A Look at Ohio's Liquor Licensing

Ohio's Liquor Laws limits how many establishments communities can have based on population

This past weekend saw the abrupt and unceremonious closing of the Moeller Brew Barn. The establishment purchased the building that was better known as being home of the city’s Lutheran Church and renovated it into a local watering hole, yes, with the stain-glassed windows still intact.

While it’s sad to see a small business go under and the community now has another large vacant building to deal with (our community has a checkered past dealing with such buildings), it raised some questions on how liquor establishments are dealt with in Ohio’s communities. Namely, does Troy have too many of these establishments? Who gets to make that call?

Well, the Ohio Department of Commerce, through their Division of Liquor Control, manages the licensing of liquor establishments throughout the state and has a quota system to determine the number and type of liquor permits in a community. The quota system is a vital regulatory framework designed to manage the sale and distribution of alcohol across the state. This system links the availability of liquor permits to local population sizes, ensuring that the number of establishments licensed to sell alcohol is proportionate to the demand in any given area. By doing so, the Ohio Division of Liquor Control maintains a balance between consumer access to alcohol and the responsible oversight of its sale, avoiding oversaturation in highly populated areas while preventing under-provision in rural regions.

Understanding Permit Types

The quota system applies to a range of permit classes that regulate alcohol sales across various types of establishments. For instance, D-class permits are among the most coveted and the quota systems will allow for one permit for every 2,000 individuals in a community.

These permits cater to establishments where alcohol is consumed on-premises, such as bars, restaurants, and taverns. A D-1 permit allows only the sale of beer for on-premises consumption or carry-out, whereas a D-2 permit expands the range of alcoholic beverages to include wine and mixed drinks. The D-3 permit is more comprehensive, allowing the sale of spirituous liquors, the D-3A permit allows the sale of these beverages until 2:30 a.m., where the traditional D-1, D-2 and D-3 permits shut down serving at 1:00 a.m. The D-5 permit allows for on or off site consumption of beer, wine, pre-packaged low proof mixed beverages, and on premises only consumption of high-proof spirits, all until 2:30 am.  D-4 permits are strictly for private clubs. The number of permits allocated to any municipality or township is updated in response to census changes, meaning growing populations may trigger an increase in available licenses, while stagnating or shrinking populations may see limits imposed.

In contrast, C-class permits focus primarily on retail sales for off-premises consumption. Businesses such as convenience stores, grocery chains, and specialized liquor shops fall into this category. Much like D-class permits, C-class permits are also subject to quotas, with one permit for every 1,000 individuals in a community. The Ohio Division of Liquor Control enforces these caps to regulate the availability of carry-out alcohol options in densely populated or sparsely populated areas, maintaining control over how and where alcohol is sold in retail formats. While these quotas serve a regulatory function, they can also pose challenges for new businesses attempting to establish themselves in highly competitive areas, where the number of available permits is capped, and no new permits may be issued.

Below, is a current chart of the permit quotas for the City of Troy. You can see that there is very little availability for liquor permits in the community; most of the permit classes have applications on file in excess of the permits available.

Ohio's liquor laws adapt to population dynamics, especially when economic growth in certain regions increases demand for more alcohol-selling venues. When a region's population expands, the quota system can allow more permits to be issued. However, when the number of permits tied to the population exceeds the demand, or no new permits are allocated due to stable population numbers, it becomes difficult for new businesses to enter the market.

A Workaround the Quota System

To address this challenge, Ohio introduced the Transfer and Economic Expansion (TREX) permit system. TREX permits provide a pathway for businesses in areas where the local quota for liquor licenses is already met to acquire a permit by transferring it from a less populated area. Essentially, a business in a region with high permit demand can bypass the quota restriction by acquiring a permit from a jurisdiction with lower demand. This system ensures that businesses are not completely blocked from operating due to regional restrictions while still maintaining regulatory oversight. TREX permits are often associated with economic development efforts, requiring the business acquiring the permit to demonstrate significant investment in the area or a broader development project.

The process for obtaining a TREX permit involves more than just the transfer of paperwork. To qualify, the business must be part of an approved economic development initiative, meaning it could be a new construction project, significant rehabilitation of an existing building, or an expansion that promises to bring jobs or commercial activity to an underdeveloped area. The applicant must meet specific criteria set by the Ohio Division of Liquor Control, which evaluates both the potential benefits of the project and its alignment with broader regional economic goals. Approval is required from both the jurisdiction relinquishing the permit and the one receiving it, ensuring that the system is transparent and beneficial to all parties involved.

The TREX system has proven invaluable for cities like Columbus, Cleveland, and Cincinnati, where economic revitalization projects have sparked a surge in demand for new bars, restaurants, and entertainment venues. In these cities, competition for available permits under the traditional quota system is often fierce. The TREX option allows entrepreneurs and established businesses alike to tap into the expanding markets by transferring permits from rural or underdeveloped regions, which often have excess permit capacity.

Despite the benefits of the TREX system, the process can be time-consuming and complex. Applicants must navigate the regulatory landscape and ensure that both jurisdictions involved in the permit transfer are amenable to the transaction. This often involves meetings with local officials, legislative and bureaucratic action, and thorough documentation of the business's plans for economic impact. However, for businesses in high-demand areas, this effort is often worth the reward of being able to open or expand operations despite the permit limitations imposed by the local quota system.

Ohio's liquor quota system is an essential mechanism for maintaining regulatory control over the sale and distribution of alcohol throughout the state. By tying the number of available permits to population sizes, the state ensures that alcohol-selling establishments are appropriately distributed across urban, suburban, and rural regions. However, the addition of the TREX permit system offers flexibility for businesses in areas where permits are otherwise unavailable, allowing them to participate in local economic growth and redevelopment efforts. Through these systems, the state is hopefully striking a balance between fostering economic development and ensuring the responsible management of alcohol sales.

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