Three-tier system: Are changes on the way?

three-tier systemHave states become more willing to change the way the dreaded three-tier system restricts consumer access to wine?

Don’t get too excited, but it looks like we’re seeing more states trying to do more to reform the three-tier system, the straitjacket of laws that regulate alcohol sales in the U.S. No, we won’t be able to easily buy wine over the Internet anytime soon, but any progress is welcome.

“From what I’ve seen, over the past five or six years, that seems to be the case,” says Lindsey Zahn, an attorney who writes the On Reserve wine law blog. “In some states, you’re seeing it a little bit more than in other states, but to some degree, you’re seeing it in many places.”

Three-tier, for those of you who haven’t followed my rants on the subject, is the complex of laws that defines how wine, beer, and spirits are sold in the U.S. Each state uses some version of it, and the key point (with very minor exceptions) is that only wholesalers and distributors can sell to retailers and restaurants, and that consumers can’t buy directly from the producer. This makes wine unique among almost every consumer packaged good.

Three-tier, since it gives the each state the right to regulate booze sales any way it wants, also means each state has different laws regarding how wine can be sold, when it can be sold, and who can sell it. It also means that no wine can be sold in any state unless it has a distributor in that state, so just because you can buy a wine in Illinois doesn’t mean you can buy it in neighboring Wisconsin or Iowa – or even in another part of Illinois.

And don’t worry if three-tier is confusing. As my old pal Lou Bright, the former top lawyer for the Texas liquor cops likes to say, it’s supposed to be confusing.

Still, we have seen some change. Last year, Tennessee, Pennsylvania, and Colorado, long-time holdouts against wine sales in grocery stores, made the practice legal. Over the past year, retailers in Massachusetts and Connecticut purposely broke each state’s pricing law – which sets a legal minimum for retail booze prices – to bring attention to what is an especially outdated regulation.

Three reasons

So why is this happening? Zahn sees several reasons:

• Generational change among state regulators, who don’t see the three-tier system the same way regulators in the 20th century did. These younger regulators grew up in a culture where liquor wasn’t as evil, and they also understand the Internet better than their predecessors did. So they’re more willing to consider changes.

` • Court decisions that seem to favor three-tier reform. Judges, since the landmark Granholm case in 2005, have been slowly, if inconsistently, making it more difficult for states to enforce parts of the three-tier system. Legally, a state needs to show that a law advances the public good; the courts have been asking much tougher questions about how minimum pricing or forbidding grocery store wine sales advances the public good.

• Deep pocket retailers like Walmart, Kroger, and Total Wine, who are more likely to use the courts to change three-tier than ever before. They will sue a state for a couple of reasons – first, because they might win, given the apparent momentum toward three-tier reform; second, to force the state legislature to change the law because the state might lose in court. One reason that Colorado, a staunch opponent of grocery store wine sales, changed the law was because the state’s big retailers were threatening a lawsuit.

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