Originally published in the Arizona Republic
The craft beer business is booming. Farm wines are on dining tables across the country. And artisan cocktails made using premium, small-batch spirits are finding their way onto restaurant and bar menus everywhere.
Yet nearly every state in the nation, including Arizona, is governed by alcohol laws that were enacted when FDR was in the White House.
Last week, the Legislature considered two competing craft beer bills that attempt to modify those laws, but that keep in place the archaic, Prohibition era “three-tier system.”
The government-mandated three-tier system requires that alcohol pass from producer to distributor to retailer — the three tiers. In other words, the system prohibits brewers, wineries and distillers from taking their product directly to retailers or consumers, and mandates that alcohol distributors control the way alcoholic beverages get from producers to your refrigerator or neighborhood bar.
With the success of Arizona-grown craft alcohol businesses, this antiquated system is beginning to show its futility and its danger.
Craft alcohol producers often operate under “micro” production licenses that allow them to deliver their product to retailers or directly to consumers; that is, to bring their product to market outside the three-tier system.
This is why you can show up at a local brewery or winery and sample their latest batch. Without the micro-license exceptions, the brewery or winery would be prohibited from selling its own products under the three-tier system.
The success of micro-producers operating outside the three-tier system demonstrates the system itself is not sacrosanct. When alcohol producers are able to sell directly to retailers and consumers, the sky does not fall. On the contrary, successful businesses grow and consumers have greater choice.
A needless problem arises when craft producers grow larger and push the artificial production caps imposed by law on micro-producers. When this happens, a successful craft producer, like Tempe’s Four Peaks Brewery, is forced back into the traditional three-tier model, and must choose between shutting down its restaurants and retail operations or limiting its brewing.
A ridiculous alternative.
The choice does not need to come to this. Small companies should be able to grow their product by distributing directly to retailers or selling their product directly to consumers. And successful craft companies should not be punished for their success and forced to fire employees because they grew.
The only thing creating this predicament is the government-mandated three-tier system and the powerful distributors who gain from it.
Defenders of the three-tier system inevitably raise the same fear-mongering arguments Prohibitionists raised a century ago, claiming, among other things, that the government-mandated cartels prevent alcohol abuse and predatory marketing. This is indefensible nonsense and an insult to adult consumers.
There is obviously a place for distributors in the alcohol industry, but that place should not be mandated by the law.
The three-tier system stifles innovation, produces needless barriers for small businesses, punishes the success of growing businesses, and pushes consumer interests to the side. Rather than cutting deals and making senseless exceptions at the behest of a large and politically powerful cartel of middlemen, it is time to re-examine the three-tier system in its entirety.
Arizona can and should be a leader in the growing craft beer, wine and spirit industry. Removing laws created during the Prohibition era can make this state a model for entrepreneurs seeking to do business here and consumers who want to choose for themselves what bottle of wine ends up on their dinner table.
Jon Riches is an attorney at the Goldwater Institute.
