Small Business Owners Say Liquor Commission Gave Bad Advice, Then Punished Them

Alcohol needs less and better control

Editor's Note: After this story originally ran, the Mackinac Center heard from the Michigan Liquor Control Commission which says they did not give bad advice or issue a fine (only a warning). The story has been updated and their response added.

Imagine working day and night, toiling with your spouse to build a new, small business from scratch at the tail end of a brutal recession. The economy improves and your shop becomes a popular local destination. You look to expand by adding a regulated product to your inventory. You get explicit permission to do so from the government agency that oversees the distribution and sales of the new product. Then, two days after you start selling, that same agency swings by and orders you to stop for selling the product illegally.

You don’t need to imagine it, though. This exact scenario has played out in Midland, according to local entrepreneurs Mark and Michelle Bone. The product they wanted to sell was Michigan-made beer in growlers — 64-ounce jugs — at their organic grocery store. The Michigan Liquor Control Commission admitted it gave the Bones bad advice, according to Mark Bone. The agency has rescinded the violation warning, but the couple is still out $10,000 in equipment and inventory. Despite apparently relying on the commission’s advice when they made their purchases, the Bones won’t receive any compensation for their lost investment. The government’s attitude seems to be, “too bad.”

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The agency should find a way to make these entrepreneurs whole, or the governor and Legislature need to take a bottom-to-top look at the entire liquor control code and remove its innumerable and often confusing barriers to business. Ideally, they will do both. The Mackinac Center has long called for a liquor control code reform revolution, as the code seems almost designed to protect and reward entrenched special interests at the expense of small-business owners and consumers.

Mark Bone has been a business owner since 1997, operating an insurance company in Midland. To diversify their investments, the Bones bought some commercial real estate in 2000. When the market fell out in 2007 and 2008, they lost tenants and decided in 2010 to fill some vacant retail space by opening a business — an organic grocery store. That store, “Nature’s Gift Organic Market,” has turned out to be popular with locals who love their natural selections and unique product offerings.

Always looking for ways to serve their customers, Mark Bone hit upon selling growlers of Michigan-made beer from the store. He telephoned the Liquor Control Commission to see if the license to sell alcohol that he already possessed as a “specially designated merchant” was all he needed to sell growlers. After answering a couple perfunctory questions, he was told that it was. He proceeded to buy equipment and inventory and began selling growlers of Michigan beer.

But the liquor control code is nothing if not complicated and, according to Bone, even the state official advising him got it wrong. He says the commission later advised him that he needed a second license, and issued a warning for selling growlers without it.

When businesses make a mistake, they often get fined and lose income as well. When government makes mistakes, everyone usually still gets paid — free of any fines or related expenses.

When I asked Jim Storey, a former liquor control commissioner, about this case, he responded at length:

Seven years ago, the Snyder administration started out with an ambitious and overdue effort to remove the zealous trade barriers embedded in the Michigan liquor control code and regulations. Many were changed. But there is much more work to be done to remove outdated barriers that prevent the small business owners, who are the backbone of the industry, from prospering.

This incident illustrates perfectly how intricate and out of touch the alcohol regulatory scheme is in Michigan. Global trade renders useless the market policing that confounds both the hardworking staff of the Liquor Control Commission and many licensees. In addition, time spent by agency staff policing the marketplace distracts from that which should be their primary, full-time focus: preventing sales to underage drinkers and combating practices that promote alcohol abuse.

Regulations on how licensees market, transport and sell their product make no sense in [an] age when most anything can be obtained on the internet. Michigan wastes precious taxpayer-provided resources on combating trade practices acceptable in most states and nearly all countries.

The Mackinac Center for Public Policy has for years been arguing that the Liquor Control Commission increases costs, sometimes dramatically, without necessarily protecting consumers. The system clearly needs to be simplified if even the administrators of state rules and laws can’t dispense correct answers to their constituents.

Mark and Michelle Bone have poured a lot of sweat equity into their business since it opened. It is a shame that the liquor commission can get away with making an error and force its constituents to pay for it. The commission or Legislature needs to make the Bones whole and fix the larger alcohol control code as well.

(For more on alcohol control code reforms, see the Mackinac Center’s work on the topic.)

The Michigan Liquor Control Commission issued the following statement:

The Michigan Liquor Control Commission (MLCC) communicated with Mr. Bone on May 1, 2017. After their phone conversation, the MLCC representative emailed Mr. Bone the link to a LARA webpage that gives information on the topic he was inquiring about. The web page included a link to Senate Bill 973 and also includes the following explanation of the legislation:

This legislation adds Specially Designated Distributor (SDD) licenses that also hold Specially Designated Merchant (SDM) licenses as eligible merchants that may fill growlers. This is in addition to the current law that allows on-premises retailers with SDMs to fill growlers. The requirements for filling growlers under MCL 436.1537(10) will remain the same (see below). Furthermore, licensees that hold the appropriate licenses under this law do not require any additional approval from the Michigan Liquor Control Commission to fill growlers.

According to Mr. Bone’s statement to the Midland Daily News, he confirmed that he received the link.

"In the link (for filling growlers), if you look at the top, it does talk about needing an SDD license, although I don't think it was spelled out very well. I didn't even look at that because I had already talked to Liquor Control and she told me the link was going to give me the entire growler filling instructions," Bone said.

MLCC does not give legal nor business advice. The MLCC recommends that licensees read and understand the statutes and rules under which they operate (or plan to operate) in order to ensure that they are well-informed and can make appropriate business decisions. Standard MLCC policy is to send official links and documents to licensees and potential licensees – in writing – in order to avoid miscommunication. This is what happened in this scenario. We have reviewed all of the emails between the MLCC and Mr. Bone and all of the information given was accurate.

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