Alcohol Regulation Roundup

Post image for New York Alcohol Bill Benefits Big Business at Consumers’ Expense

New York’s consumers and small alcohol retailers could soon be paying more for their tipples, for the benefit of big wholesalers. A bill now making its way through the New York legislature would require all wine and liquor sold in the state to be warehoused in in-state for 24 hours prior to sale. While the bill would be a boon to the state’s two largest wine wholesalers, who already store their products in-state, it will significantly raise the cost of business for small and mid-sized wholesalers who warehouse in New Jersey—possibly even putting them out of business. Consumers will see prices increase not only right away, but also in the future as competition dwindles.

The bill’s (S3849-2013) author, Senator Jeffrey Klein (D-Bronx), touts it as a way to even the playing field and protect warehouse jobs in the state, while pointing out that 33 other states have similar laws. But so what? In practice, the bill will do nothing to help consumers, either in the short or long term. Right away, prices will increase, as wholesalers are forced to rent space in New York’s more expensive warehouses.

Small and medium-sized liquor and wine dealers will pay an additional $10 per case—a cost increase that, as Connie Oehmler of Verity Wine Partners estimates, will result in an extra $2 per bottle for consumers. And that’s assuming these small and medium wholesalers remain in operation. For many, the cost increases may mean they have to close shop. Over the long term, the reduced competition will give largest wholesalers and warehouse owners little incentive to reduce their prices.

While the bill would provide little benefit to New York consumers, it would prove lucrative for the state’s two largest wine and liquor wholesalers—Southern Wine & Spirits and Empire Merchants–which have put a lot of money into bolstering the bill’s chances. Empire Merchants, which has warehouses in Queens and Brooklyn, has contributed a total of over half a million dollars over the last eight years to key lawmakers in the state, including Gov. Cuomo, state Senate co-leader Dean Skelos, and Assembly Speaker Shelly Silver. Klein, who has received $33,000 in campaign donations from the Empire Merchants, reportedly met with Empire on the legislation, according to a New York Post source. Oehmler is right to call the bill a “blatant, bald-faced attempt to put all their competition out of business.” And this isn’t the first time that a New York lawmaker or Klein, specifically, has been wrapped up in a proposal that appears to be written for the exclusive benefit of a few big New York businesses.

In addition to raising raising alcohol prices, the bill will also likely encourage cross-border alcohol purchasing, as consumers seek out cheaper products in neighboring states, resulting in a lost tax revenue for New York. Despite all the negatives, Klein likely will not back away from his flawed proposal.

liquorIn the lead up to Washington State voters approving privatization of liquor sales in the state, opponents claimed—as they always do—that the increased availability and lower prices would undoubtedly result in increased rates of crime, alcohol-related auto accidents, and greater numbers of minors having access to alcohol. The number of outlets in the state has soared (consumers can now buy liquor at more than 1,600 retailers compared to 329 state-run and rural contract stores before) and while there were some reports that liquor thefts might have increased, according to the Washington State Patrol, most alcohol-related arrests have declined since privatization went into effect on June 1, 2012.

WSP data shows there were 2,861 DUI collisions and 21,941 DUI arrests during the 2008-09 time period. Under the first year of privatization those numbers were down to 2,347 DUI collisions and 19,703 DUI arrests. Statistics for “minor in possession” showed an even bigger improvement with 1,483 cases between 2008-09 dropping to 777 during 2012-13.

Similarly, the rate of minors caught with alcohol has declined. While opponents of privatization claimed that state liquor store employees were better equipped to prevent such activity, it seems that private retail workers have been doing fine, better than fine, actually.

According to a new report from the Washington Policy Center:

Judging from the first year of data, the private sector has stepped up to this challenge. According to the WSLCB’s “Compliance Rates for Retailers Since 2012,” those private sector stores with at least 10,000 square feet (as required by Initiative 1183) or former state contract stores have averaged just over a 92 percent compliance rate. The most recent check for August 2013 showed a compliance rate of nearly 94 percent These numbers do not show a significant drop in compliance rates with private liquor sales.

What could explain the drop in alcohol-related criminal activity? While many public health advocates believe that increasing alcohol outlet density (the number of places one can buy alcohol in a square mile) will automatically increase the rate of alcohol-related injuries and crime, some researchers have found that this isn’t so.

In his 2003 study, economist Patrick McCarthy examined 111 California cities and found that a higher number of take-away alcohol stores actually correlated with decreases in fatal and nonfatal alcohol-related car accidents. And in her 2010 study, Tenaya Marie Sunbury, a Ph.D. candidate at the University of Michigan, found that higher alcohol retail density actually correlated with lower alcohol consumption, lower rates of binge drinking, and fewer rates of drunken driving. Her hypothesis, which seems likely, is that more stores nearby mean that people have to travel shorter distances to buy their alcohol and may not have to drive at all—decreasing the likelihood of these consumers driving while intoxicated. In the case of Washington, now that consumers can purchase their liquor while they do their food shopping, the likelihood that they will be sober when they do their alcohol purchasing is greater.

