The State Revoked My Special Food Service License. Now What?
I hear it all the time – the Division of Alcoholic Beverages and Tobacco revoked a restaurant's special food service (“SFS”) license, they cannot sell alcohol anymore, and they don’t know what to do next. It happens, but businesses can take proactive steps to protect some of their alcohol revenue while they strategically regroup. It’s time to read the (figurative) fine print.
The SFS license (formerly known as the "special restaurant license" or "SRX license") is a great opportunity for restaurants and certain other businesses that serve food. Generally, if the business has 2,500 square feet, the ability to serve 150 people at one time, and $1,820 the state will issue an SFS license that allows it to offer beer, wine, and liquor to its customers. It is a cost-effective alternative to a traditional liquor license (or "quota license"), which can be a six figure investment. It also works well for new businesses that need the alcohol revenue to help recoup their initial investment.
Of course, there are strings attached. There is the key requirement that 51% of food and beverage revenue be from the sale of food and non-alcoholic beverages. The 51% rule is intended to ensure that only bona fide restaurants can take advantage of this licensing loophole, and the business must be in compliance during their first 60 days of operations and for each 12 month period afterwards. There isn’t a lot of wiggle room for some business models – a few big nights can lead to a failed audit.
When a licensee fails an audit, the Division will file administrative charges seeking to revoke the license. If you have been served with an administrative complaint and have not yet responded, stop reading this and consult an attorney with administrative law experience. A business is unable to legally sell alcohol without a valid state license, regardless of the big football game or major event booking on the schedule.
The final order revoking the SFS license contains language prohibiting the licensee from applying for "such a license" for a period of 120 days. Here's why the details matter - that restriction (or “impairment”) only applies to SFS licenses.
If the business would prefer avoiding 120 days without any alcohol sales, it could immediately apply for a simple beer and wine (2COP) license as a stopgap measure. The Division has done an excellent job of reducing license processing times over the past several years, and a business could reduce its alcohol-free time to only a few days with a well-timed and complete 2COP application.
A wise manager or owner can make the best out of the situation by using the 120 day period to analyze sales trends and consider adjustments to their business model. Many businesses successfully bounce back from a license revocation, but it requires planning, research, and effort.