Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Licensing and Occupations was held on Friday, June 8, 2012, at 10:00 AM, in Room 129 of the Capitol Annex. Representative Dennis Keene, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator John Schickel, Co-Chair; Representative Dennis Keene, Co-Chair; Senators Tom Buford, Denise Harper Angel, Jimmy Higdon, Dan "Malano" Seum, Kathy W. Stein, and Robin L. Webb; Representatives Tom Burch, Larry Clark, Dennis Horlander, Wade Hurt, Adam Koenig, Charles Miller, Michael J. Nemes, Carl Rollins II, Sal Santoro, Arnold Simpson, and Susan Westrom.
Guests: Dr. Pearse Lyons, Founder and President, and Mike Castle, General Counsel, Alltech; Marty Snyder CEO Flavorman, CEO Distilled Spirits Epicenter and Kevin Hall Operations Manager, Distilled Spirits Epicenter; Mark Schmidt, Chairman of the Board, Kentucky Board of Home Inspectors and Mark Brengelman, Attorney General’s Office, General Counsel, Kentucky Board of Home Inspectors.
LRC Staff: Tom Hewlett, Bryce Amburgey, Carrie Klaber, Michel Sanderson, Alan Jones, and Susan Cunningham
Approval of minutes.
A motion to approve the minutes from the November 2, 2011 meeting was made by Representative Keene, seconded by Representative Burch. The motion carried by voice acclamation. Representative Keene also announced that Alan Jones has joined the committee as a graduate fellow from Western Kentucky University. Representative Keene added that, due to the schedule conflict with the NCSL conference in Chicago, the August meeting date will be moved, pending LRC approval, from the second Friday of the month to August 27th, which is a Monday.
Alltech Lexington Brewing and Distilling Company.
Dr. Pearse Lyons told committee members that his company, Alltech, is involved in animal health, but is gradually moving into the food industry. Alltech has grown consistently for thirty-two years, with an income target this year of one billion dollars in sales. Alltech sells products in 128 countries. With a family background as coopers (barrel makers), and having a degree in brewing and distilling, when he moved to Kentucky Dr. Lyons realized there was an opportunity to incorporate used whiskey barrels into the beer making process. In 2000 the Lyons family bought a small brewery in downtown Lexington. Today the brewery produces three beers including Bourbon Barrel Ale. In addition, a distillery at the same location produces a whiskey, a malt whiskey and a bourbon. The name of the bourbon is Town Branch after the branch that runs under Lexington.
Dr. Lyons said that Kentucky Bourbon Barrel Ale is being sold worldwide. Beer production is being doubled every year. Alltech has filed for a license to move from a microbrewery to a full brewery, with a vision to become bigger than Sam Adams brewery. The company’s strategy is to reinvest profits back into the company. The company purchased property on Cox Street and Maxwell in downtown Lexington and now there is a beautiful distillery with copper pots and wooden fermenters.
The support that the legislature imparted for the Alltech sponsored World Equestrian Games was invaluable, and more support may be needed in the future for the brewery business. Sampling is an important part of making the bourbon trail experience. This allows people to appreciate the talent and the craft of making bourbon. Brewing companies also need to be able to hold a souvenir retail malt beverage license to allow tourists to enjoy the malt beverages on the premises and take souvenir packages with them.
Mike Castle, Alltech’s General Counsel, said Alltech will request legislation to mirror the provisions currently allowed by the distillery souvenir retail liquor license in a new license for a brewery souvenir retail malt beverage license. This would level the playing field. As Alltech is moving from a micro brewer to a full brewer they have to give up the licenses they currently hold. The key items in the legislation to be proposed would require Alltech to maintain the three tier system, to require that the license to sample and sell be restricted to the brewers premise, stipulate that the brewery must have a gift shop on the premise, require that the brewery must be located in a wet territory, and limit the complimentary samples to 16 ounces per patron per day. Additionally, there would be a limit of 144 ounces for souvenir sales, and the hours of operation for the retail store would be set by local law. Retail by the drink sales would be completely prohibited.
In response to a question from Representative Keene, Sean Cutter said samples are limited to 16 ounces per individual and purchases would be limited to one half case, limited to the Alltech brand.
Senator Schickel thanked Dr. Lyons for coming to speak to the committee, commenting that he was looking forward to working with them during the coming legislative session. Representative Keene added that everyone on the committee saw the legislation as an opportunity to create jobs and economic growth.
Distilled Spirits Epicenter
Kevin Hall, Operations Manager, Distilled Spirits Epicenter, told members that his company is an artisan distillery, as well as an education center. There has been a huge increase in the craft of artisan distilleries in recent years. In 2006 there were 143 licenses for distilled spirits plants, today there are 735. Louisville, given its history and resources, is a natural fit for this type of operation. Vendome Copper and Brass Works in Louisville is a distilling equipment manufacturer that has become a partner with the Distilled Spirits Epicenter, building an artisan distillery with a classroom attached. This allows teaching all aspects of the industry from the technical side to the business side.
