John Locke Update / Research Brief

Practical Fixes To North Carolina’s Alcoholic Beverage Control System

posted on in Law & Regulation, Rights & Regulation
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North Carolina’s large and energetic craft brewing industry — over 300 strong now — chafes against the state’s arbitrary distribution cap. That’s the law that tells a brewery that once it hits 25,000 barrels produced in a calendar year, it has to hire a third-party distributor to take over selling, delivering, and distributing their beers. It’s an involuntary bleed on the brewery’s profits as well as jobs.

This law forces a hard choice on a growing craft brewery: hold itself artificially small or risk losing profits and control of their product to a distributor with little financial incentive to promote its products over the distributor’s flagship, big-name brands.

Maybe that’s why only about 4 percent of beer sold in North Carolina was made in North Carolina.

It’ll be of scant comfort to craft breweries and their patrons, but North Carolina’s laws on its craft distilleries are even stricter and more arbitrary. The American Craft Spirits Association commissioned a study in 2017 to compile spirits regulations on a state-by-state basis. From that study, I looked at prohibitions and arbitrary limits in North Carolina and compared them with how other states handle it.

The data are incomplete in spots, which will explain my use of “at least” in the findings. Here is what I found in my review of those state regulations compared with North Carolina’s:

  • Distilleries in North Carolina cannot allow alcohol consumption on their premises (except for tastings, which are limited), nor can they serve mixed drinks. Many customers prefer mixed drinks, even to sample, rather than straight liquor. At least 37 states allow distilleries to offer on-site consumption beyond tastings, many of which can offer mixed drinks (including South Carolina, Tennessee, Virginia, and Kentucky).
  • NC distilleries cannot sell bottles at farmers’ markets or fairs. At least 16 states allow their distilleries to sell bottles at farmers’ markets or fairs.
  • NC distilleries cannot hold other alcohol licenses. At least 29 states’ distilleries can hold other licenses.
  • NC distilleries cannot hold for-profit events at their sites. At least 26 states allow their distilleries to hold for-profit events.
  • NC distilleries cannot sell bottles or drinks off-site. At least 22 states let distilleries sell bottles off-site, and 21 states let them sell drinks off-site.
  • NC distilleries cannot self-distribute their products. At least 21 states, including some control states, allow their distilleries to self-distribute.
  • Tastings at NC distilleries are strictly limited. They cannot exceed 1.5 ounces total, not to exceed 0.25 ounce of any one product being tasted. Only five states are more restrictive of distilleries’ tastings than North Carolina, while 40 states allow distilleries more freedom in offering tastings to customers.
  • NC distillery visitors cannot purchase more than five bottles in a calendar year. Only four states are more restrictive of distillery sales in a calendar year; 46 states allow their distilleries to sell more to visitors on an annual basis. In states that place limits on distillery bottle sales to individuals, those limits generally are on a per-day, not per-year, basis.
  • Even assuming a distillery visitor only makes one visit that year and therefore has a practical limit of five bottles that day (which is not quite half a case), North Carolina is more restrictive of distillery sales than most other states. Only 13 states would be more restrictive from that perspective, while 36 states allow their distilleries to sell more to visitors.

This isn’t simply an intellectual exercise. Reforming North Carolina’s alcohol rules isn’t just about making the big decision about moving on from government control under an unnecessarily complicated ABC control system. It’s also about modernizing here and there, making practical fixes in individual areas of law.

Listed above are several practical fixes to consider that would help a legal industry in North Carolina compete, grow, and help serve their local communities with jobs, tourism, and even a source of local pride.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. Serving as Senior Fellow of Regulatory Studies and also Research Editor at the John Locke Foundation, Jon gets in the weeds of all… ...

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