Watered-Down Beer Turns Into Watered-Down Reforms

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We’ve written about weak beer laws before in this space—including calling for Utah to get rid of its 3.2-percent alcohol-by-weight cap that limited the strength of beers that could be sold by grocery stores in the state. Utah finally reformed the cap earlier this year, leaving Minnesota as the only state left in the country with a 3.2 law. But as R Street’s Jarrett Dieterle points out in a recent piece for Governing, the states that have repealed their 3.2 laws have simply replaced them with a slightly higher cap:

Today, 3.2 laws are mostly a thing of the past. This is because a handful of state legislatures -- including long-time holdouts Kansas, Oklahoma and Utah -- have cleared away their versions in recent years. Minnesota is now the last state to limit convenience stores and groceries to 3.2 beer. (Unlike some former variants of 3.2 laws in other states, Minnesota permits licensed liquor stores to sell stronger beer).

This string of modern reforms may seem to beer-lovers like cause for celebration, but the reality is that America's weak-beer wars are far from over. Not only does Minnesota still have its law on the books, but many of the states that did repeal their 3.2 laws merely replaced them with slightly less onerous versions.

For instance, while Kansas overturned its 3.2 law this year, it ended up only raising the permissible alcohol level for beer to 6 percent alcohol-by-volume. Because of the different units of measure -- the original 3.2 laws used alcohol-by-weight, whereas Kansas' new limit uses alcohol-by-volume -- the reform is less than meets the eye: A 6 percent ABV beer is actually only a 4.7 percent ABW brew, a disappointingly modest increase. Oklahoma did slightly better in raising its threshold to 8.99 percent ABV (around 7 percent ABW) while Utah was only able to muster a raise to 5 percent ABV (around 4 percent ABW).

The larger issue is that these new limits are still completely arbitrary and especially unsuited to the modern craft-beer era…

Read the rest here.

International Drinks Groups Warn PA Governor About Liquor Mark-ups

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As noted previously on DrinksReform, Pennsylvania continues to receive (warranted) criticism for the way it prices and marks up the alcoholic spirits it sells in its state-run liquor stores. Like other control states, Pennsylvania’s alcohol regulators—known as the Pennsylvania Liquor Control Board—control all liquor sales in the state. But instead of using a transparent process when it comes to setting the price of spirits, the PLCB implemented what’s known as a “flexible pricing” system in 2016.

The result is that the PLCB has complete control over how high it sets liquor mark ups. R Street’s Kevin Kosar has previously detailed the problems with such a regime:

While profitable for the government, flexible pricing comes with costs for Pennsylvanians. The PLCB’s monopoly pricing power means consumers are stuck paying whatever the state monopoly demands. Additionally, the agency’s monopoly purchasing power leaves drinks-makers with little leverage to bargain over the cost the agency is willing to pay.

The issues with flexible pricing run even deeper, though. Because Pennsylvania explicitly uses the revenue derived from liquor mark ups to fund many parts of the state government, the mark ups are functionally analogous to a tax. But unlike most taxes, which are ratified by representative bodies and legislatures, the mark ups are set behind closed doors by unelected bureaucrats in the PLCB. That’s why R Street’s Jarrett Dieterle has described them as a “stealth tax,” which allows state officials to “hide the bill from taxpayers … all while avoiding politically contentious policy decisions.”

The chorus of entities expressing concern over Pennsylvania’s pricing system is only continuing to grow. Just this week, a cohort of wine and spirits trade associations from across the globe—including Australia, Canada, the EU, and the United Kingdom—sent a letter to Pennsylvania Governor Tom Wolf, expressing “deep concern” with the state’s move toward the flexible pricing system.

Particularly pertinent was the letter’s discussion of how Pennsylvania’s regime violates current international trade agreements. Specifically, the letter points out that past liquor mark up models in other countries that closely mirrored Pennsylvania’s system were successfully challenged in front of the World Trade Organization, including a differential pricing system used by Canadian liquor boards. Because the PLCB is government-operated, it must meet “certain mandatory requisite levels of transparency in its operations” to ensure “it is operating in a nondiscriminatory manner” toward international spirits. Given its lack of transparency, the trade associations conclude that Pennsylvania’s pricing model is “clearly inconsistent under international trade law” and therefore should be reformed.

