beer

Post image for Alcohol Myths Persist Beyond Prohibition

In a recent article for the Mackinac Center for Public Policy, I make the case that many elements of Prohibition did not fade away after the repeal of the 18th Amendment. In his October 13 opinion piece for The Detroit News, former police chief Jerry Oliver proves my point by digging up an old alcohol myth — one that was used to force Prohibition on the nation. In short, Mr. Oliver expresses the belief that producers of alcohol only seek to have customers consume as much alcohol as possible, thereby making it necessary for the government to intervene in the name of “moderation.”

Historically, it was unscrupulous alcohol producers selling directly to consumers or in cahoots with bars to sell only their products, sometimes at artificially low prices, that fostered an environment for abusive alcohol consumption. It was these excesses that helped trigger the Prohibition backlash.

…Today, most states require producers to sell to state-licensed distributors who in turn sell to local retailers. Exceptions abound where specific states allow direct-to-consumer shipments from wineries…

Critics of this time-tested approach argue the system is antiquated, citing its roots to the last days of Prohibition. That’s like arguing the Constitution is antiquated because it was written in the 1700s.

While Chief Jerry Oliver is correct that Prohibition was a backlash against Americans’ increasing alcohol use (or at least the perception of increasing use) there is no evidence that the system of direct sales or “unscrupulous” producers were the cause of increased consumption. His claim that “tied houses” (saloons owned or operated by alcohol producers) caused people to drink more is the same old myth used by the Temperance movement to push Prohibition on the country. However, we now have a large body of historical evidence that seems to debunk this presumption. Using cirrhosis of the liver as a proxy, historians have found that drinking sharply decreased in the decade preceding Prohibition — even though tied houses still abounded. While incidences of cirrhosis declined further at the start of Prohibition, they rose again toward its end.

This myth of “unscrupulous” producers has been used to maintain the mandatory three-tier system that forces alcohol producers, like brewers, to rely on a middlemen — wholesalers — to get their products into bars, restaurants, and stores. The only real reason not to shift to a voluntary system is to protect the profits of middlemen, who wield considerable political power. A voluntary distribution system would allow small producers to skip the middleman and cut costs, resulting in lower prices for consumers.

Federal: A proposed bill, Brewer’s Employment and Excise Relief Act, would reduce the federal excise taxes for craft brewers in order to help them grow in the hope that they will provide jobs, revenue, and economic stimulus. This is a smart move since craft brewers have had a strong showing in the last five years. According to a recent report from the Brewer’s Association, craft brewers saw a 15% increase in production while big beers like Bud, AB-inBev and MillerCoors have suffered with the rest of the economy. The more government gets out of the way of these businesses the more likely they are to grow, and the bigger and more financially secure they are the more people they can afford to employ.

Alabama: A clear example of how deregulation equals stimulation is occurring in Alabama, a state with a grand total of 6 brewers. It’s not surprising there are so few. But a new law seems likely to encourage a few brewers to give Alabama a try. Thanks in particular to the efforts of grassroots beer-lovers, Free The Hops, which I detailed in an earlier post, Alabama legislators passed the Brewery Modernization Act in May. It was signed by the governor in June, and a few months later new breweries are reportedly making plans to open in the state. While Alabama still has really stupid laws regulating brewing, (like the one that limits brewpubs to historic buildings and counties where brewing occurred before prohibition) the new regulations allow brewers to offer tours, tastings, sell their beer on-premise whether or not they have a restaurant, and it allows brewpubs to sell their beer to wholesalers for retail sales where previously they were limited to selling on-premise.

