Introduction
North Carolina was once the nation’s leader in wine production and distilleries, legal industries killed off by state prohibition in 1908. In 1937, in response to the end of federal Prohibition, North Carolina policymakers chose separate paths for sales of different types of alcoholic beverages. For beer and wine, North Carolina became a “license” state, letting the distribution and retail sales be handled by private ventures with permits from the state Alcoholic Beverage Control (ABC) Commission.
For liquor, however, North Carolina became a “control” state. It exerts total government control over liquor distribution and sales. Only 16 other states are control states, but North Carolina is different even from them. North Carolina is the only state with local government control over liquor sales, which is done through 171 different ABC boards operating 440 different ABC stores.
Look at all the layers of control in North Carolina. Before a distiller’s product can reach a consumer, it must first be approved by the ABC Commission, then be stored in the ABC warehouse, then be ordered by a local ABC board, and then be offered for sale by that board’s ABC store at the price set by the ABC Commission.
As a government monopoly, North Carolina’s ABC system seeks to maximize revenues and minimize choice and competition. Advocates for the ABC system are quick to point to its over $1.7 billion in sales and talk up its government revenue transfers. But most of the sales revenue covers business expenses, of course. In 2022 only 39% of ABC revenue went to government purposes.
Furthermore, state government revenue from liquor sales doesn’t require North Carolina to be a strict control state with an ABC system, as opposed to a license state. It is already built into state law by taxes and surcharges.
Beyond government transfers, advocates for keeping the ABC system speculate that without it, North Carolina would see a spike in teenage drinking, teenage binge drinking, DUIs, and alcohol-related deaths, which would create havoc for the state’s Alcohol Law Enforcement and local law enforcement. Research and further consideration suggest those fears, though understandable, are overblown.
Research finds no significant differences between control and license states with respect to those negative outcomes. It makes sense. Sales at ABC stores (which are sales for consumption off the premises, and only of liquor) make up only a small subset of alcohol consumption in North Carolina. That subset is dwarfed by sales of beer and wine for consumption on or off the premises and also by liquor-by-the-drink sales at restaurants, bars, clubs, and so forth.
Key Facts
- In 2019 the General Assembly loosened state restrictions on alcohol in several ways. Among other things, distillers were allowed to hold tastings at ABC stores; receive ABC permits to sell beer, wine, and mixed drinks on premises; sell bottles to distillery visitors without limit; and self-distribute to mixed-beverage permittees and out-ofstate consumers. In a major compromise, craft breweries were given much greater freedom to self-distribute.
- Other state restrictions remain. For example, taverns, bars, and similar establishments cannot offer “happy hours” or “ladies’ nights” promotions or provide a variety of drink specials that other states allow. Liquor stores can’t make package sales on Sundays and state holidays. Neither can distilleries, but breweries, wineries, bars, and taprooms can.
- Under the lighter regulatory regime for beer and wine, North Carolina sees thriving industries bringing pride to their communities, with over 410 breweries and brewpubs and 200 wineries in 2023. Given North Carolina’s strict control over liquor in general, and tighter regulations against distilleries in particular, however, there were only about 80 active distilleries.
- There are at least 25 cideries in the state, mostly in Western North Carolina, and most supported by apples from Henderson County, the seventh-most productive county for apples in the U.S. The state’s definition of cider, however, is stricter than the federal government’s, and the state taxes cider like unfortified wine instead of beer. Taxing cider like beer would result in a 38% tax cut, and matching the state’s definition of cider to the federal government’s would remove uncertainty from cider production and allow that natural industry to grow faster.
Recommendations
1. Make North Carolina a License State in Liquor Sales, as It Is With Beer and Wine.
Dissolve the ABC boards, sell the ABC stores, divest the state of the ABC Warehouse, and free distillers from the ABC Commission dictating an approved products list and statewide prices.
2. Continue to remove anticompetitive restrictions and overregulation of the alcohol industry.
Consumers, distillers, brewers, vintners, cideries, private retailers, future entrepreneurs, local job seekers, and local communities would all benefit from relaxing unnecessary alcohol restrictions in North Carolina. For example, distilleries ought to be able to self-distribute, sell bottles at farmers markets or state fairs, and open on Sundays. Bars ought to be able to hold drink specials the way bars in other states can. Liquor stores ought to be able to make sales on Sundays and holidays.
Revenue Transfers to Government From Total ABC Sales Revenue
Notes: Only 39% of ABC’s $1.73 Billion in Total Revenue Went to Government Purposes
Source: 2020 Annual Report, North Carolina ABC Commission
Components of North Carolina’s ABC System
