Modernizing NJ’s Liquor Laws

The state has updated its liquor laws for the first time in a century, but more can seemingly be done.

By Jim Pytell, Managing Editor On May 1, 2024

Historically, New Jersey has rarely made impactful changes to its liquor laws. In fact, after Prohibition ended in 1933, policymakers in the state continued to restrict who could sell liquor. Today, laws passed in the 1950s and 1960s still limit the number of consumption liquor licenses for bars or restaurants to one for every 3,000 residents in a town. Additionally, further restrictions have also hindered the growth of craft breweries in the state.

Gov. Phil Murphy himself has called New Jersey’s liquor laws antiquated, adding that the laws have “stifled economic growth and hampered the dreams of countless small business owners.”

So, it was noteworthy when Murphy signed legislation (S-4265/A-5912) in January, marking the first meaningful update to New Jersey’s retail liquor license laws in nearly a century. However, this legislation fell short of the robust reform the governor laid out during his 2023 State of the State speech, which notably included eliminating the license-per-residents limit. 

Instead, the new laws aim to boost the number of available liquor licenses statewide by addressing inactive/pocket licenses and establishing mall licenses, and ease some restrictions on breweries and distilleries.

Highly Coveted Licenses a Hot Button Issue

While on the surface it appears that issuing more licenses is a simple way to spur economic growth, the debate over the state’s liquor license laws has gone on for decades. 

“The state’s laws regulate a strict alcohol supply chain,” says Ronald Hennig, audit staff at EisnerAmper. “Those who manufacture can only sell to distributors. Distributors, in turn, can only sell to retailers who then sell directly to customers. The supply of these Class C retail licenses is extremely limited and highly coveted. They are sold in public auctions, routinely for more than $1 million.”

As a result, those who have secured a Class C license don’t want their investment to be devalued.

The New Jersey Restaurant and Hospitality Association has voiced concerns about the issuing of new licenses, stating, “We support members who made the significant investment to secure a liquor license under the current system. Most restaurant owners who hold licenses are family-owned, small businesses whose livelihoods depend on the investment they made under the rules and regulations currently in place. Flooding the market with new licenses will instantly diminish the value of these licenses and financially devastate thousands of small business owners.”

On the flip side, proponents of issuing new licenses say that the manufactured scarcity (1 license per 3,000 residents in a given municipality) has caused prices to balloon to unattainable amounts for many small business owners. 

According to Downtown New Jersey, “The statewide average cost to purchase a liquor license is around $350,000, but prices [have hit] the millions in some areas of the state.” The advocacy organization argues that these prices make it problematic for those without access to immense capital to get in the game.

Inactive/Pocket Licenses & Mall Licenses

While the legislation signed by Murphy in January does not address the license cap per resident and will not cause the state to issue new licenses, it does allow towns to reclaim inactive licenses. 

According to the NJ Division of Alcoholic Beverage Control (ABC), the reclaiming of inactive licenses could inject as many as 1,356 licenses back into the market, a roughly 15% increase over the 8,905 active retail consumption licenses presently being used.

“The new law addresses the longstanding issue of inactive and pocket licenses,” says Hennig. “License holders can no longer retain a retail consumption license indefinitely without using it. If a license remains inactive for two years, the holder must either use or sell the license. If neither option is exercised, the license can be transferred to a neighboring municipality.”

The law also establishes a new class of retail consumption liquor license that will potentially create upwards of 100 new licenses throughout the state. Specifically, the law will allow municipalities to issue up to two to four new licenses for food and beverage establishments in shopping malls, depending on their size.

Breweries

Additionally, the law eliminates the requirement for breweries, distilleries, cideries and meaderies to provide tours to serve drinks, while also allowing them to offer snacks, collaborate with outside vendors, host unlimited onsite events and private parties, host 25 off-site events, and participate in up to 25 events hosted by the holder of a social affairs permit.

It also increases the number of barrels that may be manufactured per year from 10,000 to 300,000 and allows license holders to directly sell and distribute 50% of the beer that is produced on premises each year to retailers, rather than having to rely solely on wholesalers.

These changes are welcomed by breweries, but Scott Wells, co-owner of Bolero Snort Brewery in Carlstadt, believes that more needs to be done.

In 2022, the craft brewing industry contributed $72.2 billion to the US economy and nearly 460,000 jobs, according to the Brewers Association.

However, Wells points out that breweries are currently going out of business in New Jersey at a record clip. 

With only 140 establishments, New Jersey ranks 45th in the nation in breweries per capita. Overall craft beer production, distribution, marketing, and sales in the state still translates into an economic impact of $1.8 billion and more than 11,000 jobs. However, if New Jersey was meeting its relative per capita potential, it could realize another $318 million in economic impact and more than 2,600 jobs, according to Downtown New Jersey.

Aside from the previous restrictions, another problem appears to lie in the relationship between bars and breweries.

Wells says that many bars in the state refuse to buy from New Jersey breweries as they view them as competition and devaluing their license.

While he disagrees with that take, Wells says that he is an advocate for incentives so that New Jersey bars will be more apt to buy from New Jersey breweries.

Downtown New Jersey says that both New York and Pennsylvania rank in the top 5 states in overall craft beer economic impact; and Vermont and Maine rank in the top 5 states in per capita economic impact. “What do these Northeast neighbors have in common?” the organization asks. “Their policies encourage and support liquor industries as drivers of tourism and economic development.”

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