Marty Snyder, CEO of Flavorman and of Distilled Spirits Epicenter, said they are a small company that knows the challenges of trying to begin an artisan distilled spirits operation. In 2006, the Flavorman company, originally Pro Liquitech International, moved its operation to a renovated building that now has a state of the art beverage laboratory. Here ingredients are blended into concentrated syrups for hundreds of companies.
The founder of Flavorman originally worked for Brown Foreman but decided to expand his expertise to develop flavors as an independent consultant to the beverage industry. The company is unique in that clients range from startups to the largest beverage companies in the world. Services provided by Flavorman range from product development, testing, sampling, sourcing the ingredients, finding contract manufacture’s worldwide, and helping with production and post production quality control. Flavorman works with both alcohol products and non-alcohol products.
The artisan distilled spirits industry is following the micro-brewing industry. These are small entrepreneural activities by people who are willing to invest in equipment, a building, and distribution. However, there is nowhere in the United States that these people can go to one place and learn the entire operation. The classes at the Distilled Spirits Epicenter cover buying equipment, plant layout, making mash, applying for three-tier licensing, and distribution. In 2008, the company purchased the building next door to Flavorman. However, there have been delays. The beverage industry and its clients were impacted by the recession. In 2009, a flash flood in Louisville nearly wiped out the business. After all this they now have a more modern building with classroom facilities. They are currently working with Jefferson Community and Technical College to have a certified educational program. They are waiting for federal licensing to begin classes. Equipment can be leased to prospective artisan distillers to find out if they really want to invest their money. Larger international companies may use the facility for small, test-run batches for new product development. There is even an apartment where clients stay when they come to Louisville for business.
The third part of the Epicenter originally is a small bottling line. Typically contract manufacturers want to produce 100,000 cases or more at a time. We have the capability to produce from 50 cases up to 1,000 cases.
In response to a question from Representative Keene, Mr. Snyder said the company could create the formula for the beverage and teach clients to distill it themselves or just provide equipment; if that was all the client needed. In response to a question from Senator Buford, Mr. Snyder said the company can help an entrepreneur with all aspects of development, including label design and recipe development. In response to a question from Senator Seum, Mr. Snyder said there are three levels of licensing required for the distillery aspect of the business; a license from Louisville Metro Government, a license from the Kentucky Department of Alcohol Beverage Control, and a federal permit from the Alcohol and Tobacco Tax and Trade Bureau (TTB).
Committee Review of 815 KAR 6:070
Mark Schmidt, Chairman of the Board of the Kentucky Board of Home Inspectors, and Mark Brengelman, General Counsel for the Kentucky Board of Home Inspectors were present to answer questions from the committee about 815 KAR 6:070.
815 KAR 6:070 is a new administrative regulation regarding per diem and reimbursement for traveling and other expenses for board members.
In response to a question from Senator Webb, Mr. Schmidt said there was no intent of any change to the reason for which a board member could receive per diem. “Face to face” means a situation such as his coming to the committee meeting today and representing the board, rather than speaking on the phone. Even though this is not a board meeting, Mr. Schmidt said the proposed change would allow the per diem to cover his expenses. Mark Brengelman also responded that the phrase “as approved by the board” was in the original draft of the regulation as filed. As a compromise to increase clarity that phrase was taken out on the recommendation of Administrative Regulations Review Subcommittee staff. All per diem is approved by the board by motion and second. Receipts must be provided to be reimbursed for payment. Senator Webb made a motion to keep “board approval” in the administrative regulation language. This was seconded by several members.
In response to a question from Senator Buford, Mr. Schmidt said that because the account has been swept the balance is approximately $60,000 to $80,000. He also pointed out that home inspector fees have been reduced by fifty dollars per year. There are 325 members that now pay four hundred dollars every two years. Mr. Brengelman added that this regulation was filed as a new regulation. All the underlines and strikeouts were made by Legislative Research Commission staff.
In response to a question from Representative Clark, Mr. Schmidt said the fee was originally set at thirty-five dollars, but the board felt that it would have to eventually be raised. The raise to one hundred dollars would be more consistent with other boards in the state. This was also seen as a way to attract qualified board members. Mr. Brengelman added that other boards have more general language regarding reimbursements such as attending each meeting or “otherwise engaging in official business of the board.” Representative Clark made a motion to find the regulation deficient, seconded by Representative Horlander. Senator Webb rescinded from her motion regarding “board approved” language, seconded by Representative Keene. Administrative Regulation 815 KAR 6:070 was found deficient by unanimous roll call vote.
Representative Koenig asked if committee staff would prepare a report on how much per diem is paid to other boards.
There being no further business to come before the committee, the meeting was adjourned at 10:53 a.m.