Now that the initiative has passed, the state can start issuing licenses to grocery stores and Costco to sell spirits beginning in June 2012. In addition, it allows Costco to buy direct from producers, centrally warehouse the liquor, and then distribute to its stores–passing savings on to consumers. It also allow retailers to sell to retailers.  Under Washington State Law, lawmakers cannot modify the initiative for two years, preventing the legislature from reversing it before implementation. Hopefully, within two years time, state lawmakers will be open to granting smaller retailers the right to sell spirits too.  The new law only grants that right to those who eventually buy existing government stores and retailers with 10,000 or more square feet of space.

Costco and supermarkets can sell alcohol in some states, but some states only allow private retailers to only sell beer or beer and wine. See Costco’s list here. Now Washington retailers can sell all three! Costco may take its battle to other states … perhaps starting with Oregon. Let’s hope they prevail in Oregon and beyond.

Image credit:  bigbirdz’s photostream.

Before Prohibition, saloons were often tied to alcohol producers either through contractual arrangements or direct ownership. Members of the Temperance movement believed that these economic arrangements contributed to social problems related to alcohol abuse, prostitution, and criminal activity. It is not clear that market structure was the source of such problems, which more likely have cultural roots. Nonetheless, concerns about such ties between suppliers and retailers were a key impetus for states adopting a mandatory three-tier system after Prohibition ended.

Minton argues that it’s time to get over the myth that tied-house rules promoted alcohol abuse. It offers no excuse for  public policies promoting anti-competitive, three-tier mandates. Check out her letter in the Detroit News on this topic and her blog post on open-market.org, which offers more details. She also has a lengthy piece published by the Mackinac Center for Public Policy worth reading.

Quiz yourself here.

As we presented, participants had the pleasure of sampling more than a dozen wines and one beer from various states across the nation. I provided three featured wines and 10 others from wineries around America–thanks to a donation by Wine America. My colleague provided one beer. You can see the complete list here and my PowerPoint here.

I decided to feature a Colorado wine because I was amazed by one while dining at the Denver airport. With some online research, I discovered Gary Vaynerchuk‘s review of Guy Drew Vineyards Metlate, 2007. Fortunately, I was able to order this one via the mail. It was amazingly good as were the other two featured wines we sampled: Callaghan Padres, 2008 from Arizona (also a Vaynerchuk favorite), and Jefferson Vineyards Chardonnay from Virginia (my discovery during the 2011 Wine Bloggers Conference in Charlottesville, Virginia).  The other ten were also very tasty and well received by the group. The presentation proved that many states are making exciting wines–despite many wacky state alcohol laws!

Wholesale Deception
By Angela Logomasini

Beer wholesalers contend that alcohol legislation they are pushing on Capitol Hill would safeguard state and local rights – but in reality, it is designed to simply serve the wholesalers’ special interests.

Wholesalers crafted the text of the Community Alcohol Regulatory Effectiveness Act (H.R. 1161, aka, the CARE Act) to appear very similar to language in a 2005 Supreme Court case, Graholm v. Heald, which addressed direct shipping of wine from wineries to consumers and retailers. Wholesalers would like lawmakers to believe that means the bill upholds that legal precedent.

In reality, the CARE Act promises substantial change that could reverse market-based – and consumer-friendly – policy trends produced by Granholm. This case addressed laws in Michigan and New York that applied differential treatment to in-state and out-of-state wineries seeking to ship to state residents, which the Supreme Court ruled unconstitutional …. Read more on the Washington Times website.

Since 2005, more than half of the states have faced challenges in federal courts that threaten their authority to regulate alcohol and their ability to maintain a licensed system of alcohol controls. In a time of fiscal crisis and skyrocketing state budget deficits, these lawsuits put private profits ahead of the public interest and force states to spend scarce resources. …Unelected judges in federal courts who are unfamiliar with the needs of local communities are interpreting the same laws differently and issuing conflicting rulings, which demonstrates judicial confusion about the true intent of Congress. The CARE Act of 2011 removes this ambiguity and makes Congress’ intent clear regarding the states’ intended lead in alcohol regulation.

It is clear that wholesalers would like to halt legal battles that are destined to decide the constitutionality of important policies affecting consumers, entrepreneurs, and—most of all—wholesalers’ competitors. Their suggestion that such cases should not go forward because judges are unelected, uninformed, or might issue conflicting decisions is absurd. That argument is akin to suggesting that Congress should preempt judicial cases related to other constitutional issues—freedom of speech, assembly, or religion—because judges are not elected or may be confused about those issues. American jurisprudence is built on this deliberative, judicial process which wholesalers lament. It is governed by appointed judges, who are supposed to stay above electoral politics and are charged with, in the words of Alexander Hamilton, “a steady, upright, and impartial administration of the laws.”  Unlike legislators, special interests are not well positioned to influence this process with PAC money, lobbying, or political pressure.