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Post image for Massachusetts Reverses “Buy Local” Mandate for Brewers

Public Outcry Forces Rule Reversal for Massachusetts Craft Brewers

Despite the recession, one segment of the US market, at least, has been steadily growing. This sector has supplied a constant boon of jobs, tax revenue and craft beer. Yes, I’m talking about beer. While “big beer,” brands like Bud, AB-inBev and MillerCoors, have suffered right along with the rest of the economy,  craft breweries have seen increasing growth in sales and profit. Much of that growth is owed to states deregulating and reforming regulations to make it easier for small breweries to enter and stay in the market. Smart lawmakers around the nation have recognized the potential tax revenue and job creating power of the booming craft beer movement and have encouraged new brewers to open operations in their state.  As a result of this competition for craft breweries, states have been repealing laws that have sat virtually untouched since prohibition. Unfortunately, some states are taking steps in the wrong direction, whether in an attempt to leach money from the burgeoning market or to protect other interests. One example is the attempt made last week by the Massachusetts Alcoholic Beverage Control Commission to enact a new licensing requirement on small brewers that would have driven them out of the market. Luckily, the move was quickly reversed in the wake of vocal opposition from around the country.

When the Massachusetts Alcoholic Beverages Control Commission (ABCC) announced the requirement that “farmer-brewers” in the state must obtain at least 50% of their ingredients from their farms, it became apparent that such a requirement would have forced most of those brewers to obtain a different kind of license. This license would be far more expensive and make it difficult, or impossible, for small breweries to compete in a market dominated by “big beer.” [click to continue…]

Post image for Alcohol Regulation Roundup: Independence Day Edition

Hopefully, this Independence Day weekend you liberated some nice libations from their containers. As Founding Father Ben Franklin said, “there can’t be good living where there is not good drinking.” If he’s right, then this week’s alcohol regulation roundup would probably bring a smile to old Ben’s mug — as the changes in most states’ alcohol laws mean that the quality of life in this country is clearly improving.

Alabama: At the end of May, the Alabama legislature approved the Craft Brewery Modernization Bill after much effort from the state-based beer rights group Free The Hops (FTH). Just last month, Governor Robert Bently signed the bill into law, allowing breweries to give visiting patrons a taste while they tour the brewery. Unfortunately, another bill that would have allowed residents to brew for at-home consumption without a license (illegal only in Alabama and Mississippi), failed to make it through the legislature.

Kansas:* When it comes to selling alcohol to patrons, convenience and grocery stores in Missouri are restricted to 3.2 percent ABV beer and wine coolers. Liquor stores may sell liquor and wine, but are banned from selling groceries. However, efforts to change the outdated laws are underway. Republican Senator Tim Owens has been pushing a bill that, if passed, would abolish both prohibitions, allowing grocery stores to sell full-strength beer and liquor and permitting liquor stores to sell grocery food items.

Maryland: Good and bad news for Maryland’s drinkers, as laws passed earlier in the year went into effect last week. Liquor taxes went up by 50 percent, with projected revenue increases of $85 million. On the positive side, the state’s new laws allowing direct shipping for wine also went into effect.

Michigan: A bill that would eliminate a 1.85 percent sales tax on distilled spirits is making its way through the Michigan legislature.

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Reporting from around the nation on the ridiculous, the sad, and the sometimes positive news about the state of alcohol regulations.

National: BuyaBeerCompany.com, a website set up by two ad execs hoping to purchase Pabst Brewing Co. with donations from individuals, was shut down by the SEC. Michael Migliozzi and Brian William Flatow were able to find 5 million people who agreed to invest a total of $200 million to purchase the brewery. Apparently, they were supposed to register the public offering with the SEC first. Since the men haven’t actually collected money, the SEC reportedly reached a settlement with the two gentlemen, rather than charging them with violations of federal law.

Alabama: A silly law that requires brewpubs in Alabama to operate within an historic building might be overturned. The House of Representatives passed legislation removing that requirement for brewpubs to obtain licenses. The bill also removes restrictions on brewing and allows the pub owner to sell their product to wholesalers in order to distribute their product beyond the brewpub.

Maryland: The Prince George’s County Board of License Commissioners is considering rule changes that would, among other things, allow county liquor stores to accept call-in deliver orders from residents. Not everyone in the state is happy with the proposed changes.

Ohio: Legislators in Ohio want to raise the cap on how high the alcohol content can be in beer from 12 percent to 18 percent. A provision in the proposed state budget would do just that, to the delight of brewers and craft beer lovers in the state.

