On Aug. 21, the application for a wholesale liquor license for Heath’s Custom Wine became one of very few liquor license applications the Flagstaff City Council recommended for denial in the last five years.
The council had received 13 emails from residents around the home where the license was being requested asking that the council not grant the request for alcohol to be sold in their neighborhood.
Among the concerns from the neighbors included increased traffic the business might bring, the bad precedent that could be set by allowing a liquor license in a residential area and problems the neighbors have encountered with the applicant.
However, on Nov. 2, the Arizona State Liquor Board decided to grant the license to Collin Heath, the applicant for Heath’s Custom Wines.
The hearing for Heath’s Custom Wines was one of 10 that have been brought to the board in 2017 because a municipality in Arizona recommended that a license be denied, according to data from the Arizona State Liquor Board. Of the hearings held by the board, only two applications have been denied this year.
In the four previous years, the board denied a total of 26 applications, compared with the 77 licenses that municipalities around the state recommended for denial.
A city or town council serves as an advisory body to the state board, recommending denial or approval of licenses that are then decided on at the state level. If the council chooses to recommend denial, the applicant can then make his or her case to the state board, which makes the final decision.
The board can also choose to deny an application that was recommended for approval by a city or town. That hasn't happened in 2017, but occurred six times between 2013 and 2016 for applications throughout the state.
In the case of Heath’s Custom Wines, Heath told the council he wanted to start a wine distribution business and could not afford a storage space yet. He had been working at Blendz, where patrons can blend their own wine and personalize the label.
He decided Blendz could grow by expanding to make custom wines for restaurants, hotels and other sellers, but needed a place to store the wine for the 24 hours required by law before delivering it to his customers, he told the council. No bottles would be opened on the premises and customers would not be stopping by the house to pick up the product; Heath would deliver it to them instead.
At the meeting, Councilman Scott Overton said he wished Heath luck, but said he would like to see Heath make more of an effort to get to know his neighbors and talk to them about his business.
“We represent the local community,” Overton said. “It’s important that you go out and talk to the neighbors. You’ve got to find a way to be a neighbor to those folks as well.”
Overton said he thought Heath could have luck in appealing his case to the state board.
The Flagstaff Police Department recommended the council approve the license, but required Heath to submit an addendum to his application to include his three total previous arrests, instead of only the one he listed on his original application.
Jeff Oravits, a former city councilmember and member of the state liquor board, said the board took the police department’s recommendation into account, as well as the fact that the code compliance office at the city also recommended the license be approved.
“The Flagstaff one was pretty cut and dry for me,” Oravits said of the approval, which took place at his first meeting after being appointed to the board. “The applicant addressed all the concerns. It seemed like (the denial) was an emotional decision by the council.”
Oravits said there were other instances around the state of similar licenses issued to a residential area.
“He cannot sell it in a residential area,” Oravits said. “He has to deliver it in his truck to his customers. I saw no reason to deny this.”
Oravits was a councilmember the only other time a business has tried to appeal a decision by the Flagstaff City Council. The Maverik station on Butler Avenue was recommended for denial in 2013. However, the station eventually withdrew the application and did not appeal to the state board.
At the Flagstaff council meeting when the license was recommended to be denied, Councilwoman Celia Barotz said -- even though the posting about the liquor license application was done legally for Heath’s Custom Wines -- the laws are designed for businesses, not homes, and a posting on a window of a home is not visible from the street. Barotz asked that the city consider changing the posting rules for licenses in residential areas at a future meeting to require applicants to post notices so they are legible from the street.
Last December, the bioscience company SenesTech became the first publicly traded company headquartered in northern Arizona, raising about $13 million in its initial public offering. The 13-year-old Flagstaff startup produces a formula that decreases fertility in rats, which it is marketing to customers ranging from municipalities to grain storage facilities to poison-averse, zoos, research facilities and sanctuaries.
As the company comes up on a year since that initial public offering, it continues to face a lopsided balance sheet, with operating losses far outweighing sales revenue. But company CEO Loretta Mayer said that will soon begin to change thanks to two new distribution contracts and a handful of pilot programs and initial sales that are expected to switch to longer-term deals.
“I feel like we've had a tremendous amount of success to go from concept hatched here in Arizona to a product that works to sales expansion,” Mayer said.
The company’s latest quarterly report shows revenues from product sales were $34,000 to date while accumulated deficit was $71.3 million. Total revenues for 2017 would be “negligible,” SenesTech stated in a November press release.
The company’s stock price has also taken a steep dive over the past year, falling from $8 per share at the initial public offering to about 87 cents per share now.
But Mayer wasn’t sounding any alarms.
Sales haven’t yet picked up because many of the company’s 29 customers are still in a pilot or research phases or are only using the ContraPest rat control formula on parts of their properties, Mayer said.
The cancellation of a major manufacturing, sales and distribution contract also pushed the company’s stock prices downward but will be a positive in the long run, Mayer said. Pulling manufacturing and sales in-house requires a large up-front investment, but will mean SenesTech will see a 50 to 70 percent profit margin from sales of its product instead of a low double-digit profit margin that was stipulated in the contract with the food and animal company Neogen, Mayer said.
Scaling up its sales staff, manufacturing equipment and raw ingredient inventory hasn’t been cheap, using up what the company raised in its initial public offering and forcing SenesTech to go out for a second round of funding, Mayer said.
To raise more cash, the company went through another public stock offering last week, raising not quite $6 million, according to Mayer. Demand exceeded the number of shares offered, which could indicate that investors think highly of the company or could be an indication that the company is undervalued, said Adam Gifford, an economics professor at Coconino Community College.
Either way, Mayer said the company is now fully funded to get to a break-even point or cash flow positive. She expects that will happen in 2018.
Two new deals with national distributors of pest control products will help the company get its product into more hands of pest management officials more efficiently, Mayer said.
The company will manufacture all of its product in Flagstaff through 2018 but beyond that expects increased demand will require it to evaluate manufacturing expansion options both inside and outside of Flagstaff.
The company is targeting several customer sectors for its ContraPest formula, Mayer said. Cities like Chicago, New York City, Baltimore and Washington D.C. are one, while animal sanctuaries and research facilities are another. One Colorado sanctuary is one of SenesTech’s happiest customers. Grain and protein production facilities are another area the company is targeting.
In a January press release, however, Neogen stated that the requirements included in the Environmental Protection Agency’s approval of ContraPest mean the product would face “very limited use in the food and agricultural industry.”
For a research-intensive, high-tech company like SenesTech, it isn’t at all uncommon to go through an initial public offering before turning a profit, Gifford said. SenesTech’s position is similar to companies like Google and Amazon that took years go revenue positive because they initially had to put so much money into product development, he said.
“Of course I'm rooting for them because they're a hometown company,” Gifford said about SenesTech. “You always want to see hometown companies do well and succeed, especially after going public -- that’s a really big deal.”
SenesTech also brings diversity to the Flagstaff economy, he said.
“It’s something different. It’s not tourism, not the airport, it’s something completely different," he said.