Speakeasies are still with us, and proliferating!

As part of our on-going parsing of ABC press releases to identify current trends and issues with enforcement, a recent ABC press release trumpeting a major law enforcement raid in Oakland caught our attention. On one level the release tells an exciting tale about an undercover investigation ripped out of Hollywood.  On another level the release highlights a trend that needs to be thought about long and hard, not just by the authorities but by the entire licensed industry.

It was just not any raid. It was the raid of an underground nightclub; one of the hundreds if not thousands of currently operating underground nightclubs and restaurants in the United States.

As the ABC put it (pretty dramatically for them) in its press release:

On November 6, 2015, agents with the California Department of Alcoholic Beverage Control (ABC) and officers from the Oakland Police Department (OPD) culminated an undercover investigation and executed a search warrant at an unlicensed underground nightclub located at 361 12th Street, Oakland. Agents arrested the club operators and seized alcoholic beverages, money and illegal drugs during the operation. Both ABC and OPD had received citizen complaints of illegal alcohol sales, loud music and illegal drug use taking place at the location, known as “Studio 361”, often until the early morning hours. On previous dates, agents entered the basement club undercover and confirmed that the illegal activity was taking place. In addition to a full cash bar, the club offered a disc jockey, a dance floor and several smoking rooms for its patrons. Two club operators present on November 6th were arrested for selling alcohol without a license and for possessing cocaine. Agents seized 72 bottles of liquor, a significant amount of beer and wine, and approximately $400 in cash from behind the bar. Agents also found several small bags of suspected narcotics believed to have been abandoned by patrons as agents and officers entered the business. The investigation revealed that advertisement for the club took place primarily through social media and that it largely catered to patrons of licensed bars in the area after those businesses stopped serving alcohol at 2 a.m. as required by law.

Think that this is isolated? Think again.

Check this October story from KQED in San Francisco about an SFPD raid on the “Pink Spot.”

You can Google similar stories in every major metropolitan area of the country.  These “pop-up” clubs and restaurants (foodies are also operating pop-up unlicensed restaurants, where they match food, wine and spirits) have been proliferating for years, and are easy to find. All you need is the event link and, in some cases, the secret entry code; the digital equivalent of “Joe sent me.” Many events also take place out in the open and are advertised freely on-line with the event organizers not thinking twice about whether a license is required for the “private party” at which they charge admission.

The dangers are obvious: no enforcement of the laws prohibiting sales to minors or service to already intoxicated patrons, no attempt to keep the premises free of dangerous drugs or weapons and worst of all, no respect for those who are attempting to operate lawfully.

What’s going on here? And why?

There are three basic reasons for the growth of these unlicensed establishments and pop-up events.

A significant portion of the public wants to party past the legally mandated 2 am closing time

People want to party past the legally mandated closing time in California (2 am is as late as it gets, although many establishments are required to close earlier than 2 am); this is not news. There have been multiple attempts over the last decade to change California law to allow select clubs in entertainment zones to remain open until 4 am (as is the case in NYC and many other large cities).  The local police (supported by the anti-alcohol forces) have blocked every effort on the theory that it will eat up more law enforcement resources and encourage intemperate consumption (as if unregulated clubs don’t?). Social media (which the ABC blamed in their press release) facilitates people of all ages and tastes to easily meet up with each other after hours at private homes, in empty buildings and wherever space can be found to continue the party.

The cost of licensing inhibits new entrants into the entertainment market

The current cost of licenses and permits is so exorbitant (everywhere) that no one except well-funded hotels, restaurant and bar chains can afford them.  Currently a Type 47 or Type 48 (full liquor license) in San Francisco costs approximately $250,000, if one can be found on the open market.  That is a huge investment solely for the right to operate.  That doesn’t include the cost of navigating the use permit, entertainment permit and SFPD approval maze (the SFPD usually starts off a new restaurant by limiting hours to require closure by 10 pm – which just makes the problem worse). This begs the question of whether we really need the current population limitation restrictions on new licenses - - or is there a better way with different forms of licenses for the urban community to grow and prosper?

For the budding club impresario, it’s a lot easier to open a house or go to a warehouse and invest in sound and lighting systems instead of licensing, utilizing social media to build awareness and acquire customers.

All that this accomplishes is the creation of a generation of scoff-laws.

An entire generation of youth are disenfranchised and being trained that the alcohol laws are not something to be respected but rather something to be manipulated.

The age restriction on entry into nightclubs and bars continually disenfranchises the entire generation of those between 18 and 21 who are legally adults but unable to drink or be admitted into most licensed clubs.

False ID’s are everywhere, and are easy to get.  A recent story from Albany NY well illustrates this reality. There, when the authorities raided a nightclub, they found that 115 of the 125 patrons on the premises were underage, and the police confiscated 75 false ID’s.  We know from defending our clients that it’s not easy to identify false ID’s in this modern age, and without a lot more facts no one should jump to the conclusion that the club operators in this situation were to blame without seeing the ID’s that were being used.

The national 21 year old drinking age is a result of Nancy Reagan’s “just say no” mid 1980’s Highway Trust fund extortion racket. Any state that didn’t raise the drinking age to 21 was denied highway trust funds.  It’s time to end that nonsense, and there is a consortium of college presidents (led by John McCardell of Middlebury) that are seeking to do just that through the Amethyst Initiative.

One of the purposes of the repeal of prohibition was to get rid of the speakeasy, the pop-up night club that existed in every dry community before 1934. The speakeasy was run by gangsters, rum-runners and low-life crooks who used the premises to service the underground economy and, more often than not, plot criminal activity. The ease of sharing information about social gatherings on social media, coupled with expensive licenses and unrealistic operating restrictions (hours, music levels, social media restrictions, tied house laws, etc.) is bringing us full circle and running us headlong into the dark past of the entertainment industry.

Do we have an answer? Of course we do. The answer is to be realistic about the laws, the conditions of operation and the adoption of new alcohol restrictions that feel good but are functionally unenforceable. It’s time to start championing real reform at the state and local level.

Looking around the corner at the legalization of cannabis it’s obvious that the new speakeasies are not only not going away but will proliferate and simply add more intoxicants to the menu. It’s time for our industry leaders to reflect on the hard reality of how dysfunctional our current system of alcohol regulation is becoming.

Whenever you read a story about a new “pop-up” club or restaurant (or patronize one) think about the implications – it’s not a pretty picture.