StateWays is the only magazine exclusively covering the control state system within the beverage alcohol industry, with annual updates from liquor control commissions and alcohol control boards and yearly fiscal reporting from control jurisdictions
Issue link: http://read.dmtmag.com/i/707334
StateWays | www.stateways.com | July/August 2016 10 MAINE'S NEW WAY FORWARD agency agency profile F or ten years, Maine was essentially out of the spirits business. It was still a control state, but operated under a hybrid system unlike any of its peers. Recently, the state's Bureau of Beverage Alcohol and Lottery Operations (BABLO) made major changes to that system under new distribution and marketing contracts – changes that represent the lessons learned during that decade of failed experimentation. "At the time, I was working in the private sector of the spirits industry, and I remember keeping an eye on what was happen- ing in Maine," says BABLO Director Gregg Mineo. "I thought it ws a little unusual for the industry at the time. But the state was cash-strapped going into that fi scal year and they needed an infl ux of money." "In 2002, the state was saddled with a billion dollar hole in its biannual budget," says deputy director Tim Poulin. "It needed a way to close that gap, and used the spirits business as leverage to help." The state signed a contract with Maine Beverage in 2003, which was essentially a lease agreement giving up control of the warehousing and distribution of distilled spirits. The agreement included a $125 million payment upfront to the state – divided between the 2003 and 2004 fi scal years. Maine Beverage was owned by regional wholesaler Martignetti Com- panies and New York-based private equity fi rm Lindsay Gold- berg & Bessemer. The company hired Pine State Trading, a Maine-based beverage distributor, as a vendor partner to handle the warehousing of product. "In order for the state to guarantee money to Maine Beverage on an annual basis, a gross profi t margin of 32.8% was put on all distilled spirits," Poulin says. "Over that ten year period, prices continued to go up as the profi t margin needed to contractually rise. By the end of the agreement, the profi t margin was 39.4%, which made our prices signifi cantly higher than other control states." There was also a guaranteed minimum amount of revenue that Maine Beverage would receive – beyond that minimum, all profi ts were split 50/50 with the state. Essentially, the up- front payment was a loan that the state was paying back over time, but by the end of the contract the minimum guaranteed payment was $36 million. Over ten years, the state of Maine's share of profi ts was $189 million, including the $125 million upfront payment. Ultimately, the state decided not to renew its contract with Maine Beverage. The company had proposed a new ten-year agreement that would guarantee the state $32 million a year, which was lower than the $46 million BABLO projected it could generate. A SECOND CHANCE In September 2013, Maine pledged its future profi ts from the sale of liquor as collateral for a $220 million revenue bond that Gov- by JEREMY NEDELKA Johnnie Meehl, Pine State Trading Director of Spirits Sheila Gibbons, Gregg Mineo, Pine State Trading Sales Manager Don Potter, Tim Poulin and Tracy Willet.