The Michigan Liquor Control Commission has returned nearly $3.4 million to licensees as part of a liquor buyback program to support bars and restaurants during the state-mandated closure to curb the spread of COVID-19.
In all, 673 companies sent completed applications to the state for the buyback program as of May 12, according to a spokesperson at the MLCC, which is reviewing seven pending applications. The “financial lifeline” payments averaged $5,000.
The buyback program essentially served as a zero-interest loan for the hard-hit sector, which was forced to close to in-person dining and drinking on March 16 per an executive order from Gov. Gretchen Whitmer.
In the program, licensees submitted an application consisting of a detailed inventory list the bar or restaurant requested that the state repurchase for the original price. After supplying a list of unopened, salable spirits and the prices the licensee paid for them, the state, which controls liquor sales, issued the company a check via the Department of Treasury. Licensees were allowed to keep the inventory on their premises.
Expired or delisted products were not included in the program, according to the MLCC.
“Bars and restaurants have 90 days after emergency declarations are lifted to repurchase the inventory by selling it when they’re back open for business and pay the Commission back interest free,” Jeannie Vogel, public information officer for the MLCC, said in an email to MiBiz.
“If after 90 days, there is any remaining unsold inventory, it will be picked up by the MLCC through an authorized distribution agent,” she said. “Licensees can sell the product immediately upon reopening and reimburse the MLCC as they sell off inventory within the 90 day period or reimburse the MLCC in total at the end of the sell-off at the end of the 90 days.”
Companies that sell the inventory without repaying will have their ability to order liquor cut off, Vogel said.
For cases in which a licensee does not want to repurchase some or all of the inventory, the MLCC will arrange an authorized distribution agent to pick up the spirits, she added.
Mike Brown at Carlin Edwards Brown PLLC, a Lansing-based law firm specializing in liquor licenses, said MLCC to date has only issued “cursory guidelines or procedures” around the program and how licensees would repurchase the spirits from the state.
Brown said he’s fielded calls from clients about the ambiguity of participating in the program without clearly defined rules from the state, specifically in cases when the licensee may not wish to repurchase all of the inventory after the shutdown.
“Another issue that will likely arise is what happens if the business is sold after MLCC paid for the alcohol,” Brown said in an email to MiBiz. “Does the loan need to be repaid immediately or can it be repaid 90 days after the end of the State of Emergency? Is it repaid by the current licensee or the business buyer? Will the MLCC refuse to approve the buyer until the loan is repaid?”
Scott Ellis, executive director of the Michigan Licensed Beverage Association, a trade association for liquor licensees, noted that less than 10 percent of the companies with liquor licenses participated in the program.
“Most of my members found it too cumbersome to do … because of the uncertainty of when they would be able to open back up and sell it,” Ellis said.
Ellis described the program as well intentioned, but said “it got messed up” in going through the approval process outside of the MLCC. As well, the program lacked immediacy because it took more than a month to launch after the start of the shutdown.
Additionally, most independent business owners “don’t have a lot of liquor on hand” because they typically get weekly shipments.
“It started as a good idea, and it turned into government bureaucracy,” he said.
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