Burning it Down and Starting Over: New Hampshire Regulatory Overhaul Materially Resets Liquor Administration and Enforcement

The New Hampshire Liquor Commission (NHLC) has completed a comprehensive overhaul of key portions of its regulatory framework, significantly rewriting the Liq 600 and Liq 200 rules. This effort, spearheaded by the NHLC's Division of Enforcement & Licensing, significantly changes both the procedural handling and ultimate resolution of Commission operations and enforcement actions in the state. The new rules formalize many previously-informal systems which should standardize results and increase the predictability of NH Liquor Commission actions in the long term, but will also likely increase processing time and cost in a number of actions.

The update, available in condensed form here, is too big to summarize in a single post. However, it is important to hit some key takeaways, most of which are disproportionately likely to impact the retail tier.

Informal Opinions Are No More

Informal opinions have long been a feature of New Hampshire practice, as in other states, to fill in statutory and regulatory gaps and gray areas. While never legally binding, these have helped make working with the Commission more efficient for industry by offering frequent glimpses into regulator attitudes and priorities. The new rules set up a system of Declaratory Judgment Petitions designed to replace this practice. Entities requesting statutory or regulatory guidance must now file a formal Declaratory Judgment Petition with the Commission requesting statutory or regulatory interpretation. The upshot of this is that the answers will be binding. The quality and applicability of these answers remains to be seen. There are likely some potential downsides for industry, however, which the Commission can mitigate with an effective rollout of this process.

1. Diligence will take longer. The Commission must generally respond to a petition in 30 days. While still reasonable, this is still significantly slower than past practice and will increase diligence lead time.

2. Diligence will be more expensive. The need to file a formal petition and adequately describe the situation and the specific question (all of which are typically very context-dependent) will, put simply take legal time and resources. Previously, answers were a phone call and an email away. Increasing bureaucratic process will always increase cost on industry.

3. The process eliminates opportunities for advocacy. Previously, agency opinions were an active discussion between regulators and industry, and both sides often swayed one another to their views in the process of collaboratively working through issues. My concern is that this more formal process will put an end to that collaboration and advocacy, and will result in a more siloed Liquor Commission less in-tune with and responsive to the thoughts and challenges of industry.

Everything About Enforcement Has Changed

Forget everything you know about how the Commission processes violations. Key changes include the following:

1. A complete overhaul of the administrative hearing process. Hearings are now much more structured, with clearer guidance on rules and timelines. This will allow a wider range of providers with general administrative agency experience to effectively advocate at the Commission.

2. The establishment of a limitations period for violations. Two years for most violations. Three years for violations resulting in death.

3. Standardized settlement guidance and forms. This will hopefully eliminate much of the frustrating back and forth and revisions necessary after already securing agreement and client approval.

4. Established "sentencing guidelines" for violations. A new punishment matrix sets point, fine, and suspension ranges for each offenses, while the regulation now spells out aggravating and mitigating factors that must be considered in new detail.

5. The establishment of a progressive discipline system for minor violations that do not involve prohibited sales. Progressive discipline will now include verbal warnings, written warnings, and violation notices. There are some significant exceptions including most prohibited sales offenses, unless the prohibited sale was captured as part of a controlled buy (“Compliance Check”)

6. Formalization of the previously informal "points" system. Points have been on the books but dead letter for a long time. The new system spells out specific points punishments for different offenses, ranging from 2-9 points. At 15 points, the Commission will hold an enhanced penalty hearing. At the 25 point threshold, the Commission will hold a revocation hearing. Points remain in a file for three years.

Many of these changes will improve enforcement practice all around, with more predictable processes and results.

New License Issuances May Be Much Slower

One of the most significant changes will be that new license issuances will likely be much slower unless the Commission has built procedural efficiencies that are not reflected in the rules. The new regulations require the Commission to give municipalities an opportunity for a public comment period prior to issuing any new licenses. Under previous practice, municipalities had 15 days to send written objections after notification. The new public comment requirement does not include a time period. Accordingly, new license issuances may now be significantly delayed by municipal inefficiencies, something wholly absent from the licensing system up to now. Additionally, municipalities may structure public comment in different ways, with some opting to hold hearings, which will further increase license risk, effort, and legal cost.

The challenge here is that New Hampshire does not have a formal system of license transfer when a business is acquired. This means that the acquiring entity must seek an entirely new license to operate. New Hampshire likewise does not permit management agreements, which are designed to bridge these gaps. Under the current process, the license must be carefully timed with the transaction closing (itself often a moving target), and must be more or less fully developed at the time of close. This was challenging even under the old system where municipalities did not routinely create public hearing delays. However, with municipalities and the public now more involved an already challenging task has become even harder.

The bottom line: if acquiring a liquor-license holding business in New Hampshire, be sure to build at least 90 days into the diligence period in your purchase and sale to allow for license transition planning. Otherwise you will be in the difficult position of having to close your business after the closing, leaving your employees, clients, and profit in the lurch.

Look for new updates as we continue to analyze and test the bounds of these changes. In the meantime, if you have any questions, never hesitate to reach out.