Taking money out of the pockets of wholesalers: The goal of alcohol regulatory reform

The Perfect Examples of What's Wrong With Alcohol Law and Regulations

It is a perfect example of just how desperately the American alcohol distribution system needs to be reformed and modernized. From an article in Wine Enthusiast concerning the rise of “allocated” bourbons in the United States:

“It’s important to remember who’s doing the allocating. Because of the three-tier system in the United States implemented after Prohibition was repealed in 1933 (importers or producers, distributors and retailers), allocation is generally done by distributors, not by producers. Distributors typically decide where and how to send the most desirable bottles they carry, which means that they can use those rare bottles as rewards for their best customers. Sell plenty of cases of a product your distributor really wants to move, retailers say, and you’re likely to be offered a chance at something special. Only sell a little, and you’re probably not going to get any…That type of carrot-and-stick approach is particularly hard on shops with smaller sales volumes, explains one Galveston-area retailer who asked for anonymity in order to avoid conflict with his distributor.”

It should be clear that distilleries are the ones that ought to be doing the allocating, deciding either to sell these coveted bourbons directly to consumers or directly to the retailers of their choice anywhere in the country. But because the states’ various distribution systems remain a relic and because the entire system and the way alcohol sales and distribution have been completely captured by wholesalers due to their enablers in legislatures and the various state departments of alcohol control, distillers have virtually no say over how their most desirable products gt distributed.

There is a move afoot to open more states for distillery-to-consumer spirit shipments. A number of states are considering this kind of legislation and more will in the future. As you might imagine, direct shipments are opposed by wholesalers and a large number of their retailer allies. But they will lose this battle. Why? The only rational objection to the practice of shipping spirits across state lines directly to consumers from the distillery is that it will take money out of the pockets of wholesalers.

Taking money out of the pockets of wholesalers ought to be the goal of alcohol regulatory reform.

Instead, we see state governments and state officials actively working directly on behalf of in-state wholesalers, acting as their enforcers, ignoring the obvious needs of consumers and advancing a clear misunderstanding of their own laws. I’m thinking in particular here of the Michigan wine and spirit wholesalers employee, the Michigan Attorney General Dana Nessel.

For many years Michigan and General Nessel have been doing the bidding of Michigan’s wine and spirit wholesalers. Most recently, Nessel announced she had obtained court-ordered fines in the amount of $100,000 from out-of-state wine shippers who have shipped wine to Michigan consumers illegally. In the process of obtaining these judgments, General Nessel has asked the Courts to order these out-of-state shippers to not sell wine to Michigan residents. Of course, it’s entirely legal for an out-of-state winery or retailer to sell wine to a Michigan resident whether they have a permit to ship wine into the state or not. It’s just deemed illegal for Michigan consumers to ship their wine to themselves once it has been legally purchased. All in a day’s work for the wine and spirit wholesalers’ in-house lawyer, AG Nessel.

More important, General Nessel fails to understand the most important meaning of the out-of-state shippers that are sending wine into Michigan: For some reason, Michigan residents are willing to pay the exorbitant costs of shipping heavy wine bottles and to wait for the delivery, rather than buy the wine locally. It’s not that these Michigan consumers don’t like to buy from Michigan wine and spirit retailers. The problem is Michigan wholesalers distribute such a pitiful selection of wines in the state that retailers simply don’t have the wine Michigan consumers want. So, they go outside the state for what they want.

In the long run, wholesaler-sponsored attorney generals like Nessel and others the legislatures and alcohol regulatory enforcement commissions who are committed to supporting wholesaler profits will lose this battle. Not only is the law on the side of those that claim these anti-shipping laws are unconstitutional, but folks like AG Nessel simply don’t understand the issue at hand or they are lying. Neither usually works out. For example, consider this quote from the Michigan AG’s office:

“In addition to being unfair to Michigan businesses, the effect of unlicensed companies skirting state laws by illegally importing alcohol into Michigan are significant: minors can easily obtain alcoholic liquor, state officials have no effective means to ensure that the imported products are safe; and state-licensed wholesalers and retailers in Michigan are undercut by excessively low prices, resulting in unfair competition.”

None of the above is true. Literally none. And I have the receipts to prove none of it is true.