The wholesalers’ claim that Congress must resolve judicial conflicts is equally absurd. The framers of the Constitution anticipated that conflicting opinions would be a necessary part of this process. Accordingly, they organized the federal courts into a hierarchy through which conflicts would gain resolution as issues rise to higher courts, eventually reaching the Supreme Court when necessary. Moreover, the CARE Act will not remove ambiguity associated with legal challenges to state laws as wholesalers contend. Instead, it will hand an advantage to wholesaler interests within the judicial process, with the ultimate goal of limiting the expansion of market competition and consumer choice.

This post is excerpted from:  A CARE-less Rush to Regulate Alcohol: wholesalers Attempt to Secure Regulatory Fiefdoms.

Photo Credit: Nathan Laurell’s photostream on flickr.

FOR IMMEDIATE RELEASE
Contact:
Lee Doren, 202-331-2259
Nicole Ciandella, 202-331-2773

CARE Act Undermines the Free Market and Constitutional Principles, New Report Finds

Wholesalers Lobby to Protect Regulatory Fiefdoms in the Alcoholic Beverage Market

Washington, D.C., July 25, 2011 – Today, CEI releases a report on the federal alcohol legislation–the so-called CARE Act–that reveals the special interest nature of this legislation. Rep. Jason Chaffetz (R-UT) offered the Community Alcohol Regulatory Effectiveness (CARE) Act (H.R. 1161) to reinforce a government-enforced three-tier system for distributing alcoholic beverages. The Competitive Enterprise Institute’s report explains in detail why this Act will harm consumers and alcoholic beverage producers.

Through the CARE Act, wholesalers seek to reverse the pro-competitive effects of the U.S. Supreme Court’s Granholm v. Heald decision. That case struck down state laws that discriminate against out-of-state wineries for violating the Commerce Clause of the Constitution. The CARE Act would allow states to pass laws restricting out-of-state alcoholic beverage sales as long as those laws do not “intentionally” discriminate against out-of-state producers. In effect, it would allow state protectionist legislation as long as it is passed under some other pretext.

Angela Logomasini, Senior Fellow for CEI’s Center for Energy and Environment and author of the report, said:

“Should H.R. 1161 be approved, the courts might allow states to impose discriminatory laws against out-of-state wineries, but only if the state can argue that the impact is not intentionally protectionist. In any case, since the limited protections in H.R. 1161 apply only to producers, the bill would unleash an unbridled number of state-level protectionist policies affecting anyone else in the industry. Such laws will undermine sales of any domestic winery or importer whose brands are marketed via online retailers. It also might prevent direct shipping from producers who rent winemaking facilities because many states classify them as either retailers or distributors rather than producers. This blatantly unfair treatment may destroy many small entrepreneurial businesses, leaving fewer outlets through which wineries can reach consumers.”

- Read the CEI report: A CARE-Less Rush to Regulate, by Angela Logomasini.

Practical Winery and Vineyard Journal has published my latest perspective on wholesaler attempts to pass anti-competitive federal legislation. A copy of that is available here.

Also, a news item worth checking out is Costco’s latest effort to remove regulatory barriers for alcohol retailers in Washington State. The company is advancing a new initiative–#1183–for the ballot this fall, which is somewhat different than the ambitious liquor privatization and market-opening initiative from last year. It cuts a host of compromises, creating many politically determined winners and losers rather than opening the market to competition.

Some highlights according to the Seattle Times include:

• A 17 percent tax on all liquor sales. This provision attempts to buy off the state government, which would otherwise lose revenue under privatization.
• A limit on the number of stores that could sell liquor. Specifically, the initiative would only allow stores with 10,000 square feet to apply for a liquor license. This leaves out smaller supermarkets, convenience stores, and others. The apparent hope is to avoid opposition from people who don’t want to see alcohol at 7-11 and similar shops.
• No changes to the way beer is sold. This aspect attempts to thwart any battle with beer wholesalers who helped topple last year’s initiative by spending millions.
• Allow wineries to offer quantity discounts to retailers (who can pass them on to consumers) and allow retailers to centrally warehouse alcohol–both of which are critical to Costco’s wholesale model.

