The ups and downs of the three-tier system of alcohol

In New York, its supermarkets can’t sell wine and its wine shops can’t sell chips. In North Carolina, wine can be purchased at supermarkets, but you must visit a state-owned store to purchase spirits. And don’t expect to find sale prices on alcohol in Michigan, where minimum prices are set by the state.

Looking to buy wine, beer or spirits from an online retailer like Amazon? It’s illegal in almost every state.

Welcome to the Three-Tier System, the nearly 90-year-old body of law that governs the sale of wine, beer, and spirits in the United States. Each state has its own laws, and if that’s not complicated enough, some state laws differ by county. It’s outdated, convoluted, and so confusing that it requires a special type of lawyer to navigate its intricacies.

“Yeah, in the modern age it certainly may have outlived its usefulness,” says Sean O’Leary, former chief legal counsel for the Illinois Liquor Commission. “But when Prohibition ended, it seemed like the best way to protect a state that wanted tougher laws and less access to alcohol for its citizens.”

Prohibition, the 18th Amendment to the United States Constitution, was enacted in 1920. It prohibited the sale, manufacture, and transportation of alcohol in the United States until it was repealed 13 years later by the 21st amendment.

The key to repealing prohibition? Let each state do what it thinks is best. Dry states might stay dry and wet states might sell alcohol again. The system was also designed to keep organized crime away from the liquor business, which it controlled during Prohibition.

Row of red wine bottles on production line in wine bottling factory
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As its name suggests, the system is made up of three levels. Producers, the first level, can only sell their product to distributors. Distributors are the second tier and can only sell to retailers and restaurants, which are the final tier.

With a few exceptions, such as direct wine shipping, which accounts for less than 10% of all wine sales, consumers can only buy alcohol from a retailer or restaurant.

There are a seemingly countless number of local regulations. These define hours of operation, restriction of sales by certain businesses, and even citizenship requirements for obtaining a retail license.

The fact that the system worked so well for so long is one of the reasons it still exists today. After all, when was the last time you encountered a mob-run speakeasy? That’s not to say there haven’t been attempts to change it.

A 2005 Supreme Court decision relaxed restrictions on purchasing directly from wineries. California now allows producers in the state to sell directly to restaurants and retailers. The states of Washington and Colorado have made it easier for grocers to obtain liquor licenses.

But the heart and soul of the three-tier system remains as it has been since 1933, and the federal courts regularly reaffirm its primacy.

“Since [the 21st Amendment] specifically authorized each state to regulate the sale and consumption of alcohol within its borders after Prohibition, the judges allowed three levels to withstand the kind of federal judicial review that could be applied in other areas “says Seth Weinberg, a lawyer in New York. whose practice includes a focus on food and beverage businesses that includes alcohol.

Bottles of alcohol at the grocery store
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That’s why there aren’t really national liquor store chains the way there are national supermarket chains. Such liquor stores could not exist in so-called “control states” like Pennsylvania and New Hampshire, where the state owns the liquor stores.

It’s also inconvenient. A chain must have a licensed warehouse in each state it operates in, and it can only purchase alcohol from distributors in that state. Compare that to Walmart, which has 42 massive regional fulfillment centers for non-alcoholic products that can be shipped to and from where and when they want.

But the features don’t stop there.

If a producer does not have a distributor in a state, he cannot sell his product there. A wine for sale in northern Illinois might not be available just a few yards across the border in southern Wisconsin. This is a huge handicap for craft wineries and craft distillers and brewers, which are usually too small to attract a distributor.

“It certainly may have lost its usefulness.”— Sean O’Leary, former Chief Legal Counsel, Illinois Liquor Commission

Some states, like Texas, are a hodgepodge of regulations. Parts of East and West Texas remain dry, while Houston, Austin and San Antonio are wet. In Dallas, liquor stores aren’t allowed in one part of town, but they’re welcome in another.

Drop shipping, where consumers buy directly from a producer, is illegal almost everywhere when it comes to beer and spirits. And although 45 states allow residents to purchase wine from producers in other states, state laws vary widely. There may be limits on the amount of wine consumers can buy, for example. Since these laws can be so different, some growers don’t even care. They don’t believe it’s impractical to follow 10 sets of state laws.

The US Postal Service is prohibited by law from shipping alcohol. This gives carriers like UPS and FedEx a virtual monopoly on the few consumer shipments that take place. Therefore, shipping costs to the United States can be estimated up to 30 times higher than to the European Union.

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