Alaska’s state alcohol regulator is declining to stop distilleries from selling kegs of premixed cocktails despite a warning by federal regulators, who have concluded that the process is illegal.

The Alaska Alcohol Control Board has rescinded an advisory notice that had cautioned distilleries against selling kegs to bars and other places with alcohol licenses. The board also voted unanimously to create a working group to consider the topic further.

“In the meantime, I’m not going to go after a guy who has been doing something, allegedly lawfully for (four) years under our nose,” said Joan Wils...