After privatization, the variety and availability of alcohol increased across the state, and while prices also increased (a result of the increased taxes the privatization bill put on alcohol sellers) those prices do appear to be dropping back down to pre-privatization levels.

The moral of the story is that the consequences of any regulatory change are quite difficult to predict. Attempting to engineer consumer behavior through policy is at best unlikely to work and at worst likely to have negative effects that nobody saw coming. The soundest course of action is to leave people free to make their own choices about how they live their lives.

Post image for Loosened Laws in New Jersey Result in Brewery Boom

Only a year after New Jersey Governor Chris Christie signed a bill into law that would allow breweries in the garden state to sell beer on their premises, the Garden State has experienced a growth spurt in its craft beer scene.

Bills S-641 and A-1277, which were signed into law in September 2012, make a number of changes for both microbreweries and brewpubs that enthusiasts had hoped would put the state in a better position to compete with its neighbors. New Jersey is ranked as the 34th state in the nation for craft beer production, while Pennsylvania takes the number two spot, New York is sixth, and Delaware is 16th.

Unsurprising for those of us who study of free market economics, the relaxed laws have spurred growth. At least 15 new beer-producing businesses are set to come online in New Jersey by next summer! This makes sense since starting up a production brewery or a brewpub is risky and has a large initial investment; the old rules made it difficult for a start-up brewer to make ends meet and limited existing breweries’ ability to grow.

Up until the law changed, craft breweries — those that produce less than six million barrels a year — were only allowed to give away beer to visitors on a tour of the facility, and even then they were limited to no more than four two-ounce samples. Additionally, if those visitors wished to buy some brew to enjoy at home, they were limited to two six-pack’s worth. With the new law, breweries can now sell full pints at the brewery and customers can buy a keg’s worth of beer (15.5 gallons) for consumption off-premise.

The bill also made some changes for brewpubs (restaurants with a breweries attached). Brewpubs can now produce up to 10,000 barrels of beer instead of being limited to just 3,000. The new law also raises the cap of how many brewpub licenses a business can hold — it is now 10 instead of the previous two licenses. Finally, and perhaps best of all, the laws now allow brewpubs to sell their beer to wholesalers so that it can be distributed to stores around the state and restaurants beyond their own.

These changes mean good things for both existing New Jersey beer producers and those hoping to get into the business. For those already operating, the new laws make expanding the business and revenue much easier. For would-be Jersey brewers, the new laws will help them to earn revenue in their early years, which is especially important in the Garden State, where obtaining a liquor license is particularly difficult and extraordinarily expensive.

The high cost and tight supply of liquor licenses is a barrier for would-be brewpubs.

It was for that reason Peggy Zwerver and Tom Baker left New Jersey after developing a cult following for their Ocean Township-based Heavyweight Brewing. Looking to open a brewpub, they were stunned by the hundreds of thousands of dollars they’d need to pay for a liquor license in New Jersey. So they opted for Philadelphia instead, with its abundant and relatively cheap licenses, Zwerver said. After opening Earth Bread and Brewery in 2008, they haven’t looked back.

Hopefully, the obvious benefits of loosening these beer laws will demonstrate to more lawmakers that the best thing they can do for the economy and their constituents is to simply get out of the way.

Post image for Alcohol Regulation Roundup: April 10, 2013

National: Constellation Brands revealed this Monday that a preliminary deal has been reached regarding the sale of Gupo Modelo — the maker of Corona. The $20 billion deal was stalled when the DOJ filed a suit to stop the merger of Modelo and Anheuser-Busch (ABI), citing anti-trust concerns. In the revised deal, it seems that ABI would sell its 50 percent ownership of Crown Imports to Constellation Brands — giving Constellation full control of Crown — the importer of Corona in the U.S. That, along with the sale of the Modelo’s Piedras Negras brewery to Constellation, appears to be enough for the DOJ to allow the merger to go through.

Alabama: The House of Representatives approved a bill earlier this month that would legalize home brewing in Alabama — the last state that maintains a ban on the activity. Representatives voted 58-33 in favor of the bill that would allow those 21 and older to make up to 15 gallons of beer, wine, mead or cider every three months so long as they are not in a dry county or city. The measure now moves to the Senate for consideration.

Arizona: Two sisters who wanted to open a combination vineyard and brewery were thwarted by an Arizona law that banned such combinations on the same property. However, the Governor signed legislation last week reversing the ban.

Florida: Bills that would legalize the standard growler (64 ounces) in Florida are essentially dead after The Florida Beer Wholesalers Association, which opposed the bill, convinced Rep. Debbie Mayfield, R-Vero Beach, not to give it a hearing at the House Business and Professional Regulation Subcommittee she chairs. Currently, only 32 ounce containers or gallon-sized containers may be filled by breweries.

