The landscape is surreal. The sun peeks like the red orb in Mordor through the mist of volcanic ash that overhangs the ocean and the island. The raw lava flows from a century ago cover this area of Hawaii while new volcanic eruptions destroy homes and spew ash into the air a hundred miles away on the other side of the Island. Into this crucible of primitive geologic chaos, the nations’ alcohol regulators are gathering this week at the Waikaloa resort for their annual meeting.
It is a very fitting meeting place for NCSLA because the United States system of alcohol regulation is also undergoing geologic change and facing its own elves versus orcs moments.
This week will be pivotal not in changing laws but in challenging the approaches taken to regulatory enforcement throughout the US.
Tom Wark, the fine wine blogger, put it into context in his blog this week titled “Wine Retailers Are Out Numbered At The Table.
As Tom put it:
“The primary problem these regulators face is they are tasked with overseeing what is in most states a highly archaic regulatory scheme that has little relationship to the modern American commercial landscape and that has been complicated by the accumulation of laws built primarily on the philosophy of rent seeking. The American alcohol regulatory system has been gamed by its most powerful players and primarily in favor of the now statutorily favored middlemen. And there’s very little the regulators can do about this. They don’t write the laws. They carry them out.”
Tom’s blog is worthy reading and Tom’s point about retailers (the primary tier being regulated) not being adequately represented is spot on.
However, the bigger question is when will regulation match reality?
Consolidation of the sellers of alcohol is occurring daily. The major grocery and general merchandise chains (from Wal-Mart to Whole Foods and beyond) are consolidating across state lines at the speed of light, and major producers are consolidating production and brands not only across states but across continents. To keep up, the national wine and spirits wholesalers are likewise consolidating into what will be (when the RNDC/Breakthru merger is complete) two major distribution networks with little competition between them, covering most of the US (estimates are up to 75% of the total US market).
Meanwhile producers, small and large alike (wine, beer and spirits), are insisting on privileges that permit them to market directly to their increasingly easy to reach customer bases, and are getting them; from direct to consumer (in some states for wine, in a few states for spirits and in almost none for retailers), to direct to the retail trade without a middleman, to special consideration for marketing events, advertising and product offerings to retailers. The regulatory landscape is not static.
Each “exception” to the overriding regulatory principle of separation of the tiers is another nail in the coffin of the mandatory three-tier system, and another law on the books to frustrate already overworked regulators who search, often in vain, for sensible overriding principles to rally behind.
And yet, the wholesalers insist that unless all goods go through them taxes won’t be collected, products won’t be safe and retailers will market to anyone, including children. That is specious (and in the case of sales to minors, libelous) but it is the justification for the regulations that the regulators must enforce.
Tom hits the nail on the head when he points out: “And there’s very little the regulators can do about this. They don’t write the laws. They carry them out.”
Maybe more can be done.
One very recent example can be found in an article from last week’s SF Chronicle about a purported sale of alcohol without a license situation based on the status of lessor and the lessee where lessor operated beer taps were a perk of the lease:
The December letters from the alcohol board, which focused on WeWork’s Southern California locations, suggested that the company was in violation of two sections of its code involving the need for a liquor license.
“Although the department has not performed a thorough investigation of the matter, we believe that WeWork’s service of alcohol, based on our limited understanding of it, likely requires an (Alcoholic Beverage Control) license,” Jacob Appelsmith, director of the department, wrote in a February email to Stephen Solomon, an attorney who advises clients on liquor license matters.
Appelsmith continued: “The department does not, however, view this as a regulatory priority, and has no plans to review the matter further.”
Click here for the full article
According to the article beer is now flowing freely in the leased spaces. Perhaps the “we have no plans to review the matter further” approach will provide comfort for those brave enough to take the risk to their business but it comes at a high price in regulatory credibility.
Now this is a worthy subject of conversation for the NCSLA conference this week. We are all looking forward to Tom’s post conference reports.