After legal confusion, Alaska distilleries can serve cocktails – but there’s a twist

After lengthy debate about whether Alaska distilleries are allowed to serve cocktails at the September Alcoholic Beverage Control Board meeting, mixed drinks remain on the menu — but with a twist.

Toivo Luick, owner of Hoarfrost Distilling in Fairbanks, said Monday that he was told by the Alcohol and Marijuana Control Office that he is allowed to continue serving mixed drinks, so long as all the ingredients are made in-house.

"So, what we're doing here is exactly that," Luick said.

After complaints landed at the state regulatory office this summer, distilleries were told that state law only allows them to serve their own products, not cocktails made with store-bought mixers.

That means Luick will no longer serve Moscow mules, popular drinks that require ginger beer. But he will serve lemon drop martinis. Shots of liquor and nonalcoholic beverages will still be served as usual.

Other distilleries are following his lead. Heather Shade, owner of Port Chilkoot Distillery in Haines, said they will also sell mixed drinks using juice and simple syrups made in-house.

There are nine distilleries in Alaska. Anchorage Distillery is the only one in Alaska's largest city.

Owner Bob Klein said Monday that his business will also keep serving mixed drinks with whatever they can come up with.

"We've been playing with recipes," Klein said.

Distilleries say they've been serving cocktails for three years. In 2014, they were given the green light by the Legislature to open tasting rooms. The law says that they can sell up to 3 ounces of "the distillery's product."

But after a complaint came in that a distillery was serving mixed drinks — with alcohol that was not made on-site — and providing entertainment, distilleries received a letter telling them to stop mixing their alcohol with anything that's not made in-house, according to a memo written by ABC Board Director Erika McConnell.

At its Sept. 13 board meeting, the board discussed what's allowed under the exact wording of the law, which makes no mention of cocktails or mixers.

"The language of the statute is clear," assistant attorney general Harriet Milks said during the meeting. "The problem here is that many of the distillers … would like the board to insert new words."

Eight legislators signed a letter to the board saying that their intent back in 2014 was to allow mixed drinks to be served.

But that intent was never laid out or mentioned when the bill was being discussed, Milks told the board. Legislators can't make those clarifications after the fact, she said, after the public process is over.

After more than an hour of discussion, the board voted in support of the regulators' interpretation. It also opened a regulations project to return to the issue at their November meeting.

Klein, who is both the owner of Anchorage Distillery and chairman of the Alcoholic Beverage Control Board, recused himself from the board discussion. He instead provided comment as a citizen. He said the issue was being raised because of concerns of competition from bars.

"I don't see where cocktail versus shots is really the issue," Klein said during the meeting.

Regulators say they didn’t know

Alaska regulators said that they didn't know distilleries were selling cocktails for the past three years.

Former agency director Cynthia Franklin said she never knew cocktails were being served at distilleries, according to the Juneau Empire.

Current director McConnell also said the issue only came to her attention after the complaint was filed in June.

Shade, with Port Chilkoot Distilleries, says there were many times when regulators could have become aware of what was going on. Her company advertised on Facebook. She served cocktails at the legislators' bill signing party.

In late July, Hilary Lockhart, who plans to open a distillery called Alaska Proof in Anchorage, emailed the office with questions about distillery rules. She received a response from an enforcement officer to "be cognizant of mixed drinks and you may only serve alcohol distilled on your premises."

When asked about the email, McConnell said that the officer's response came right around the time that the issue was unfolding within the agency; the advisory notice was sent out days later.

"The enforcement staff receive many many questions from licensees and prospective licensees regarding our statutes and regulations, and they do an excellent job in providing information about how to comply with those rules. For obvious reasons they can't run every question by the director," McConnell said in an email.

She said in a later email that she wasn't sure whether enforcement officers were aware that distilleries were serving mixed drinks.

In 2014, the same year distillery tasting rooms were allowed, the agency that regulates alcohol was given a second task: to create regulations for commercial marijuana. Since then, staff have split their time on both areas, which has led to strain for the office.

‘De facto bars’?

At the Sept. 13 meeting, the board's ruling centered around interpreting the law's narrow language. But much of the conversation revolved around whether serving mixed drinks meant distilleries were operating as bars, instead of just tasting rooms.

"In theory, I don't really care about tonic or orange juice or that kind of stuff, but the state needs to outline what's acceptable and what's not," Jason Curé, owner of The Narrows bar in Juneau, said on Monday.

The Alaska Cabaret, Hotel, Restaurant and Retailers Association — known as CHARR — spoke out against the practice during the meeting.

"CHARR would not have supported this bill if we thought that distilleries would become de facto bars," said Dale Fox, president and CEO of the organization.

Curé said that it comes down to intent — is the intent of the distillery to manufacture home-grown spirits, or to have a bar?

Bar licenses in Juneau have hit their cap (19 bars operate in Juneau, according to the city, and so far one distillery), and Curé said he spent $250,000 to get his license. Curé worries that if more distilleries open up, his license will be devalued.

Distilleries say that rules were put in place specifically to prevent them from becoming bars. Alcohol can't be served after 8 p.m. Entertainment is banned. Bar stools are not allowed.

"All that stuff was intended to keep tasting rooms from being bars," Klein said.

Luick, of Hoarfrost Distilling, said that the tasting room allows him to offset high costs of production — rent, energy costs, equipment. The tasting room brings down the price of his spirits, which otherwise would be far more expensive than other brands.

Shade said that allowing distilleries to build up their business for three years and then switching interpretations was "unfair and damaging."

The Alcoholic Beverage Control Board will take the issue back up at its November meeting.