Free Wine Market Fans: Support WA State’s Initiative 1100

Posted by Tom Wark on Jun 18, 2010

Washington State finds itself in the midst of a campaign for reform that is extraordinarily rare. Initiative 1000 is a ballot initiative that would wholly transform the alcohol distribution system in that state to make it more open, more reliant on free market principles, less dependent on middlemen wholesalers and one of the first states to throw overboard nearly completely the three-tier system of  alcohol distribution created in the 1930s.

The primary results of passage of Initiative 1100 are:

1. Dismantling the state monopoly on sales of spirits
2. Repealing the requirement that spirits be sold through a middleman
3. Abolishing the state's mandatory markup on spirits
4. Allow Quantity Discounts
5. Allows credit terms to be offered by producers to retailers and restaurants
6. Allows producers to give items of value to retailers and restaurants

In initiative 1100's Section One preamble, it states:

"The people of Washington State desire that the Liquor Control
Board focus on its core mission of education and enforcement to protect
the health, welfare and safety of the citizens.

In order to strengthen the agency to more effectively educate
the public, combat abuse, collect tax revenue and enforce state liquor
laws, the Washington State Liquor Control Board will stop selling
liquor and end its Prohibition-era monopoly on selling distilled
spirits. The state will license the sale of distilled spirits to
strictly regulated vendors who are already proven to be responsible
sellers of beer and wine.

This initiative will improve regulations to prevent abusive and
underage drinking, enforce licensing regulations and collect taxes for
the State’s general fund.

David Kesmodol, writing in the Wall Street Journal, correctly described the import of Initiative 1100 when he noted, "The effort is being closely watched by producers, distributors and
retailers of beer, wine and liquor across the U.S. because it would
mark the most sweeping overhaul of any state's alcohol trade
regulations in years and could presage similar proposals in other
states."

As one might imagine, these changes are opposed by the middle tier of the alcohol distribution system for the simple reason that it removes certain advantage given to that tier. But in addition to that, Initiative 1100 is a direct assault on the principles of the three-tier system, that method of regulation that exists in most states across the country and provide the middle tier of wholesalers with advantages over the other two tiers never imagined by those who devised the system over 70 years ago.

The November ballot initiative that would make Washington State the most liberal in the country where alcohol regulations are concerned, is supported by a variety of groups including retailers, restaurants, and wineries. However, it's the support of Costco, the Washington State-based big box store that is most critical to the initiative's success. To-date, Costco has given more than $650,000 to the yes-on-1100 effort and appears to have been responsible for collecting the signatures necessary to put it on the ballot.

As you recall, Costco sued the state of Washington, arguing that most of the state laws being dismantled by 1100 were unconstitutional. Though they won parts of the lawsuit, they also lost parts. Initiative 1100 would give then the win at the ballot box that they failed to obtain in the courts.

Those who have argued that the strict three tier system in place in most states is antiquated, restricts the development of free markets, hinders the growth of entrepreneurship in the alcohol industry and protects middlemen unfairly will want to see this initiative pass. A poll taken in early May showed that 52% of respondents supported the initiative, 37% opposed it and 8% remained undecided.

Between now and November there will be a tremendous amount of politicking over 1100. Supporters of Initiative 1100 will need to show that those claiming it would lead to more drinking by minors and adults alike are simply wrong. They will of course be looking to CA to demonstrate this, where beer, wine and spirits can be sold directly to retailers and restaurants by producers and importers. Supporters will also have to overcome a competing ballot initiative (1105) that would keep the three tier system in place, but take the state out of the sale and marketing of spirits. Wholesalers, State Worker Unions and health advocates will strong oppose 1100. The primary funding for the opposition effort is likely to come from individual wholesalers and public employee unions that fear jobs will be lost if the state gets out of the spirits business.

I've argued that the key to creating a well-regulated, efficient alcohol distribution system that honors concerns over abuse as well as the free market results from reforms that allow for winery/retailer-to-consumer shipping rights as well as "self distribution" rights that allow producers to sell directly to retailers and restaurants without any mandatory sale to middlemen wholesalers. Washington State will be testing citizens desires to have nearly exactly such a system (it remains illegal for consumers to have wine shipped to them from out-of-state wine stores).