by Anastasia Boden
When FDR passed the 21st Amendment, states regained control over alcohol sales. Unfortunately, interest groups and angry temperance supporters swiftly harnessed the states’ new power to pass anti-competitive laws in their favor.
100 years later, the alcoholic beverage industry is still notoriously tricky to get into, and for all the wrong reasons.
One of the most problematic restrictions is the antiquated requirement in many states that all alcohol sales go through a third-party distributor. This requirement artificially drives up prices and disproportionately harms small producers. Moreover, it means that on-site sales at places like wineries or breweries are banned, unless the producer can get some sort of exemption. Where producers have lobbied for an exemption, they have done so in self-serving ways—further distorting the free market. For example in some states, in-state wineries have lobbied for an exemption that allows them to ship directly to consumers, but that requires out-of-state retailers to continue to find an in-state distributor.
Prohibition-era laws have been followed by modern equivalents. In California, wineries can’t offer unpaid internships to people interested in learning about winemaking. Small wineries that can’t afford paid interns suffer the most, as do all individuals who want the opportunity to enter the industry but can’t find a paid internship. In Tennessee, a large whiskey-maker successfully lobbied for a law that limited the use of the term “Tennessee whiskey” to its own recipe. This means that, even if a distiller makes whiskey in the state of Tennessee, it can’t label it’s product “Tennessee whiskey” unless it complies with the official, more expensive, process. In Florida, large beer producers enjoyed a law that prohibited breweries from selling beer in industry-standard 64-ounce growlers, and that therefore put the small, craft breweries that use growlers at a disadvantage. (The legislature overturned that law following a PLF lawsuit).
Fortunately, California will soon change one its Prohibition-era laws, marking a win for economic liberty. Under current law, California spirit distilleries are limited to selling up to six, quarter-ounce samples to customers (a quarter-ounce is roughly 1/4 of a shot glass) on-site. But if customers like what they taste, tough luck; the distilleries are barred from any further on-site sales. The most a burgeoning distillery can hope for is that a customer will later recognize their brand in a store and purchase a bottle—that is, if the distillery can find a distributor who will sell their product to a retailer, a difficult feat for most small distilleries.