Policy Analysis | June 2015

Debate on Proposals to Privatize State-Administered Alcohol Sales

Sujit CanagaRetna

Information from selected states on the debate regarding the privatization of alcohol and beverage control (ABC) operations follows. One of the major areas of discussion when states consider privatizing their monopoly of the sale of alcohol is the potential public health and safety implications of the change. A number of studies have been conducted on this topic, including the following:

Virginia is one such state and when then Governor Bob McDonnell floated the proposal after his election in 2009, George Mason University carried out the following study. The study's conclusions indicate that "government-spirits monopolies do not generate the health benefits that their proponents trumpet. The plain fact seems to be that alcohol-related problems are unrelated to whether or not a state government prevents private, competitive businesses from selling spirits to the general public." Also, in Virginia, in January 2015, Senator Ryan McDougle sponsored SB 1032 in an effort, in his words, to "allow ABC to operate like a business as opposed to a government agency." Similarly, in the Virginia House, Delegate Dave Albo, proposed HB 1776 with the goal of replacing ABC with the authority to operate outside of government authority.

North Carolina is another Southern state that has grappled with the option of privatizing their ABC operations. The North Carolina Institute for Constitutional Law released a detailed report entitled North Carolina's ABC System Needs Modernization. In addition, North Carolina's Alcoholic Beverage Control (ABC) Commission released its 2014 annual report recently. Also, of relevance in this connection is an interview with the chair of the NC ABC Commission, recently appointed by Governor Pat McCrory.

Pennsylvania also considered privatizing their ABC operations and reviewed the following study. An argument often is made for state control as a means of achieving some desired social outcome, i.e., reducing alcohol consumption, underage drinking, and alcohol-related traffic deaths by controlling wholesale and retail alcohol markets. However, this comprehensive, 48-state study concluded that there was no link between market controls and social goals.

Many states follow the three-tiered system of alcohol distribution with the three tiers comprising producers, distributors, and retailers. In its simplest form, the three-tiered system requires that producers sell their products to only wholesale distributors who, in turn, can then sell to retailers, and only retailers may sell to consumers. Producers include brewers, wine makers, distillers and importers. Details of this three-tiered system from around the United States follow:

  • California: Following the repeal of Prohibition and the adoption of the 21st Amendment to the U.S. Constitution, the alcoholic beverage industry became subject to regulation by the various states. California chose to regulate the industry based upon a "three-tier" system: manufacturers (i.e., breweries, wineries and distilleries), distributors (i.e., wholesalers and importers), and retailers (i.e., those who sell to consumers).

States adhering to, or reforming, the three-tiered system include: