Over-regulating small businesses, cigar bar edition


One of the consequences of regulating business by statute is that statutes are categorized, and therefore businesses have to be categorized too. The rigid legal classifications for businesses can lead to some restrictions that make sense only to lawyers, legislators, and scientists who catalogue animal and plant species.

The first step in regulating a business is to define it. Is it a restaurant, a brew pub, a cocktail lounge? Each of those falls under a separate definition and is governed by separate regulations. A business may not float between categories.

So, for example, state law divides breweries into multiple categories. There are beverage manufacturers, nano breweries, tenant breweries and brew pubs. If a nano brewery makes more than 2,000 barrels a year, it can’t be a nano brewery anymore. One additional barrel of beer puts it in a separate legal category with separate regulations. 

Cigar bars have their own section in the law. When legislators allowed cigar shops to sell alcohol, they decided they could no longer call them cigar shops. So they had to define “cigar bar” in the law and create a new section for it. 

By definition, a cigar bar has to generate at least 60% of its quarterly gross revenue from the sale of cigars and cigar-related products (those are defined in law), have a humidor on the premises, not allow anyone under age 21 on the premises, not allow cigarette smoking, not allow outside alcoholic beverages, and not serve food. 

Wait, not serve food?

Full-service restaurants are prohibited from operating cocktail lounges (bars) on days when their dining rooms are closed. But cigar bars are forced by law to serve alcohol without food. 

What in the world?

Well, if cigar bars serve food, then people might start to think of cigar bars as restaurants. If people think cigar bars are restaurants, it might occur to them to go to a cigar bar, rather than a restaurant, for dinner. 

And if business regulations exist for any purpose, it’s to prevent a new type of business from competing with an established business for customers. 

So — by law — cigar bars may serve their customers alcohol, but may not provide any food whatsoever to help slow the alcohol absorption. Not even free bar peanuts. 

Never mind that drinking on an empty stomach causes the body to absorb alcohol faster. 

The first to recognize the problem caused by this law was not legislators, but… cigar bar owners. (Who would have guessed?)

They tried in the last legislative session to get this legal prohibition on serving food to cigar aficionados repealed, but COVID speeded the end of the session before the bill, which passed the House and had a unanimous thumb’s up from the Senate Commerce Committee, could pass. 

This week, a bill to end this prohibition, House Bill 171, was taken up by the Senate Commerce Committee again after passing the House last week. It received a 5-0 ought-to-pass recommendation. 

One reason the bill has a good chance of becoming law is because it doesn’t upset restaurant owners. It doesn’t upset them because it would not end the ban on cigar bars competing with restaurants.

Legislators can be clever when they want to be. The bill would strike the word “service” from current law and replace it with “sale.” 

That way, cigar bars could put out free pretzels or nuts, but couldn’t sell food, so they technically wouldn’t have to be classified as restaurants — and wouldn’t compete with restaurants. 

See how it works?

Of course, cigar bars won’t be able sell candy bars or cupcakes or packaged snack foods either. They have to take a loss on any food they serve. Selling even pre-packaged food might put them into competition with convenience stores or bakeries, just as selling hot food would put them into competition with restaurants. 

And if there’s one thing the state absolutely must avoid, it’s different types of businesses competing with each other to satisfy consumer demand.