States love to flex their regulatory muscles.
In his recent book, Biting the Hands That Feed Us (Island Press, 2016), food-policy scholar Baylen Linnekin exposes many of America’s nightmare food laws. From the so-called “cheese board rule” that contemplated forbidding cheesemakers from aging their cheese on wooden boards, to laws that shut down producers of salumi who refused to use nitrates in their meat-aging process, these rules have crushing effects on food producers, while failing to provide any significant health benefits.
I recently talked with Linnekin about whether alcohol producers faced the same level of government-imposed regulations that food producers do. According to him, the answer is a resounding yes: “Alcohol producers and sellers are absolutely subject to the same sort of inane and contradictory and overly burdensome rules that food producers are subject to,” he said. In fact, if anything, brewers, distillers and vintners are “even more tightly regulated.”
As Linnekin noted, alcohol producers face burdensome regulations at the federal, state and local level. Federal agencies such as the Food and Drug Administration and the Alcohol and Tobacco Tax and Trade Bureau (TTB) wield significant influence over spirits makers. Alcohol producers must get TTB approval for their bottling labels, which includes “everything from the font type and size, to making sure that you put the alcohol content in the right place.” TTB also has rules concerning what types of pictures and images are allowed on bottles.
The FDA also plays a role and can even prohibit the sale of certain beverages based on a particular ingredient. Linnekin noted, for example, the FDA’s 2010 decision to ban Four Loko, a popular energy drink that included alcohol. Of course, the IRS also is involved with tax issues — the rates vary for beer, wine, and other spirits based on things like barrels of production and other factors.
Despite the challenges at the federal level, it’s the state and local laws that cause the most headaches for alcohol producers. “Because the federal rules are generally older, there are attorneys with expertise on them and [producers] have come to be able to live with them,” Linnekin said.
States were empowered to regulate the production and sale of alcohol in the wake of the 21st Amendment, which repealed Prohibition. While many people now celebrate the 21st Amendment and “clank their glasses together and say, ‘yay repeal,’” Linnekin describes it as “awful.”
“It basically transferred the language from federal prohibition and made it essentially state prohibition, so it gives the states this incredible power to do terrible things, and not surprisingly, the states have exercised that power with great vigor and glee,” Linnekin said.
Examples of draconian state alcohol laws abound, including everything from bans on allowing breweries to sell and distribute their own beer, to sample-size restrictions that severely limit the amount of liquor distilleries can give to visitors (in Virginia, for example, distilleries can only serve guests up to three ounces of booze for sampling). Many states are also so-called “control states,” which means the government acts as the retailer for certain types of alcohol, for which there are no private liquor stores. Unsurprisingly, many states tax alcohol producers at very high rates, as well. Most severe of all, some localities are still “dry countries” that completely ban the sale of alcohol within their boundaries.
Some observers might point to the undisputed success and growth of the craft spirits movement as belying the significance of these rules. If breweries and distilleries continue to pop up across the country, then perhaps these sorts of regulations aren’t hurting them very much. While the argument may have surface appeal, Linnekin notes these laws still have a large unseen effect in preventing craft-spirits producers from expanding as much as they otherwise would.
“If you’re making beer, you want everyone in America to be able to try your beer; you don’t want to just brew for your friends in Wyoming and have it there,” he said. “So if you’re essentially clamping down on the success of entrepreneurs to actually bring their products to a greater audience, then think of all the jobs, the costs, that the local community suffers.”
Overzealous regulators can also create uncertainty in alcohol markets, which makes producers hesitant to invest and expand. If you’re a business owner who is constantly worried about pending or future regulations that could hurt your business, you’re apt to hold your cards close to your chest and forgo any planned investments. Linnekin likens the effect of stifling regulations to “a drag, like a weight being put on someone’s ankles.”
The situation is not all bad news, however. Linnekin sees some progress in state alcohol laws, including Washington State’s recent decision to scrap its three-tier distribution system and replace it with a market-oriented system. One hopes more states will decide to follow suit and look to liberalize their alcohol laws. One thing is for certain: there are a lot of targets ripe for fixing.