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National: According to the Brewers Association, the trade group that represents smaller craft breweries, the Small BREW Act will be reintroduced in Congress in January 2013 after failing to come to a vote in 2012. H.R. 1236 and its companion legislation, S. 534, would have reduce excise tax rates for small brewers (those making under 6 million barrels a year), from $7.00 to $3.50/barrel on the first 60,000 barrels and $16.00 per barrel on beer production above 60,000 barrels up to 2 million barrels.

Alabama: Rep. Mac McCutcheon has proposed a bill that would legalize home brewing in Alabama — at least a very small amount of it. If passed, HB 9 would make Mississippi the only state maintaining a ban on home brewing. The bill would allow Alabamians to legally brew up to 13 gallons of beer, wine, cider, or mead every three months.

Colorado: Rep. Kevin Priola thinks he’s found a way to solve the ongoing battle to get full strength beer in grocery stores. Currently, grocery and convenience stores may sell beer with an alcohol content of 3.2 percent or less. Priola’s bill would let stores carry full strength beer made by “craft” brewers — that is, beer makers who produce less than 6 million barrels a year. MillerCoors and AB InBev will almost certainly push back against the move, as will liquor manufacturers being left out in the cold. When you try to change an entrenched system you will never make everyone happy, but perhaps this different approach is the step forward that can get the ball rolling.

District of Columbia: It’s now officially legal for stores to sell and deliver liquor on Sundays. On January 15, 2013, D.C. Mayor Vincent Gray signed the Omnibus Alcoholic Beverage Regulation Emergency Amendment Act and by the next day the Alcoholic Beverage Regulation Administration began accepting applications from liquor stores hoping to stay open on Sundays. In addition to Sunday sales, growlers (reusable containers holding up to 64 fluid ounces of beer) can now be sold and filled by brew pubs, liquor stores, and full service grocery stores for off-site consumption.

Kentucky: Kentucky legislators are scrambling to respond to a court decision last year that overturned the state’s ban on selling wine and hard spirits at grocery stores and gas stations. The judge stayed his ruling, preventing stores from acting on the changed laws, but if the legislature can’t come to an agreement in the 2013 session, the ruling will go into effect.

Maryland: Lawmakers in Maryland have introduced measures (House Bill 4 and Senate Bill 32) that would allow breweries to sell beer on site, up to 6,000 barrels a year.

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Post image for Alcohol Regulation Roundup: Turkey Day 2012 Edition

While most people in the U.S. are fantasizing about turkey slathered in gravy, yams, and pumpkin pie right now, beer connoisseurs throughout the nation — like me — are dreaming of the beer that they will savor at Thanksgiving dinner. This year we lovers of libations (not to mention the folks who make them) have a lot to be thankful for. While some states take steps backwards and others don’t seem to budge, we can raise our glasses to the increasingly liberal alcohol laws throughout most of the nation, that benefit of businesses and consumers and have contributed to making the U.S. one of the most vibrant environments for alcohol production.

Below is a collection of regulatory news items on proposed regulations or regulatory changes that affect the sale, production, and distribution of alcoholic beverages? Jump to the bottom of this post for suggestions on how to find the perfect beer to go along with your holiday meal. And remember, if you’re planning on buying alcohol you’d better check your state liquor laws. As I noted in my Christmas-ban post, many states have laws that make purchasing alcohol on a holiday difficult or outright impossible.

National: Should we be worried about the size and scope of America’s beer producers? Should we try to stop them from increasing in size or disallow them from distributing as well as producing beer? According to several publications, we should. The American Antitrust Institute released a white paper opposing a merger between Grupo Modelo — Mexico’s largest beer producer — and Anheuser-Busch, while an article in the Washington Monthly (echoed by Mother Jones) seems to suggest that we must stop brewers from merging or allowing them to distribute or we risk having a world where one company terrorizes the market and we have epidemic levels of alcoholism. I will have a more in-depth discussion on that in another post, but the short answer is: we shouldn’t be worried about stopping “big beer,” we should be thinking about how to get out of the way of craft beer. Up until recently, big beer companies had been experience a multi-year decline in sales, while craft brewers were experiencing a boom. There will not be a monopoly so long as small brewers can make and get their beer to market. Eliminate their taxes, let all brewers self-distribute, let them advertise, and we will never see a beer monopoly while Americans still have taste buds.

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How did the election affect alcohol laws? Alcohol is regulated by states, cities, counties and towns, and hundreds of them had alcohol-related measures on the ballot Nov. 6. Georgia alone had more than 100 alcohol-related items on various ballots. Tennessee voters approved six of seven alcohol-related ballot measures. Blount County, Alabama, voted to stay dry, but four counties in Arkansas and two in Texas voted to go wet.

