John Locke Update / Research Brief

North Carolina Needs to Free Its Distilleries and Other Alcoholic Beverage Enterprises

posted on in Economic Growth & Development, Economics, Rights & Regulation
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  • North Carolina’s ABC system is convoluted, but the state makes it worse with its own unique set of restrictions limiting homegrown alcohol businesses
  • The General Assembly has recently made progress in trimming and eliminating some outdated restrictions, but the debate is always contentious and there’s much more work to do
  • Legislation this year would relax some restrictions on distilleries, bars, and restaurants and study other potential changes

Not only does North Carolina have a bewildering maze of an Alcoholic Beverage Control (ABC) system, but also the state has its own unique set of restrictions limiting its own homegrown alcohol businesses. Some examples:

  • Bars and taverns in North Carolina are forbidden from having “Happy Hours” and targeted drinks specials (such as “Ladies’ Nights”)
  • Distilleries in North Carolina have very limited ability to provide tastings
  • Distilleries here can’t hold for-profit events
  • Ciders and perries aren’t taxed like beers, but instead face a 62% higher tax rate
  • Distilleries can’t sell at fairs and farmers’ markets
  • Bars and taverns can’t hold special drink promotions (like two-for-one; buy-1/get-1-free; buy a meal, get a drink free; etc.)
  • Distilleries can’t sell drinks and bottles off-site
  • Distilleries can’t self-distribute
  • Liquor stores and distilleries can’t have package liquor sales on Sundays or holidays
  • Distilleries can’t even sell a bottle in-house unless the buyer has participated in a tour
  • On top of that, distilleries — unlike breweries and wineries — are closed for half the weekend (Sundays)

The good news, at least, is that not very long ago that list was longer and even more restrictive. The General Assembly has in recent years won some hard-fought victories for greater freedom in alcohol policy. Thanks to recent reforms, for example, distilleries can now hold tastings in ABC stores and serve mixed drinks on their premises, and craft brewers can self-distribute beyond 25,000 barrels.

Some bills before this session of the General Assembly would chip away at certain remaining restrictions. Primarily, House Bill 890 (third version as of this writing) would relax state alcohol laws in several areas. Some of the changes would eliminate — or at least loosen — some of the restrictions listed above.

For example, HB 890 would allow distilleries to make sales on Sundays as well as the holidays of New Year’s Day, Fourth of July, Labor Day, and Thanksgiving. It would also remove the tour requirement before allowing bottle purchases at distilleries. Distilleries would also be allowed to ship bottles directly to consumers — but only “in other states or nations,” not in North Carolina, where they must still go through local ABC boards and exporters.

Also, HB 890 would allow distilleries to sell mixed beverages at a range of events: “trade shows, conventions, agricultural festivals, farmers markets, local fund-raisers, and other similar events.” The measure would go so far as to let them sell their product — but only “one 50-milliliter mini-bottle per customer.” Earlier versions would have allowed actual bottle sales; limiting sales to a single “airplane bottle” seems almost to defeat the purpose, especially if (see below) ABC boards discriminate against the distillery.

Other changes in the bill would include allowing people to place online orders for pickup at ABC stores and expanding the size of growlers to be up to four liters instead of two. The measure passed the House, 100-10, although John Trump’s reporting for Carolina Journal showed the debate was as intense as to be expected from alcohol legislation in North Carolina.

House Bill 781 as filed would let cities and counties, at their discretion, establish “social districts” in which people may possess and consume alcohol outside as long as it is within those borders. Such a measure would be good for street festivals and restaurant districts and, by extension, city and county tourism efforts. The measure would require that any alcohol sold in such a social district be in containers clearly identified, not made of glass, and no greater than 16 ounces.

HB 781 would likewise permanently let bars and restaurants extend their ABC-licensed premises for outdoor seating. Bars and restaurants have had that privilege as a temporary allowance owing to the governor’s Covid-related emergency orders restricting their indoor service. The governor just lifted that order on May 14. HB 781 passed the House 103-7.

House Bill 768 (second edition as of this writing) would direct the Legislative Research Commission to undertake a study of revising the ABC laws in North Carolina. This study would have several features, chief being a comparative analysis of how the federal government and other states regulate alcoholic beverages. This analysis would involve laws and regulations governing the manufacture, sale, possession, consumption, labeling, distribution, and kinds of liquors. It would also look into how the sale of spirituous liquor is regulated, how consumables are defined and regulated, how sales permits are defined and issued, and how (remember “Happy Hours” and special drink promotions are forbidden here) “periods of the day in which alcoholic beverages may be sold for on-premise consumption at a reduced price” are defined and regulated.

Among the many other things the study would involve would be streamlining permits, allowing advertising, letting bars and restaurants purchase directly from an in-state distillery “if the local ABC board refuses to purchase liquor from the distillery,” and addressing concerns about discrimination against permittees by wholesalers by prohibiting discrimination and also allowing a permittee to “purchase product outside the franchise territory if the wholesaler refuses to sell to the permittee.”

Those last two items in particular highlight concerns about discrimination and favoritism in the ABC system. They underscore what Trump wrote about in Carolina Journal regarding the “bizarre nature of the state-run system, running counter to routine practices for successful private businesses.” HB 768 passed the House 114-1.

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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