establishment typically has to qualify as either a “restaurant” or a “private bar” (unless another specific mixed beverage permit applies, such as a hotel, entertainment center, or distillery). A restaurant permit can be difficult to qualify for, because ABC law required 36 indoor seats and a full kitchen (see also Senate Bill 470 which reduces restaurant indoor seating requirement to 10). Because of the restrictions making it difficult to obtain a restaurant permit, many establishments had to apply for a “private bar” permit and require customers to provide name, address, and other identifying information to add to a membership list. Customers complained about privacy violations, and private bars complained that the laws were untenable, a sham, and difficult to enforce. The new law eliminates these concerns and provides flexibility to businesses.
• Allows distilleries to obtain mixed beverage catering permits. This means distilleries can cater their spirituous liquor products at special events, just as restaurants and hotels currently do.
• Allows distilleries to sell mixed beverages containing their own spirituous liquor products for consumption on the premises, even in dry counties where the sale of mixed beverages has not been approved by a local election. This puts distilleries on par with breweries and wineries, which can also sell their products for on-premises consumption in dry counties.

House Bill 211, the Social Districts / Common Area Clarifications bill, clarifies existing law on open containers of alcohol and when and where open containers of alcohol may be taken off the premises of an ABC establishment onto public or private property.

In North Carolina, the possession or consumption of alcoholic beverages is unlawful except where expressly authorized by ABC law. G.S. 18B-102; 18B-300(c). North Carolina law treats the possession and consumption of beer and unfortified wine (wine less than 16% ABV) differently than the possession and consumption of fortified wine (wine 16-24% ABV) and spirituous liquor. In North Carolina, the purchase, consumption, and possession of beer and unfortified wine is generally allowed by persons 21 years and up for their own use “without restriction,” with some exceptions, such as in motor vehicles. G.S. 18B-300(a). This generally means that persons can take their own containers of beer and unfortified wine anywhere a property owner or business owner allows. For example, persons could bring a container of their own beer into a McDonalds, if the McDonalds allows them to do so. On public property however, such as on public streets and sidewalks, a city or county may by ordinance “regulate or prohibit” the consumption of beer and unfortified wine in open containers. 18B-300(c). Some cities and counties expressly prohibit open containers of beer and unfortified wine on public property, while other cities, such as some on the North Carolina coast, passed ordinances that expressly authorize open containers. Spirituous liquor and fortified wine (wine 16-24% ABV) are treated differently than beer and unfortified wine under North Carolina law, and open containers of these products are generally prohibited. Generally, persons can only take their own open containers of liquor and fortified wine to private residences, or properties not primarily used for commercial purposes, or establishments holding brown bagging permits, or certain special events. 18B-301. Cities and counties generally have no authority to allow open containers of liquor and fortified wine, absent a special statute delegating this power. For purposes of city and county regulation, an “open container” means a container whose seal has been broken, or a container other than the manufacturer’s unopened original container. G.S. 18B-300(c).

In addition to regulating where persons may take their own containers of alcoholic beverages, North Carolina ABC law also regulates when persons can take open containers of alcoholic beverages off the premises of an ABC-permitted establishment from where the alcoholic beverage was purchased. North Carolina ABC laws generally restrict the sale and consumption of alcohol to the defined “premises” of a permitted ABC establishment. “Premises” is defined as “all areas, whether inside or outside the licensed premises, where the permittee has control of the property through a lease, deed, or other legal process.” G.S. 18B-101(12a); 14B NCAC 15B.0101(5); 14B NCAC 15B.0222; e.g., 18B-1001(1). Permittees file diagrams with the ABC Commission showing their defined premises as part of their ABC permit application. In October of 2021 in the wake of COVID policies and to provide additional flexibility to businesses, the North Carolina General Assembly enacted a new statute to allow ABC-permitted businesses to obtain permanent extensions of their premises with an applicable ordinance in the city or county and written permission of the property owner. 18B-904(h). This statute is consistent with the North Carolina ABC Commission’s regulation that the Commission “shall consider the convenience of the permittee and patrons, allowing the fullest use of the premises consistent with the control of the sale and consumption of alcoholic beverages…” 14B NCAC 15B.0102(g).

In October of 2021, the legislature also created additional flexibility for businesses through the creation of new laws authorizing common area entertainment (CAE) permits and social districts. The common area entertainment permit statute in G.S. 18B-1001(21) allowed the property owner or property owner’s association of a “multi-tenant establishment” with two or more alcohol-permitted businesses to obtain a common area entertainment permit for a designated consumption area on the property where individuals could purchase alcohol at establishments and take the open containers of this alcohol (including beer, wine, and spirituous liquor) in specially-designated cups off the designated premises of those businesses into a designated consumption area, or back onto the premises of a business, with permission of the business owner. In the same legislative session, the legislature also created a new social district statute in G.S. 18B-904.1, which authorizes cities and counties to pass ordinances to designate social districts whereby customers of businesses located contiguous to the social district could take open containers of alcohol (including beer, wine, and spirituous liquor) in specially-designated cups off the premises of an ABC permitted establishment and into any areas designated as part of the social district.