In addition to these international concerns, Pennsylvania’s flexible pricing regime could also be resting on shaky legal grounds domestically and thus exposing the state to needless litigation risks. In short, the PLCB’s backdoor taxes could run afoul of long-standing U.S. legal precedents requiring all taxing power to reside in democratically elected bodies, rather than with unelected officials.

These past precedents—not to mention our nation’s founding principles of democratic norms and transparent governance—illustrate the importance of overturning flexible pricing in the Keystone State. In fact, legislation that would return Pennsylvania to its prior formula-based system for liquor mark ups is currently pending in the state legislature, providing Gov. Wolf with a ready vehicle for reform.

Instead of waiting for more fallout surrounding its flexible pricing system, Pennsylvania should take the initiative and fix it’s system now.

When the tax man comes for your kombucha

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Kombucha—a slightly fermented beverage usually made of tea, yeast and healthy bacteria—has become the new rage. As more consumers seek out the drink, more producers have sprouted up across the country to start making it. Because kombucha ferments, it contains small amounts of alcohol—but far below any level that could intoxicate an adult. Regardless, the feds have started trying to apply antiquated federal alcohol taxes to kombucha, meaning that if it reaches a certain threshold of alcohol content it could be taxed like regular booze. R Street’s Jarrett Dieterle writes for Washington Examiner about why this doesn’t make any sense at all:

[U]nder antiquated federal tax provisions, kombucha can occasionally become subject to alcohol excise taxes despite the fact that the product, by nature, only has trace amounts of alcohol. In light of this, both to promote commercial freedom and as part of a greater push to modernize outdated alcohol laws, fixing this accident of history should be a priority for federal lawmakers.

Under the federal tax code, all “fermented beverages” that contain 0.5% of alcohol or more by volume are technically considered “beer” and therefore subject to alcohol excise taxes. Federal excise taxes on beer follow a relatively complicated formula, but they can range anywhere from $3.50 a barrel up to $18 a barrel, depending on the size of the brewery.

When kombucha is made, it is usually below the 0.5% threshold for alcohol. However, if it’s not properly refrigerated after leaving the factory for distribution, it continues to ferment, thereby raising the alcohol level above the intended amount…

n recent years, the Alcohol and Tobacco Tax and Trade Bureau has taken to sending warning letters to kombucha makers, informing them that their products tested slightly over the limit and threatening fines of more than $10,000.

This is for little reason, since the 0.5% level has absolutely nothing to do with intoxication but rather originally traces its heritage to the early 1900s, when pro-Prohibitionists used it as a means to control the spread of alcohol to new states…

Read the whole piece here.

Which States Are Winning the Craft Beer Boom?

Image courtesy of Visual Capitalist.

Image courtesy of Visual Capitalist.

The craft beer boom continues to proceed apace, spreading to cities and small towns around the country. Data collected from the Brewers Association shows which states have seen the most growth in craft breweries, and which have seen the least. Unsurprisingly, many West Coast states—among the first to liberalize their brewpub laws in the 1980s and 90s—have among the highest number of craft breweries. Other states, particularly many in the south, are still lagging behind because of regulatory strictures. Visual Capitalist summarizes:

All movements start with rebellion, and the craft beer revolution is no different.

Born from the frustration of mass-produced beer made from cheap ingredients, entrepreneurs went head-to-head with global brewery giants to showcase local and independent craftsmanship.

Suddenly, drinking beer became less about the alcoholic content and more about the quality and experience. Craft beer allowed for constantly changing flavors, recipes, and stories. With sales accounting for 24% of U.S. beer market worth over $114 billion, the global craft beer movement has been historic…

According to the data, Vermont has emerged as the craft beer capital of the U.S. with 11.5 breweries per 100,000 people. That’s equal to 151 pints of beer produced per drinking-age adult. Following closely behind are Montana and Maine, each with 9.6 breweries per capita.

