Three Tiers for Beer – State Regulations Control Most Distribution
After the Prohibition Era, the 21st Amendment granted individual states primary authority in the regulation of three aspects of the alcoholic beverage market in the United States: production, distribution and sales. Written to generate income for the states, this three tier system was also meant to promote competition and to discourage aggressive marketing tactics that might encourage consumers to overindulge.
As a result, individual states established laws that vary substantially, but these generally fall into two broad categories of regulation: Licensing and Control.
Beer License States or “Open” States
Currently there are 32 open states – including California, Nevada and Arizona – that employ license-style regulations. Usually, a craft brewer who wishes to sell beer in a license state must obtain a manufacturer’s license or register with a governing agency before executing a distribution agreement.
There are different licensing schemes for each tier and some states will require those in the beer business to apply for multiple licenses. For example, alcohol distributors may be required to buy a beer wholesaler’s license in addition to licenses a distributor may already have for wine or spirits.
Because of the different types of licenses needed and the varying regulations and governing boards in each state, obtaining the right license can get very complicated, especially when selling beer in multiple states.
Control and “Sole Importer” States
The 18 control states – like Washington, Oregon and Utah – also require licenses. However, these states take an ownership stake as distributors or retailers – giving them a direct interest in the revenues.
Control states are also more controlling, as the name implies. There are more regulations governing the conditions of sale and marketing.
Utah and Pennsylvania fall under the control state category, but they are also sole importers. Consumers there can buy their alcohol in state-run stores only – craft brewers won’t be able to sell their products in grocery, drug or big box retail stores.
Internet Beer Sales: Craft Brewers Win Some, Lose Some
Sixteen states forbid a producer to ship beer directly to the consumer. Some states require the shipper to have a license as a brewer, distributor or retailer.
Many states allow craft and micro-brewers to self-distribute beer if the brewery is in that state, in recognition of the fact that these producers sell much smaller quantities of beer.
Even so, shipping beer via the U.S. Postal Service remains illegal for everyone, and DHL will not handle shipments of beer at all – it’s company policy. When it comes to internet sales though, craft brewers may rely on UPS and FedEx, if the brewer has a valid license, and a contract to ship beer through one of these companies.
Barry Kurtz is the Chair of our Franchise and Distribution Practice Group, which represents franchisors, franchisees, licensees and distributors. For more information, contact him via email: email@example.com or phone: 818.907.3006.