The state has canceled a $2 million-a-year liquor marketing contract it awarded to Pine State Trading Co. in February.

The 10-year contract was initially awarded to the Gardiner-based distribution company on Feb. 21 to market Maine’s state-run liquor business an operation that is projected to bring $450 million in annual revenue to the state. The contract was canceled because Pine State Trading provided “inaccurate information” during the selection process, which the company concedes was a clerical error that misstated its activity in the New Hampshire liquor market.

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STaff PHoto by Joe Phelan PINE STATE TRADING: Pine State Trading, now based in Gardiner, also has had offices on State and Ellis streets in Augusta. The state has canceled a liquor contract it awarded the business in February.

The company was notified via a letter dated June 2 from the Maine Department of Administrative and Financial Services.

“Obviously, we’re disappointed with the state’s decision to withdraw the award, but we’re completely respectful of their decision and understand it,” Nick Alberding, Pine State Trading’s CEO, said Wednesday.

The letter, signed by Gregory Mineo, director of the Bureau of Alcoholic Beverages and Lottery Operations, said a new request for proposals for the marketing contract will be issued “in the near future.” The marketing contract covers the pricing, display, inventory and availability of liquor sold in Maine.

Alberding said the inaccurate information Mineo referred to in his letter involved Pine State Trading’s share of the liquor market in New Hampshire. Pine State Trading last year sold 8,000 cases of liquor in New Hampshire, which was 0.4 percent of the 2 million cases sold that year, Alberding said. But in its bid for the Maine contract, Pine State Trading said its market share in New Hampshire was 0.004 percent.

The difference is relevant because in 2012 lawmakers rewrote the law governing its state-run liquor business to try to regain liquor sales lost to New Hampshire. The state’s request for proposals didn’t automatically disqualify companies that do business in New Hampshire, but they had to share the extent of that business, hence Pine State Trading’s disclosure.

“The minute we realized we made an error, we disclosed it,” Alberding said. “It’s a decimal-point error. The error itself didn’t materially change what our market share is in New Hampshire. It’s minuscule, but we made an error on the page. We take full responsibility for it.”

Dirigo Spirit, a Cumberland-based company that also bid on the liquor marketing contract, used the error as a central argument when it appealed the award to Pine State Trading in late February.

“Certainly, our view is that this is a big deal and there were serious questions about whether (Pine State Trading) should be disqualified as a result of the conflict,” said Gavin McCarthy, a partner at Pierce Atwood who represented Dirigo Spirit during its appeal hearing three weeks ago.

A company that sells liquor in both states has an inherent conflict of interest, McCarthy argued. By his estimates, Pine State Trading’s sales in New Hampshire could be as high as $48 million a year.

“The state was looking for an equity partner to help it maximize revenue in a responsible way as a result of this contract,” McCarthy said. “Anybody with a substantial conflict of interest (would raise) questions about whether they could do that in a way that would be the best for the state.”

Ford Reiche, president of Dirigo Spirit, said he was pleased with the state’s decision.

“The cancellation confirms the concerns included in our appeal,” he said in a statement. “We look forward to participating in a new RFP process for the marketing of spirits in Maine, and particularly to addressing the issue of maximizing the state’s revenue by recapturing sales lost to New Hampshire.”

The liquor marketing contract’s annual worth is equal to 1.5 percent of the annual net sales of spirits in Maine, which equaled $142 million in 2013, according to Jennifer Smith, director of legislative affairs for the state’s Department of Administrative and Financial Services. That means the marketing contract is worth $2 million a year.

But the marketing contract is only one part of the state’s liquor business. There is also a separate contract for distribution and warehousing, which Pine State Trading received from the state in early January. The company will retain that contract, which is equal to 4.7 percent of annual net sales, or nearly $6.7 million a year, Smith said.

Pine State Trading had previously handled the distribution and warehousing operations as a subcontractor under Maine Beverage Co., which received a lucrative, 10-year liquor administration contract from the state in 2004.

The state sought bids for the marketing and administration contracts as its relationship with Maine Beverage was ending. Maine Beverage did not respond to either of the state’s request for proposals.

Based on modest sales forecasts, the state’s share of liquor sales is expected to yield at least $450 million in wholesale revenue over 10 years, more than double the amount the state received under the prior agreement with Maine Beverage.

During the bidding process for the liquor marketing contract, the state rated each company’s bid using a point system. Out of a total 1,100 points possible on the evaluation form for the liquor marketing contract, Pine State received 1,063 points. Dirigo Spirit received 1,010 points, while a third competitor, Portland-based CD&M Communications, received 536 points.

In September 2013, the state sold a $220 million bond that will be repaid with revenues from the liquor contract. The proceeds of the bond offering were used to repay $183.5 million that the state owed to Maine hospitals.

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