You’ll notice that in Southern states such as AlabamaGeorgia, and Mississippi, that there are only 0-0.9 breweries per capita. This is actually because of tighter liquor laws—for example, only 10 years ago, it was illegal to sell specialty beer in South Carolina that contained more alcohol content than a typical Budweiser…

Read the rest here.

Kosar and Dieterle on the Meaning of the Tennessee Wine SCOTUS Case

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As we noted last week, the Supreme Court struck an important blow for freedom in its Tennessee Wine v. Thomas decision, which held that Tennessee’s requirement that liquor store owners be residents of the state was unconstitutional. R Street’s Jarrett Dieterle and Kevin Kosar explain in a piece for USA Today how the implications of this decision could be far reaching, especially when it comes to direct-to-consumer alcohol shipping:

Just after the 100th anniversary of Prohibition’s start — and over 85 years since its repeal — Americans could be forgiven for assuming that government remains blissfully removed from their cocktail glass. Unfortunately across the country, states and local governments still enforce a bevy of outdated and oftentimes downright silly alcohol laws. While these laws have proved notoriously difficult to get rid of, a new Supreme Court decision issued could spell the end for a broad swath of cronyist and antiquated booze rules — and perhaps be the first step toward a more national alcohol marketplace…

The court’s holding might seem limited to the unique circumstances of Tennessee’s law, but it has the potential to be a game changer in the world of booze. The biggest change could involve the shipment and transportation of alcohol.

Unlike just about every other product on the market today — nearly all of which can arrive at your door in two days — direct-to-consumer alcohol shipping is incredibly limited. While a previous Supreme Court case allowed wineries to ship their bottles to consumers in neighboring states, very few states allow out-of-state retail stores — not to mention breweries and distilleries — to engage in interstate shipments.

Under the logic of the court’s holding in Tennessee Wine, however, allowing in-state shipments of alcohol while forbidding out-of-state shipments violates the Constitution. If more of these laws are challenged accordingly, it could mean that a Michigander could soon be able to have her favorite Vermont beer shop send IPAs directly to her door…

Read the whole piece here.

R Street's Jarrett Dieterle Featured on Reason TV

R Street’s Jarrett Dieterle was featured in a video by Reason TV about the dumbest alcohol laws in America. He discussed both recent successful reforms, such as allowing Native Americans to distill on tribal lands and the recent Supreme Court decision in Tennessee Wine, as well as antiquated laws that still remain on the books. You can watch the video here:

The Supreme Court Just Struck a Blow for Alcohol Freedom

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The Supreme Court finally released its long-awaited decision in Tennessee Wine v. Thomas this week. The case involved a challenge to Tennessee’s “durational residency requirement” law, which said that in order to operate a retail alcohol store in Tennessee, the store owner must have been a resident of the state for 2 years. And in order to renew the license, which was required annually, the owner needed to be a resident of the state for 10 years. The law even required that all officers and directors of companies that ran alcohol retail stores—as well as 100% of all stockholders—to be state residents.

The Court, in a 7-2 decision, struck down the Tennessee law for violating the U.S. Constitution’s so-called Dormant Commerce Clause. To put it simply, this doctrine holds that states cannot discriminate against out-of-state economic interests while favoring in-state economic interests. The Tennessee residency requirement obviously favored in-staters over out-of-staters, but the law’s defenders argued that the 21st Amendment to the U.S. Constitution (which repealed Prohibition but granted broad powers to state governments to regulate alcohol) immunized laws like Tennessee’s from constitutional scrutiny. While the Court emphatically rejected that argument, its holding also could have broader implications:

Before Americans can enjoy a nationally cohesive alcohol shipping marketplace, however, much work remains. Many states still discriminate against out-of-state retailers interested in shipping alcohol—laws which will almost certainly be challenged in light of the Court’s decision. And nearly every state still labors under a three-tier system of alcohol distribution, which mandates a role for wholesalers when it comes to most alcohol sales. Furthermore, the U.S. Post Office forbids the shipment of alcohol entirely (although some private carriers permit it).

