The 1st Rule of Tied House Laws and Alcohol Sales

florida copyIt is useful to return to the topic of the ongoing political debacle currently playing out among Florida craft brewers and wholesalers. It’s an opportunity to examine the most efficient and beneficial way alcoholic beverage can be sold today and why reform to the tied-house laws and three-tier system makes tremendous sense.

As a reminder, a bill is currently making its way through the Florida legislature that, if passed, would require Florida’s craft brewers who sell their cans and bottles directly to the public to first sell those products to distributors, who then sell them right back to the brewer, who only then can sell them directly to the public on their premises. That this is primarily a distributor payoff is made clear by the fact that the distributor need not even pick up the beer from the brewer, but merely take payment. To add insult to injury, if the wholesaler does pick up the beer, they don’t have to sell it back tot the brewer who merely wants to sell it to consumers at their own brewery.

The primary question that interested parties (lawmakers, brewers, wineries, distillers, wholesalers and consumers) should ask is this: What harm is threatened by allowing a producer to sell their product direct to the public from the producer’s own facility?

The sponsor of the Distributor Payoff Bill, Sen. Kelli Stargel, answer the question this way:

“If the breweries had reached the point where they were bottling their own beer, they needed to go through the distribution system. Otherwise, they would have an unfair advantage over other beer vendors since they would be selling beer at ‘wholesale’ prices.”

Besides the fact that Sen. Stargel’s premise makes no sense since brewers, wineries, cideries and distillers sell their product at retail, not wholesale prices when they sell direct to the consumer, her statement begs the question, what exactly is a producer doing when they sell their products to the public?

Are they wholesaler or distributing? clearly not since they are selling to the end-user, not a reseller. They are retailing and they are doing so in the same manner that a farmstand would sell apples on the side of the road. It strikes me that as long as they are only selling their own products, they ought not be seen as being a threat to anyone, not society, not the tax collectors, and certainly not to any “system” of selling.

In fact, I can see no convincing argument that would dissuade me from embracing the idea that tiedhousethe first rule of tied house laws ought to be that a producer selling only their product directly to the public ought not be subject to tied house laws that prohibit vertical integration of the alcohol market. Any objection to this first rule only dissuades entrepreneurs from expanding their business and innovating.

One of the supporters of the Distributor Payoff Bill in Florida, Matt Sokolowski, a board member of Great Bay Distributors, explained his support this way:

“The tier system helps craft brewers sell their product…It’s creates clarity, it creates order, it covers a gray area that these craft breweries are operating in.”

In reality, forcing a producer to sell to a distributor, then forcing them to buy it back so that they can then sell it directly to their customers create extraordinary disorder and murkiness and shades of gray in a process that ought to simple. More red tape is manufactured. More forms need to be filed. Yet no more taxes are collected in this process. Finally, this proposed Distributor Payoff Bill does nothing to help brewers sell their product. It makes it more difficult and it increases their expenses with no return whatsoever.

Sen. Stargel goes on to defend her Distributor Payoff Bill this way:

“The three-tier system was established so that we had very trackable brew through the process. We know how much beer is brewed, it then goes to the distribution center and basically comes to rest so we know how much beer is there, the level of taxation there, and then there’s the beer that goes out to the vendors. In it’s purest form, the three-tier system says you can’t be more than one of those. Either you’re a brewer, either you’re a distributor, either you’re a vendor.”

Regarding “tracking”, no one has ever answered the question, why is a wholesaler better able to report sales to a state than a retailer or a producer. And even under her bill, Stargell won’t know how much XYZ Brewery brews because they would still be able to sample their beer and sell their beer out of a keg at their brewery/brewpub.

Sen. Stargel’s insistence that one must be a producer, distributor or vendor is another way of declaring what so many have nonsensically declared for decades now: “We must defend the three-tier system for the simple reason that we must defend the three-tier system.” It’s circular in a way that would offend even undergraduate philosophy students.

They only way this bill in Florida is stopped is if in the next hearing, the room is packed with 100 brewers and consumers, all demanding to testify. Of course it would help if each of them brought $1000 to give out to committee members. But I think their presence would help. The only people actively defending this bill are distributors. Brewers, the media and consumers are all against it. But they all better start to speak up even louder if they intend to stop the Distributor Payoff Bill and establish The First Rule of Tied House Laws.

Read more here: http://www.bradenton.com/2014/04/09/5093585/so-far-florida-senate-favoring.html?sp=/99/102/#storylink=cpytied
Read more here: http://www.bradenton.com/2014/04/09/5093585/so-far-florida-senate-favoring.html?sp=/99/102/#storylink=cpy

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2 Responses

  1. Chris Woodrow - April 11, 2014

    Tom,

    You forget that the main purpose of the 3 tier system is to make alcohol MORE expensive do people buy less. The advantage to a brewer selling direct at “retail” pricing is that they keep the all the profits. An out of state brewer has to share those with the distribution people.

    Not saying I agree, just pointing out some things you might not have considered.

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