Our Work 4

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 But as R Street’s Jarrett Dieterle points out in a recent piece for Governing, the states that have repealed their 3.2 laws have simply replaced them with a slightly higher cap: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.

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.

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:

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.

R Street's Kevin Kosar Interviewed About Moonshine

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R Street’s Kevin Kosar was interviewed by Live Science about mooshine and whether it is safe to drink. As Kosar noted, Moonshine can be made from a variety of products and it’s most likely to exist in places that put up high bariers to legalized alcohol:

What is moonshine? Broadly, moonshine is any type of distilled liquor that's manufactured without government oversight, though some argue that moonshine can be labeled as such only when it is made with certain ingredients or comes from specific geographic regions, experts told Live Science.

People all over the world make and drink moonshine, particularly in places where alcohol is illegal or where legal alcohol is prohibitively expensive or hard to get…

ngredients for moonshine vary widely depending on what's available. In the early 20th century, American moonshiners typically made their brews from corn mash. But moonshine is also made from grapes, plums or apricots (Armenia), barley (Egypt), palm tree sap (Myanmar), bananas (Uganda) and cashew fruit (India), said Kevin Kosar, author of "Moonshine: A Global History" (Reaktion Books, 2017).

"It's just basic chemistry. If you can tease sugar out of something, you're on your way to making a drink," Kosar told Live Science…

Even when moonshine doesn't contain toxic levels of methanol, it's impossible to tell how strong it is — an uncertainty that could lead to accidental alcohol poisoning The best way for drinkers to stay safe is to give illicit alcohol a wide berth, Kosar said..

"Unless you're a close friend of the person producing the moonshine and have absolute trust in their competence to produce it, don't drink it," he warned.

Read the whole article here.

Where Did All The Bars and Taverns Go?

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This post was written by R Street Institute President Eli Lehrer.

Growing up in Chicago, I saw bars as a neighborhood institutions. Some served hot dogs or pizza puffs, but most were pure drinking places. As an adult, I’ve lived in Virginia, which requires all establishments with liquor licenses to have kitchens and derive at least 45 percent of sales from food and thus has no bars per se. Washington, D.C., where I’ve worked for 21 years now has a “tavern license” for places that want to emphasize drinks. But few exist. The Washingtonian magazine’s list of the Best Bars in Washington, D.C.includes only five District-located places that are bars without significant food menus. Indeed, many of the best known “bar” hangouts in the city like the Front Page and Union Pub have extensive menus. So, why?

Many obvious reasons don’t survive scrutiny. High D.C. rents can’t stop taverns alone since they thrive in places with even higher rents like San Francisco. Food produces another revenue and potential profit stream, of course, but that’s so everywhere. The non-family demographics of the city are similar to those of Manhattan, much of the Bay Area, Chicago’s North side, Seattle and dozens of other places with thriving bar scenes. And the idea that young professionals don’t like bars per se seems incorrect: alcohol use tends to decrease with age and people without families have more time to hang out at bars after work.

Instead, transience, immigration patterns and institutions seem to explain the District’s lack of bars. First transience. More  than 60 percent of the population of the District was born elsewhere and that percentage has risen in recent years. Only places with big retirement communities have as many transplants. Strong neighborhood institutions like taverns which must differentiate by vibe rather than menu (serving beer requires little skill and simple cocktails are hard to differentiate) aren’t going to thrive in places where people move.

The nature of immigration also matters. While D.C. did once attracted many people from Ireland, home to the world’s best-known pub culture, the city’s historic Irish neighborhood, Swampoodle now exists only in a park’s name. Modern D.C. attracts relatively few immigrants and the group of new arrivals most prominent as hospitality entrepreneurs--Ethiopians--come from a country with a large Muslim population and thus little bar culture.

Finally, the District’s unique Advisory Neighborhood Commissions (ANCs) present a barrier with their de facto veto over new liquor licenses. This makes taverns’ entire business subject to an additional obstacle. My colleague Nick Zaiac points out that for an ANC member (each of whom represents about 2,000 people) helping to block a bar might add political capital in a way that it wouldn’t for a council member representing a larger district.

Bottom line: D.C.’s culture and its institutions just aren’t friendly to taverns. And this probably isn’t going to change.





California Tries to Legalize Wine (and Beer) Volunteers Based on R Street Recommendation

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Small wineries and breweries throughout the country often use volunteers to help produce and package their products. Doing so both supplies these small producers with extra labor and allows the volunteers (who are often craft beverage enthusiasts) to learn more about the production process. In California, however, the use of volunteers is technically a violation of the state’s labor code, and the state’s Department of Industrial Relations has previously slapped hefty fines on California wineries for using volunteers. R Street’s Western Region Director Steven Greenhut wrote about this issue back in 2014, and now, directly inspired by Steve’s column, state lawmakers are trying to fix the problem. Their new bill would exempt small wineries and microbreweries from this provision of the state labor code, and Steve submitted a letter of support on behalf of R Street for the reform:

I write you in support of S.B. 448, legislation that “would exempt a small winery or small microbrewery … that utilizes volunteers who perform part-time labor in exchange for hands-on training, from having these volunteers classified as employees or apprentices.”

These small wineries and breweries clearly deserve an exemption from this section of the labor code given that many people like the opportunity to volunteer at these businesses to learn about the trade. Such volunteers typically are older people who enjoy the wine and brewery culture. They aren’t interested in the money, but in learning about the fascinating process of making wine and beer. In fact, I’ve volunteered at a winery before with my church group where we picked grapes and made our own wine as part of an indescribably enjoyable afternoon…

Read the letter of support here, and Steve’s 2014 column that inspired the law here.