The Ice Cream Loophole: How Rutter’s Tried to Turn Convenience Stores into Distilleries

Daniel C. Conlon, dconlon@tuckerlaw.com, (412) 594-3951

In CHR Corp., Case No. 2025-9028, Pennsylvania Liquor Control Board, Examiner Report (2025), the Pennsylvania Liquor Control Board (PLCB) rejected a $9 million initiative by CHR Corp. d/b/a Rutter’s convenience stores to turn 64 gas stations into licensed distilleries: all producing spirits from a single York County facility.

Why This Decision Matters

The PLCB’s decision may require all limited distillery license applicants to prove they are running bona fide manufacturing operations rather than using regulatory loopholes. The PLCB examiner wrote that the basic intended purpose of a limited distillery is to provide an opportunity for smaller manufacturers to make and sell their product at the location where it is made, explicitly criticizing business models that undermine authentic craft distilling. The ruling establishes that minimal compliance strategies will likely not pass regulatory review, and bona fide manufacturing operations at each licensed premises are likely required.

The $9 Million Plan

CHR Corp. filed 64 applications for limited distillery licenses, each attached to existing restaurant licenses at convenience store and gas station locations. The company proposed a single manufacturing facility at 50 Grumbacher Road in York, Pennsylvania, to serve all 64 proposed limited distilleries. The total investment represented approximately $9 million plus substantial labor costs for applications and facility buildout.

The PLCB’s Bureau of Licensing raised seven objections, including lack of actual manufacturing at individual locations, improper interior connections between licensed areas, interlocking business violations, and insufficient manufacturing equipment and space.

The Ice Cream Loophole Strategy

Rutter’s attempted to satisfy manufacturing requirements through an unconventional approach: blending spirits with other ingredients and storing the mixture overnight, particularly in frozen dessert and ice cream products. The company planned to satisfy manufacturing requirements by blending spirits into ice cream and storing it overnight, a strategy that worked under older interpretations until regulators changed the rules mid-application.

The company relied on numerous PLCB Advisory Opinions supporting the position that blending and overnight storage constitute manufacturing under Pennsylvania law. However, recent Advisory Opinions 25-046 and 25-047 introduced new requirements for “bona fide manufacturing equipment” and federal producers’ permits, representing a significant departure from historical interpretations.

How Pennsylvania Law Defines “Manufacture”

Pennsylvania defines “manufacture” broadly to include all means, methods, and processes used to produce and make alcohol or liquor from raw materials and shall mean and include rectification and blending of alcohol and liquor. The catch is that neither the Liquor Code nor Board regulations define what constitutes “bona fide manufacturing equipment,” creating uncertainty about compliance standards.

Fatal Flaws in the Floor Plans

The PLCB examiner identified operational problems that doomed CHR Corp.’s applications. A 2-foot by 2-foot “manufacturing space,” about the size of a nightstand, was supposed to produce spirits for an entire convenience store. The floor plan showed zero designated storage space for the proposed frozen alcohol products.

The examiner concluded that CHR’s floor plan included no space for the overnight storage of spirits that the company claimed would constitute manufacturing. Also, the proposed layout created additional regulatory nightmares. Customers would grab unpurchased alcohol from the distillery display area, walk through restaurant-licensed space, then pay at a register in a completely different licensed zone, violating separation requirements. A patron would presumptively obtain an AL (limited distillery) manufactured item from the AL licensed display area and take the unpurchased item through restaurant licensed space to get to the AL licensed register to make the purchase.

The Central Production Facility Argument

A central issue in the Rutter’s case involved whether manufacturing can occur exclusively at a limited distiller’s Board-approved location rather than at each individual distillery premises. CHR Corp. argued that Board-approved locations have the same privileges as primary limited distillery locations and that manufacturing can occur at either location. The PLCB disagreed.

Section 505.4(b)(2)(1) of the Liquor Code states: “The holder of a limited distillery license may, separately or in conjunction with other limited distillery licensees, sell bottled liquors produced by the distillery at no more than five (5) board-approved locations other than the licensed premises, with no bottling or production requirement at those additional board-approved locations and under such conditions and regulations as the board may enforce to the board, to individuals, and to entities licensed by the board.”

The PLCB examiner reasoned that since no production is required at Board-approved locations, such production must occur at the limited distiller’s licensed premises, otherwise no manufacturing would occur anywhere under the license.  As a result, the PLCB examiner concluded that manufacturing must occur at the limited distiller’s licensed premises.

What This Means for Pennsylvania Limited Distilleries

The PLCB may be moving from vague requirements for limited distillery operations toward requiring strict manufacturing operations. The decision has particular significance for businesses seeking multiple distillery locations with centralized production. For applicants considering a distillery license in Pennsylvania, regulators now scrutinize whether an applicant is running a bona fide manufacturing operation or exploiting loopholes.

Applications may be evaluated not merely for technical compliance but for alignment with legislative intent to support authentic distilling. Key compliance requirements now include bona fide manufacturing equipment at each licensed premises, adequate space allocation for production and storage, genuine production activities beyond minimal blending, federal producer’s permits demonstrating bona fide manufacturing, and floor plans showing realistic operational flow.

Conclusion

The Rutter’s case represents a watershed moment for Pennsylvania’s craft spirits industry, establishing that limited distillery licenses require bona fide manufacturing operations rather than technical compliance workarounds.

For businesses considering distillery licenses in Pennsylvania, the practical guidance is straightforward: invest in manufacturing equipment at each location, allocate adequate space for manufacturing and storage activities, obtain federal producer’s permits, and design operations that reflect authentic craft distilling. License applicants that attempt to replicate Rutter’s centralized production model or rely on minimal blending activities could expect similar rejections.

To understand how this ruling could impact your operations or future applications, reach out to Daniel Conlon at (412) 594-3951 or dconlon@tuckerlaw.com. Daniel advises clients on PLCB licensing, compliance, and regulatory strategy.