Presented by: Pat Kohler, Agency Director March 7, 2012

1. Sleepless in Olympia: I–1183 in Transition Presented by: Pat Kohler, Agency Director March 7, 2012

2. Agency Goals: • Orderly transition by May 31, 2012. • Meet the timelines and the requirements spelled out in the initiative. • Advert harm to contract, tribal and military stores. • Maximize reasonable value for our assets. 2

3. I-1183 Timeline • December 8, 2011 • I-1183 becomes law • March 1, 2012 • Distributor and COA’s licenses active • May 31, 2012 • State business operations close • June 1, 2012 • Spirit Retail licenses active

4. Implementation Project Teams 4

5. Key Activity Timeline 5

6. Key Agency Challenges • Administering layoff of over 1,000 employees under two complex collective bargaining agreements. • Providing full retail services through May 31, 2012, yet ensuring that inventories are depleted at the end of the day. • Conducting audits of over 300 store locations in eight weeks. • Auctioning of State Store Rights at locations that are owned by 3rd parties. • Changes to the existing regulatory system. 6

7. Supplier Buy Back Agreement • 124 suppliers established agreements, representing 99% of spirits. • Only 96 of 424 (22%) listed beer, wine & mixer products will be covered by an agreement. • 2,225 of 2,850 (78%) special order spirits will be covered by an agreement. • Reversed logistics. 7

8. State Store Auction • A successful bidder owns the exclusive right to apply for a spirit retail license for the existing location. • Allow for liquor sales at a premise under 10,000 sf2 • Location is not subject to local jurisdictional challenge • The “right” is sellable, transferable, and re-locatable • No obligation to operate a liquor licensed business • Public on-line auction. • Individual store locations • All system bid • 45 day window • Maximum reasonable value. • Criteria to determine total revenue factoring in cost avoidance 8

9. Regulatory Changes Uniform Pricing: • Is repealed for spirits and wine (No sales below acquisition cost). Ban on quantity discounts: • Is repealed for spirits and wine (No sales below acquisition cost). Ban on Central Warehousing • Is repealed for spirits and wine. Ban on Retail to Retail Sales: • Is repealed for spirits and wine to a degree (24 liters per sale to an on-premises licensees). Liquor Markup & Taxes: • The markup is removed. • Removes the 15% discount on the purchase of spirits by retail on-premises spirits liquor licensees. 9

10. Current 3-Tier System Producer/Manufacturer Typically a brewer, winery, or distillery Distributor Companies specifically designed to sell specific products to restaurants, bars, stores, etc. Retailer Grocery & liquor stores, bars, restaurants, etc. Consumer

11. I-1183 Model Producer Distributor Off Premise Retailer On Premise Retailer Consumer

12. Producer Out of State Producer • Privileges • Sell to Distributor • Sell to Retailer • Costs • 10% distributor fee on sales to Retailers In State Producer • Privileges • Sell to Distributor • Sell to Retailer • Sell to Consumer at the Distillery • Costs • 10% distributor fee on sales to Retailers • 17% retailer fee on sales to consumers

13. Distributor • Privileges • Sell to Distributor • Sell to Retailer • Costs • 10% distributor fee on sales to Retailers (first two years) • 5% distributor fee on sales to Retailers • $150 million distributor assessment for “holders” of a distributors license (for the period March 2012 – March 2013) 13

14. Retailer Off Premise • Privileges • No Uniform Pricing • Quantity Discounts • Central Warehousing • Retail to Retail Sales (limited to 24 liters/day) • Costs • 17% retailer fee on all spirit sales On Premise • Privileges • No Uniform Pricing • Quantity Discounts • Central Warehousing • Costs • 17% retailer fee on all spirit sales Additional Requirements: Must maintain 10,000 ft2 of retail space

15. I-1183 Model Producer Distributor Off Premise Retailer On Premise Retailer Consumer

16. Current Applications by License Type 16 As of March 1, 2012

17. Q and A 17