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If you thought leaving a spouse was tough, just be thankful that you’re not a brewery in need of a divorce from your dead-beat distributor. A recently released video from the Mackinac Center for Public Policy explains how the mandatory three-tier system for alcohol distribution has resulted in an acrimonious relationship between brewers and wholesalers and the deleterious effects it has had on the state’s market.

I have been writing for a while on the many problems stemming from the Prohibition-era system of alcohol distribution which, in most states, requires that producers of alcohol (i.e., distillers, brewers, or wineries) to sell their product to wholesalers/distributors (i.e., middlemen) and then those distributors then sell the products to retailers (i.e., pubs, restaurants, and stores). This means that producers are not allowed to sell their products directly to consumers, restaurants, pubs, or stores: they must sell them to one of a handful of wholesalers operating in their state. Apart from the often unnecessary increase in the producer’s cost of doing business, the requirement gives wholesalers an extraordinary amount of power and influence over producers because in most states breaking such a contract is difficult or impossible, which means that a wholesaler can literally shelve the producers product in their warehouse and the brewer can do very little about it.

In the video, Brett VanderKamp, the president of New Holland Brewing Co., describes the contract that brewers must make with distributors in Michigan as “harder to get out of than a marriage.” That is certainly the case in Massachusetts where small brewers have been lobbying to change the laws. Small brewers who want out of a contract with a distributor often have to go through an expensive legal battle only to take a chance on another wholesaler. Even if the brewery can prove that the wholesaler is failing to get their product on shelves or in restaurants, the cost of the legal battle is often too great for start-up breweries that — even if they manage to break one contract — have no guarantee that the next distributor they find will be any better.

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In the battle between international brewing giants SABMiller and ABInBev, Wisconsin craft brewers could bear the heaviest burden. On May 31, the state legislature’s Joint Finance Committee approved a measure to be added to the state’s budget proposal which would prevent brewers from owning distributorships and retail licenses in Wisconsin. This means that if you’re a brewer, you can’t also sell alcoholic beverages to customers or retail shops.

The biggest backer of the bill is SABMiller, or as it is known in the US, MillerCoors. They have been pushing the measure, they say, in order to protect the vitality of Wisconsin beer in the face of a hostile invasion from their main national competitor, AB InBev, aka Anheuser-Busch. InBev has reportedly begun a nationwide campaign to purchase distributors in many states, something that MillerCoors says threatens all other brewers’ ability to get their beers in bars and on shelves. That’s the line that MillerCoors is peddling, but craft brewers in Wisconsin say they, and their ever increasing presence in the beer market, is the true target of the proposal.

While the text of the measure has not been made available to the public yet, the proposal would reportedly remove brewers’ current right to own wholesaler and retail licenses. Brewers of less than 300,000 barrels annually will still be able to self-distribute, but current brewers and new wholesalers would be required to have 25 independent retail customers prior to being granted the right to distribute. According to a MillerCoors spokesperson, these new rules would also prevent small brewers from banding together to form their own distributorship. In addition to all of that, the measure would prevent brewers from owning retail licenses, meaning that they could have a brewpub, but they would only be allowed to sell their own product. Breweries that already own retailing outlets would be allowed to retain one.

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Alabama: Small vineyards in Alabama support a bill that would allow them to self-distribute up to 24,000 barrels a year, allowing them to compete with larger wineries. Under the current law, wineries may only self-distribute their product within 200 feet of the vineyard.

Colorado: As I blogged about last week, on Friday, May 13, Colorado’s Gov. Hickenlooper overturned the alcohol rules that banned some ultra-light beers from restaurants and taverns. While most observers unfamiliar with the many years-long beer battle occurring in the state might think this is a good thing. Unfortunately, those in the state wishing to do away with the low-alcohol beer that grocery stores are forced to sell in lieu of full-strength beer were hoping to use the bar-ban on low alcohol as a bargaining chip to get full-strength beer in grocery and convenience stores. Hickenlooper, a former microbrewer and friend of craft breweries, listened to the constituents who mistakenly believe that full-strength beer in grocery stores would harm craft beer in the state.

