Why can’t you get your favorite bottle of whiskey, rum or tequila shipped directly to your door? There’s no technical or commercial reason. Instead, your inability to get distilled spirits delivered straight to you comes down to politicians and protected industries being a bit too drunk on power.
This need not be the case. Every couple of months, I receive a box containing three bottles of wine shipped directly from one of my favorite California wineries. I also now get cans of beer from some of my favorite craft breweries sent straight to my house. But if I try to order a bottle of unique bourbon from somewhere outside my state, I’m out of luck. That is because “direct-to-consumer” (DTC) marketing of this kind is generally illegal throughout America.
After Prohibition ended in 1933, a three-tier liquor system was established to separate producers, distributors and retailers. Ironically, the argument for this trifurcated system is now the leading reason to reform it: competition. Whatever one thinks about the original logic, it hasn’t worked. The result has been a long history of limiting entry for new businesses into the marketplace, high prices and a denial of true consumer choice.
That’s because there was always another rationale for this system: control. State governments wanted to control the liquor distribution system — not so much for safety or competition purposes but primarily to wring tax dollars out of every segment of it. Meanwhile, wholesalers who tightly control the heart of the distribution system enjoy the benefits of being a state-protected middleman who you cannot work your way around. In this setup, what consumers desire is secondary.
Reform is needed. A few states (Alaska, Arizona, Kentucky, Nebraska and North Dakota) already allow in-state and out-of-state producers and suppliers to ship spirits direct to consumers, and the sky hasn’t fallen there. Moreover, DTC shipments for spirits will only likely be a small sliver of the overall market, just like with wine. Most people will continue to buy bottles at local stores.
Silly state laws used to make it impossible for craft beer breweries to exist or sell cans to go, and they also made it difficult for wineries to sell bottles of wine direct to consumers. Luckily, toward the end of the last century, liberalization of those rules began. While there is more work to be done, the good news today is that a craft brewery renaissance has occurred across the country, and most people can now also have their favorite wines delivered directly. Only five states currently prohibit DTC wine sales.
Why subject one category of alcohol to a different set of rules than others? Why not apply the wine model to distilled spirits and allow direct sales?
The easiest way would be for more states to change their laws. But an even better approach may be an interstate compact, with states working together to liberalize their DTC policies and create a truly free market of liquor distribution. In either case, states would establish some sensible policies on how deliveries work, including requiring adult signatures so underage drinkers can’t accept shipments. And, just like wine shipments, spirits would still be taxed.
While the federal government has only limited authority over state alcohol policies, some national action under consideration may also help facilitate DTC sales. In July, the Biden administration issued Executive Order 14036 on “Promoting Competition in the American Economy.” One section directed federal agencies to “protect the vibrancy of the American markets for beer, wine, and spirits, and to improve market access for smaller, independent, and new operations.” This could include “rescinding or revising any regulations of the beer, wine, and spirits industries that may unnecessarily inhibit competition.”
The Federal Trade Commission could therefore investigate wholesale market barriers to new competition and help highlight needed reforms that would give small distillers a chance to access consumers nationwide, and without having to deal with any unnecessary middlemen.
Reform should be easier in the wake of the COVID lockdowns, which saw many state lawmakers take steps to loosen or eliminate restrictions on bars and restaurants selling cocktails to go. Letting citizens receive their favorite spirit directly by mail is certainly less risky than allowing them to drive to a local establishment and buy drinks in a bag or cup, which they could theoretically consume in a parking lot before driving away.
Protectionism has no place in the American economy. Limits on direct shipments come down to safeguarding yesterday’s archaic business models by law. While wholesalers find this regulatory scheme intoxicating, distillers and consumers want and deserve a more open and competitive marketplace.
Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University and author of “Evasive Entrepreneurs and the Future of Governance.”