Therefore, governments around the country will have to take proactive steps to liberalize their alcohol shipping laws and streamline them in a way that makes interstate alcohol shipping more achievable. But for now, the Supreme Court’s decision in Tennessee Wine can be seen as an early step toward a more robust interstate shipping market for booze.

DrinksReform.org will have more coverage of the Tennessee Wine case and its aftermath in the weeks ahead!

Texas Passes Brewery and Liquor Store Reforms

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Texas is known for its arcane alcohol rules, including its infamous “consanguinity exception,” which restricts the number of liquor stores an individual can own to 5 outlets, but then creates a loophole that allows family members to join together to own more. The state also was known for prohibiting breweries from selling to-go beer. Both those restrictions have no been loosened by recent legislation, as reported by the Texas Tribune:

Texas on Saturday joined the rest of the nation when Gov. Greg Abbott signed a law letting adults buy beer to go from home-grown craft breweries.

Smaller brewpubs already can sell beer to go. Abbott's action means that beginning on Sept. 1, the state's giving that right to breweries, too…

[The legislation also] expands the number of liquor store permits that an individual can own, getting rid of a loophole that favored blood connections. However, publicly traded companies like Walmart, Costco, Walgreens and Kroger still won't be permitted to sell liquor in Texas. That issue's now pending before the 5th U.S. Circuit Court of Appeals.

Also, a push to amend HB 1545 to let stores sell wine and beer on Sundays starting at 10 a.m. rather than noon failed, as did a separate proposal to allow liquor sales on Sundays…

Read more here.

Pennsylvania May Finally Scrap Flexible Pricing Authority for Spirits

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As covered before on these pages, Pennsylvania grants broad power to its liquor regulatory agency—the PLCB—to set the price mark-ups for distilled spirits sold in its state-run retail stores. R Street’s Jarrett Dieterle has previously pointed out that liquor mark-ups in control states function analogously to taxes, especially when the money they generate flows to the state’s general fund. This week in The American Spectator, R Street’s Kevin Kosar discusses an effort afoot in the Pennsylvania legislature to at least limit the unilateral power of the PLCB to set mark-up levels:

Keystone State legislators may abolish Pennsylvania’s stealth drinks tax. The House Liquor Control Committee is examining HB 1512, which would end the Pennsylvania Liquor Control Board’s “flexible pricing” power.

Rep. Jesse Topper, the measure’s primary sponsor, argues that flexible pricing power is not a power one should give to a monopoly. “[T]he PLCB is neither constrained by market discipline nor antitrust laws,” he wrote.

Topper’s bill would repeal the flexible pricing provision “in order to reinstitute some kind of consumer protection.” If enacted, the PLCB would revert to using a longstanding pricing system that set spirit prices by a formula

[F]lexible pricing is effectively a stealth tax and may therefore raise constitutional questions. Instead of elected officials setting income- or sales-tax rates to cover the cost of government, the pricing mechanism has enabled the state Legislature to outsource revenue-raising authority to an executive agency…”

Read Kevin’s whole piece here.

Facebook Continues to Ban All Alcohol Sales

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Legendary whiskey writer Chuck Cowdery recently posted about Facebook’s ongoing policy to clarify its ban on alcohol sales through its site:

Yesterday, all or most of the myriad whiskey pages on Facebook received a letter stating, in part, "While we allow people to talk about alcohol products we will not allow people to sell or purchase these regulated products on our site. This has always been true in places like Marketplace and Commerce posts in groups, but we will now extend this to organic content…

None of this is new. Except in Kentucky and a few other places, the secondary market for alcohol is illegal, and in those few places where it is legal it is restricted.

The state beverage alcohol agencies that are supposed to enforce these laws rarely do, but they will lean on companies such as Facebook, eBay and Craig's List to get them to clamp down on the peer-to-peer commerce that takes place on their platforms…

(Read Cowdery’s full post here).

As Cowdery mentions, some states, like Kentucky, have recently made moves to liberalize their policies on secondary sales, but otherwise these types of sales are illegal across the country. Both Cowdery and R Street’s Kevin Kosar have written previously about why legalizing the secondary booze market could be beneficial.