In the spring of 2022, questions arose relating to ambiguities in the CAE and social district laws, including whether CAEs could be issued to mixed use developments that had private streets open to vehicular traffic, and whether cities and counties could pass ordinances designating social districts in mixed-use developments and in areas encompassing privately-owned property. As a result of these ambiguities, and to provide additional flexibility for both businesses and cities/counties, the legislature passed HB 211. HB 211 makes the following clarifications to the existing CAE and social district laws:

• A mixed use development may obtain a CAE that encompasses the development, including privately owned streets, sidewalks, and courtyards and does not have to restrict or close these areas through the delineation of vertical boundaries.
• A city or county may pass a social district ordinance that encompasses a mixed use development and/or private property and may delegate management of that social district to the property owner or property owner’s association.
• Various types of special event permits may act in conjunction with social districts, and cities/counties have flexibility to implement this process. For example, street festivals in a downtown area can operate in conjunction with a social district.
• Property owners and cities/counties have flexibility to implement management and maintenance plans, which include limiting hours of consumption, creating signage, and providing security.
   

As a result of these clarifying changes in the Social District / Common Area Clarification bill, mixed-use developments have additional flexibility to promote businesses on their properties, and cities and counties can effectively promote and manage designated social districts.

Senate Bill 470, the ABC Technical Corrections bill, makes the following changes to ABC laws:

• Delays the effective date of online orders from ABC stores to October 1, 2022.
• Clarifies personalized labeling allowed on bottles of liquor sold at a distillery.
• Clarifies definition of brokerage.
• Clarifies who may obtain a nonresident spirituous liquor vendor permit.
• Clarifies a spirituous liquor special event permit holder may sell mixed beverages or provide at no cost bottles of spirituous liquor in closed containers at festivals and similar events.
• Clarifies alcoholic beverages sold at distilleries for consumption on the premises may be sold, possessed, or consumed on any part of the licensed premises open to the public.
• Clarifies that approval of mixed beverages in a local election also allows the sale of fortified wine in that area, in addition to malt beverages and fortified wine.
• Clarifies that businesses that opt to expand their premises for the outdoor possession and consumption of alcohol must submit a diagram of the expanded premises to the ABC Commission, in addition to ALE and local law enforcement.
• Excludes ice cream from the definition of alcohol consumable until December 1, 2022, meaning ice cream products made with alcoholic beverages are not defined as alcoholic beverages until that date; this provision is also retroactive to September 10, 2021, when new legislation defined alcoholic ice cream as alcoholic beverages subject to regulation.
• Clarifies conditions under which a tour boat can obtain an ABC permit.
• Clarifies the definition of supplier for purposes of the statute prohibiting a supplier’s financial interest in a wholesaler.
• Exempts the ABC Commission from rulemaking under the N.C. Administrative Procedure Act with respect to approval of alcoholic beverages to be sold in ABC stores.
• Authorizes the ABC Commission to conduct training classes for individuals delivering under a delivery service permit. Current law says the Commission shall approve courses conducted by the holder of a delivery service permit.
• Allows recyclable liquor bottles to be used for displays under certain conditions if such bottles contain a mixed beverage tax stamp.
• Amends the definition of restaurant for ABC permitting to reduce the minimum threshold of an inside dining area with 10 indoor seats (rather than 36 indoor seats under current law) and provides the restaurant need not maintain kitchen operations at all times it is open to qualify as a restaurant. These changes make it much easier for an entity with limited indoor seating to obtain a mixed beverage restaurant permit.
• Clarifies the definition of bars for purposes of the new bar permit; clarifies that bars are primarily engaged in the sale of alcoholic beverages for consumption on the premises and do not include breweries, wineries, or distilleries.
• Exempts bar areas in establishments from health inspections if no food is prepared in the area.
• Allows branded plug-in coolers in ABC stores under certain conditions.
• Makes a technical change to the definition of bars.
• Clarifies the minimum standard of fill for malt beverages is 50 mL.

On July 8, 2022, Governor Cooper signed House Bill 661 into law, which makes various changes to employee age requirements:

• Reduces the age requirement for beer and wine wholesaler salesmen from 21 to 18.  The bill allows a 15 year old to work inside an ABC permitted premises that allows on premises consumption, but would not allow the youth to prepare, serve, dispense, or sell alcohol except at point of sale for off premises consumption.  This provision expires December 31, 2023.