Six cities in Ohio voted to allow alcohol to be sold on Sundays, as did Lancaster, YorkGreenwood and North Augusta counties in South Carolina and Clay and Holmes counties in Florida.

Illinois: Congrats to Anheuser-Busch on winning the right to be both beer maker and distributor in Chicago. Opponents claimed it was illegal for an out-of-state brewery to own a distributing license, but a judge determined such a law was discriminatory since in-state breweries could hold a distribution license. The Illinois Liquor Control Commission agreed and allowed AB to maintain a 30 percent ownership stake in City Beverage-Illinois — the largest distributor of Budweiser in the state.

Maryland: For the first time since prohibition, businesses in Damascus in Montgomery County will be allowed to sell wine and beer. Until last Tuesday’s vote, the town of about 15,000 residents had remained dry despite five attempts to lift the ban through a referendum vote.

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While Mitt may not drink, many of the voting public and the candidates themselves hope to celebrate/drown their sorrows at the bar while the returns roll in. If you were planning on knocking a few back with friends at the pub, you might be in for an unpleasant surprise depending on where you live. A couple of states still ban all sales of alcohol on election day while others have some interesting restrictions — all of these so-called “blue laws” are hangovers from prohibition

Only two states, Kentucky and South Carolina, ban sales of all alcohol on Election Day, which includes sales at stores, restaurants, and bars. Unlike South Carolina, which seems content with the ban, some lawmakers in Kentucky, are attempting to update the laws.

According to a Time blog post on the issue, Kentucky Rep. Arnold Simpson has tried no less than 5 times to lift the ban and save the state’s bars and restaurants from the $4.5 million in revenue they reportedly lose for being closed on the day.

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Post image for Alcohol Regulation Roundup: October 19, 2012

The only real change of late seems to be happening to leaves on trees. But on the alcohol regulatory reform front, the following states have taken baby steps toward updating their laws.

Alabama: Lawmakers in Alabama are talking about getting the state out of the liquor business. State Sen. Arthur Orr authored a bill that would eliminate the state’s 172 state stores and allow hard liquor to be sold by private retailers.

Illinois: In the next legislative session, State Rep. Keith Farnham plans to introduce a bill that would allow home brewers  to offer free samples at public gatherings. Although the bill is based on a similar Wisconsin law, Farnham worked with local home-brewing clubs to draft his specific proposal, which he says has a “good chance” of being approved.

Indiana: Though not on the official legislative agenda, it is likely Sunday alcohol sales will come up in the next session. Last May, Connecticut became the 49th state to allow Sunday sales, leaving Indiana as the last state in the nation to maintain its prohibition-era ban on Sunday off-site alcohol sales for all three categories of alcohol.

Kentucky: A district court judge halted an order that would allow gas stations and grocery stores to sell wine and liquor. In August, the same judge ruled the state’s laws banning wine and liquor sales at gas stations and other retailers was unconstitutional, but he ordered sales not begin immediately so state regulators  could have a chance to address the statute without creating a “legal mess.”

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Alcohol has a long and complex history in the USA. In fact, it’s probable that the Scandinavian Vikings that tried to conquer North America in the 10th century had plenty of mead on board their ships. While Christopher Columbus never actually stepped foot in the land we know now as the United States, he definitely made it to the Caribbean islands where he introduced sugar cane and kick-started the vibrant tradition of rum-making so many Americans enjoy today. But since the earliest days of settlement, a fight has been going on between those who want less alcohol and greater government oversight and those who believe alcohol should be cheaper and easier to make or purchase. Below are a few notable developments from various states.

National: As I wrote about last February, a Sioux tribe in South Dakota filed a lawsuit against beer stores and national beer manufacturers such as Anheuser-Busch. The tribe claimed that the stores and makers supplied alcohol to members of the reservation where alcohol is prohibited, causing $500 million worth of damages. This week, the lawsuit was dismissed by a federal judge in Nebraska who said the case belonged in a state court.

Alabama: Prohibition is alive and well in the Heart of Dixie. Newspapers reported that a small beer, wine, and homebrew supply store was raided by agents from the Alabama Alcoholic Beverage Commission (ABC). An attorney for ABC says it wasn’t a raid. They didn’t break down any doors, but they seize $7,000 worth of merchandise like boxes of beer brewing kits, carboys, immersion chillers, and books about brewing. Well, just as long as it isn’t a “raid.” Hopefully 2013 will be the year that Alabama legalizes home brewing. Mississippi and Alabama are the only two states that maintain the home beer brewing ban.

Also in Alabama, lawmakers are beginning to talk about how to reduce the state’s involvement in alcohol sales. Currently, it is one of eight states that maintains government-run retail liquor stores. Proponents claim that privatizing retail liquor sales could save the state between $40 million and $50 million dollars a year.

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