Christchurch's SpicyBoys make hot sauce. They’ve branched out into a chilli gin to sell alongside the sauce.
They can sell that gin at a couple of local farmers' markets, on special licences. What they cannot do, it turns out, is sell it online. Not because anyone thinks their gin is dangerous, but because the law has no category for a hot-sauce company that also makes gin.
Their predicament, which they set out on LinkedIn last week, is worth following. There is a basic principle here. Should a business be allowed only if there is a regulation enabling it? Or should it be allowed unless someone can find a good reason to forbid or restrict it?
Under the Sale and Supply of Alcohol Act, a manufacturer can sell its own alcohol from its premises, but only if making alcohol is its principal business. SpicyBoys' principal business is hot sauce.
A business can sell alcohol remotely, but only if at least 85 per cent of its income comes from selling alcohol remotely. Again: they’re mainly a hot sauce business.
They could, in principle, hive the gin off into a separate company whose sole purpose is selling gin. If they did, they might qualify for a remote-sales licence.
But remote selling sits inside the Act’s off-licence rules. Those off-licence rules come with location requirements. And Christchurch's Local Alcohol Policy freezes new off-licences across its higher-deprivation areas, apparently including the part of Woolston where SpicyBoys is based.
There is an escape hatch in Christchurch’s policy: the freeze doesn't apply to businesses whose primary purpose is not selling alcohol. Which sounds perfect for a company whose main business is hot sauce, and especially where they want to sell remotely. But if their primary purpose is hot sauce, they don’t qualify for the relevant alcohol licences. It’s a premise fit for a Joseph Heller novel.
Part of the problem is that the Sale and Supply of Alcohol Act tries to do two jobs: ensure that alcohol is sold and supplied safely and responsibly, and minimise the harm from excessive drinking. The Act’s licensing functions are really only suited to the first of those jobs.
Vetting who can sell, where, and on what conditions is a sensible way to keep the trade orderly. It is a clumsy way to fight alcohol-related harm, because the only lever it really pulls is availability for everyone. Asked to carry too much of the weight of harm reduction, licensing gets heavier and blunter, and starts catching activities it was never meant to catch.
My submission on proposed amendments to the Act argued for a simple discipline. Measures under the Act should be used only where they are a cost-effective way of addressing a real harm, and only where the benefits exceed the costs. Costs imposed on lighter drinkers and the people who would sell to them matter too.
Proportionality, in other words. Ask of each restriction what problem it intends to solve, and whether it is the cheapest way to solve it. The wall in front of SpicyBoys solves no problem at all. Nobody's drinking is made safer by a chilli gin being available at a market stall but not by courier.
The simple fix would be a new licence category for their type of business. But that misses the deeper problem that regulators are poorly equipped to weigh, because they cannot see it.
We know about SpicyBoys only because they wrote about it. If they had looked at the legislation, saw no legal way of proceeding, and given up, would anyone have ever known?
The economist Israel Kirzner, one of the great theorists of entrepreneurship, spent a career on a point that sounds obvious once said and is routinely ignored in regulation.
The value of a market lies in what it discovers. Entrepreneurs are alert to opportunities nobody has spotted yet. In this case, remote-sales of spicy gin made by a hot sauce specialist.
Entrepreneurial opportunities are invisible to everyone except the entrepreneur until someone acts on them. If they cannot be acted on, because the proper form doesn’t exist, or the regulatory category hasn’t been established, they remain invisible.
Rules that require businesses to fit into existing categories don’t just impose the usual measurable compliance costs. They cancel entrepreneurial discoveries that could have happened, product lines that could have been established, and businesses that could have been founded.
Had the regulators seen this kind of opportunity in advance, they might have set a category for it. But regulators are not particularly entrepreneurial.
Nobody tallies the cost of what might have been, because only the entrepreneur can see the lost opportunity. And in areas where regulation is known to be too hard, sensible entrepreneurs don’t bother watching for opportunities.
SpicyBoys will probably be fine. They have hot sauce. And a new alcohol licence category is a straightforward option – I explained it to the Select Committee considering amendments to the Act and hope they will do something about it.
But we’ll never know what else we miss out on when special regulatory permission is required before innovation is allowed.
Permission should not be the first ingredient in a new product.
To read the article on The Post website, click here.