Alcohol Sales Must Be Reformed Now…The Industry Depends on It

Posted by Tom Wark on Apr 20, 2020

The time for nonsense alcohol regulations is over. It’s done. If the American alcohol industry is going to get back on its feet and flourish after the unprecedented economic downturn caused by the shutdown of commercial activity then things are going to need to change. Flourishing commerce in alcohol must be the aim and deregulation of the alcohol industry is really the only way to achieve that aim quickly.

REMOVE THE STATE-MANDATED MIDDLEMAN
The one regulation that harms the alcohol industry more than any other is the state-mandated use of a wholesaler. Middlemen are useful for large-scale logistics, for moving large quantities of wine, beer and spirits from one part of the country to another then distributing them to various resellers. But when the wholesaler’s use is mandated by the state, a huge swath of producers and retailers who simply don’t need the wholesaler for every movement of goods gets caught up in a nonsensical regulatory snare, costing them money, effort and time.

In too many parts of this country, in too many states, the craft beer and spirits producers and small winery are required to sell their products to wholesalers in order to see those products show up at a store or bar no more than a mile away from the production facility. It’s a costly, wasteful and economically stupid requirement that benefits the middlemen at the expense of the producer, the retailer and the consumer. And yet, this—the stupidest regulation of all—has long been at the heart of alcohol sales and distribution in the United States.

If a whiskey producer in Indiana wants to sell a case of its best product to a niche retailer in Minnesota, it ought to be able to do so without the burden of first looking for a wholesaler in Minnesota who will deliver that product to the retailer and take 25% or more of the retail price for doing so; that’s 25% that could be split between the retailer and the producer who may not need a wholesaler for this particular transaction. That $100 Indiana whiskey could be sold to the Minnesota retailer for $63, equalling $13 more dollars for the producer and a cost of $12 less to the retailer.

Producers can collect and remit excise taxes to the state just as easily as the wholesalers. Producers can track their transactions to retailers and restaurants just as easily as a wholesaler. The purpose of mandating the use of a wholesaler has been lost to history and overcome by technology and new logistics capabilities. Let producers and retailers use the services of a wholesaler if they want to, not because the law requires it. No other change to alcohol regulations would help the alcohol industry than removing the state-mandated use of wholesalers to sell and distribute products.

LET ALL ALCOHOL PRODUCERS SELL DIRECT TO THE CONSUMER IN ANY STATE
There is only one purpose for a state to ban its own and out-of-state alcohol producers from selling and shipping their products directly to the consumer in that state: anti-competitive motives. That’s it. Protectionist motives are the only explanation for bans on direct to consumer shipment of wine, beer and spirits. To give the alcohol industry an edge coming out of this economic shutdown, to modernize the industry to the point that its laws match the technology and logistics of the day and to provide consumers with an honest choice of products, the ban on alcohol shipments must end.

Wineries in particular began shipping directly to consumers across state lines around 2000, with the practice speeding up after the Supreme Court knocked aside the discriminatory bans too many states placed into law for protectionist motives. Since then we have not seen minors use the DTC channel to obtain alcohol. We have not seen widespread tax avoidance. We have not seen direct shipping of alcohol lead to higher rates of alcohol consumption. And we have not seen retailers and wholesalers go out of business as a result.

States allowing their own alcohol producers and out-of-state alcohol producers to ship directly to consumers in their state would result in a much-needed lift to these producers after being pushed to the edge of profitability by the economic shutdown. If states want alcohol producers to fail and go out of business, then they should keep in place the bans on the shipment of beer and spirits. If they want a flourishing craft alcohol industry in their state, they should allow DTC sales and shipment.

END THE BANS ON WINE RETAILER INTERSTATE SHIPPING
In a post-quarantine world, it is not unreasonable for some people to want to avoid shopping in crowded stores and that includes liquor stores. Moreover, it’s not unreasonable to give those consumers access to the products they want, be they available locally via delivery or via interstate shipments. There is nothing inherently different from an out-of-state winery shipping across state lines and a retailer doing the same. It is the same transaction and the same logistics.

Today only 16 states explicitly allow shipments from out-of-state retailers. Eighteen states discriminate by allowing their own wine retailers to ship to consumers in the state but unconstitutionally baning out-of-state retailers from doing the same. The result is that the vast majority of the states restrict their consumers from accessing the vast majority of products available in the U.S. marketplace. It is primarily wholesalers who make the absurd case that retailer to consumer interstate shipment is problematic. And they do so with no evidence. They make their case with campaign contributions. This needs to end for the sake of consumers who want what they want and for consumers who want to practice the safest way to procure the products they want.

The expansion of the craft alcohol sector has been driven by producer innovations and improved logistics capability. But the grand diversity of producers that Americans enjoy and support are threatened today just like so many other industries. The producers must be given the leeway and tools to ramp up their business after the COVID-19 disaster wanes. Retailers and restaurants must be given the regulatory tools that allow them to innovate. And wholesalers must be told to live or die on their own, not with the crutch of government subside via protectionist regulations of old.

Some folks will argue that a call to deregulate the alcohol industry while in the midst of global health emergency is simply self-serving and crass. The people who try to make this argument don’t matter. They don’t care about what matters and that’s people’s livelihood. They are the ones that would use the COVID-19 disaster to keep lining their pockets at the expense of consumers and the vast majority of folks who do honest work in the alcohol industry. There is no more important and obvious time than right now to call for reform in the alcohol industry. The industry depends on it.