Illinois: Craft brewers in Illinois are one step closer to being able to bypass wholesaler/distributors. A state house committee unanimously approved a bill that would allow craft brewers, which it defines as those producing less than 465,000 gallons of beer annually, to distribute up to 7,500 barrels per year themselves without using a wholesaler. Under the proposal, craft brewers are defined as those who manufacture less than 465,000 gallons of beer a year.

Not all members of the craft beer movement in Illinois are happy with the proposal. A spokesman for the Craft Brewers Guild says it doesn’t go far enough for brew pubs that, under the proposal, would need to have or build a separate brewing facility in order to get a permit to self-distribute. They say this is a wasteful hurdle to force brewpubs to overcome.

Another bill to raise the distilled spirits cap from 5,000 to 15,000 was also passed in committee and now both bills will go to before the legislature for a full House vote.

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On April 6, a remarkable bill was quietly introduced in the Delaware state house. If it passes and is signed into law, House Bill 84 would allow small brewers to deliver their own product to licensed retailers of their beer. This would mean that, for small brewers like Dogfish Head, which is headquartered in Milton, Delaware, they could skip the onerous and expensive middle man (aka as a distributor or wholesaler) that is mandated in most other states. That is if they want to bypass the distributor.

Introduced by Republican Rep. Ruth Briggs King, HB 84 would essentially end the mandatory three-tier system for small brewers in Delaware. As both I and my colleague Angela Logomasini have written, the three-tier system is an archaic remnant of Prohibition. In an attempt to create a safe product and limit corruption in the wake of the mobs that grew up during the alcohol ban, lawmakers attempted to separate production, distribution, and sales of alcohol. The fear was that a large distributor of alcohol who also owned the production could shut out competition. Since the end of prohibition, the mandatory three-tier system has created the very powerful and profitable wholesaler industry. Producers of alcohol must contract a wholesaler who then finds the retail operations that will stock the producer’s products. Sometimes though, this doesn’t work out so well for producers — especially smaller ones — who often find that a wholesaler will do a poor job in distributing their products, perhaps to favor other more popular brands. In a system where they are forced to rely on middlemen to get their products in front of consumers, this sometimes leaves brewers with little or no recourse if their distributor underperforms.

Past attempts to end the three-tier system, or at least make it voluntary, have met with strong opposition from the powerful wholesalers lobby. They believe that if the system was switched to a voluntary basis, they would lose jobs, power, and money. Perhaps they are right. But is that reason enough to perpetuate an archaic, wasteful, and corrupt system?

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On Friday the 13th, just before happy hour, Colorado’s Governor John Hickenlooper signed into law a bill that reversed the only victory in years for those fighting to get full-strength beer in grocery and convenience stores.

Governor Hickenlooper’s intentions aren’t malicious. A former brewer, Hickenlooper is simply trying to preserve the system that his craft brewing constituents assert creates the best environment for craft beer. That system divides beer into two categories: low-alcohol or 3.2 beer, which grocery stores and convenience stores may sell, and high-alcohol beer, anything above 3.2, which liquor stores, bars, and restaurants may sell.

As I have written before, the craft brewers are mistaken in their assumption that grocery store sales would have a negative impact on craft beer in Colorado. And even the liquor stores, who assert that grocery store sales of beer would put them out of business, could thrive in a liberated market.

Grocery and convenience stores backed by consumers who want cheaper more convenient options have asking year after year for the state to have one definition for beer and to allow beer to be sold, regardless of the alcohol content, in grocery, liquor, and convenience stores, as well as bars and restaurants. Yet, for at least four years running, all the bills introduced in the state legislature to change the beer regulations have been knocked down. Until last year.

Frustrated with yet another failed attempt, proponents of “real beer” in grocery stores had an ally in the state legislature attach an amendment to another bill, which passed, forcing the state to begin enforcing all of its liquor laws to the letter. What this meant, in effect, was that bars, restaurants, and taverns were banned from selling low-alcohol beer. Though the rule had been on the books for a long time, the state had never enforced it.

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