Control States

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.

North Carolina Lawmakers Seek a Bevy of Reforms to ABC System

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North Carolina is one of about a dozen remaining states in which the government controls the retail sales of alcohol. The state’s ABC system has been mired in scandal recently after a state audit uncovered millions in waste, which has spurred calls for reforming the state’s antiquated alcohol laws. According to the Greenville Daily Reflector, several lawmakers have introduced an omnibus reform bill with numerous proposed changes:

A bill filed in the N.C. House would dramatically revamp how the state governs liquor sales and distribution, including a provision allowing for Sunday sales. Distillers, brewers, and consumers would be among the beneficiaries of the expansive measure, modernizing a system entangled in arcane laws dating back to the end of Prohibition.

Reps. Chuck McGrady, R-Henderson; James Boles, R-Moore; Susan Fisher, D-Buncombe; and Jon Hardister, R-Guilford, are primary sponsors.

Lawmakers have already introduced several items presented in Tuesday's bill, such as a move - House Bill 389 - to authorize public colleges and universities to allow the sale of alcohol at stadiums, athletic facilities, and arenas on school property, as well as a move paving the way for Sunday sales - Senate Bill 87.

The omnibus measure introduced Tuesday, H.B. 536, ABC Omnibus Regulatory Reform, would, for example, allow distillers to sell spirituous liquor directly to consumers in other states and removes a limit on sales to customers visiting one of the nearly 60 craft distilleries in the state. As it stands, customers can buy five bottles from a distillery per year. All sales now are recorded and tracked.

The bill also would allow tastings in state-run ABC stores and provides a local option for cities and counties to adjust store hours, including for Sunday sales…”

Read the rest here.

Why Being a Brand Ambassador for Booze Is Harder in Control States

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Nearly everything is more difficult for alcohol producers and consumers in control states. That also extends to perhaps unexpected parts of the drink industry, such as brand ambassadors. Liquor.com interviewed several veteran brand ambassadors about the difficulties of operating in control states:

Being a liquor rep or brand ambassador can be a rewarding career. Knowing the ins and outs of a product or brand, spending time on the road visiting key accounts and building relationships with bartenders and owners are all key aspects of the job. But working in control states adds another level of complexity and challenge to the business of promoting a spirit, especially in stricter states that impose numerous regulations on how to sell alcohol…

Primarily, control states act as a single distributor for alcohol, selling directly from state-controlled liquor stores to bars and consumers and prohibiting bartenders from placing orders with anyone else. Building that relationship with bartenders, whether you’re the ground team working in that state, or a national rep who makes the occasional stop in, is key, even more so in control states when checking back in is an essential step.

“One difference in a control state is that you can’t always be closing, because there’s a disconnect between pitching products and educating, and the actual purchase,” says [Rocky] Yeh. “They can’t just take an order on the spot. It means there needs to be a lot more follow-up but in a way that’s not nagging.”…

Read the whole feature here.