According to the Seattle Times, Costco estimates this measure would allow 1,500 stores to apply for liquor licenses, as compared to last year’s initiative which would have provided the opportunity to 3,000 – 5,000 stores. Considering that only 329 stores now have liquor licenses, this surely is an improvement on that end. But the 17 percent tax is hefty and the provisions limiting the opportunity to get licenses and leaving out beer retailers are simply unfair.

Image credit: greenwenvy08 photostream on flickr.

• Over the past three election cycles, wholesalers have spent more than $15.4 million dollars on contributions to federal campaigns.
• At the state level, wholesalers have contributed more than $58 million to political campaigns over the past three election cycles.
• At both the state and federal level, the wholesaling industry has spent roughly twice as much on political campaigns as the rest of the alcohol industry, combined.

According to the SWRA, such spending has a big impact:

The success of the American alcohol wholesaler in buying protection from competition has put the other sectors of the alcohol industry under their control, reduced state tax revenues, and severely limited consumer access to new products.

Read more on the Terroirist. A copy of the report is available online, and Tom Wark provides some highlights on Fermentation.

First of all, representatives of the National Beer Wholesalers Association—the main force behind the bill—are not interested in virtue or states’ rights. They want government-secured profits. Accordingly, the bill is an attempt to grant states greater authority to regulate alcohol distribution to ensure that all—or at least most—sales go through wholesalers. As a result, consumers may eventually see fewer opportunities to order wine online or direct from wineries.

It’s foolish to believe that this legislation could serve any goal other than one of wholesaler special interest—let alone promotion of virtue and states’ rights.

After all, most people understand that true virtue requires the opportunity to make choices; you can’t merit grace by government regulation. Aristotle explained this well in Nicomachean Ethics: Virtue is “a state of character concerned with choice.” In a nation where the free exercise of religion is paramount and values differ across a wide spectrum, individual choices and ideas of virtuous living will vary.

For some of us, our virtuous choices involve abstaining from certain things. For Mormons, that means abstaining from alcohol. Likewise, devout Catholics abstain from meat on Fridays during Lent. But if meat were illegal, that personal sacrifice would mean very little.

To be fair, Chaffetz has not focused on religious opposition to alcohol—although that angle might play well to Mormon constituents in the state—when he’s made public comments on the bill. Wholesalers call for regulation in the name of temperance, which is surely ironic (and laughable) given their line of business.

Chaffetz focuses on the legislation’s alleged defense of a constitutional principle. In a press statement on a similar bill last year he noted:

“I want to preserve states’ rights to decide the appropriate regulation of alcohol within their borders ….. Most importantly, the bill preserves the status quo on Utah’s unique regulatory regime and reaffirms the presumed validity of Utah’s laws.”

On a side note, if wholesalers are really looking for rational liquor laws, Utah is certainly NOT the model. The state has some of the dumbest alcohol laws on the books. For example, it is illegal to walk around in a bar with a glass of eggnog during the holiday season! The law says you must drink alcohol at your table or standing next to a bar.

But more significant, the Utah government has a complete monopoly on retail sales–something that pads the budget and pays salaries of many, including Mormons, working for the state. For some reason, moral concerns have not been raised about that reality. As a result of the monopoly, you can be sure that wholesalers have a very close relationship with government officials in charge of liquor sales, which surely must help also with their representatives on Capitol Hill.

This reality must be a bigger factor than states’ rights. In fact, as I explained in my Daily Caller article yesterday, federal liquor legislation has little to do with states’ rights. In fact, it flies in the face of basic constitutional principles. James Madison explained in Federalist No. 10 that a key purpose of government is to control the impact of “factions”—i.e., special interests—through a system of checks and balances. In Federalist No. 45, Madison explained that most powers remained with states, but that the Constitution granted Congress–rather than the states–the power to regulate commerce as a critical check in the system. The idea of having Congress cede some of that power to allow special interest-protectionist state laws is simply absurd.

Resources and background

• A copy of the bill posted here, which is not yet available on Thomas, the Library of Congress database. The a Wine & Spirits Wholesalers of America press statement refers to it as H.R. 1161, as do other sites.
• Tom Wark has established a Facebook page: StopHR1161
• Tom Wark’s blog post: New Wine Bill In Congress Takes Aim at Consumer
• Beer, Wine and Spirits Producers Speak Out Against the “Community Alcohol Regulatory Effectiveness” Act Of 2011″
• Liquor wholesalers’ appalling misuse of the Constitution
• Wholesalers Fail to Tell the Whole Truth
• Why Is Congress So Afraid of Mail Order Wine?

Image Credit: Don Quixote Statue in Madrid by Joe in DC photostream on Flickr.