S U B M I T T I N G
TO CONTROL (STATES) An overview of control states and product listing considerations
WRITTEN BY LAUREN VOKE AND JOHN P. THOMAS, II
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avigating the alcohol industry as a new brand can be complicated due to licensing requirements, differing rules and laws between states, and negotiating with potential wholesalers. New entrants, and even industry veterans, often encounter surprising challenges while expanding into new states, especially when sales are managed by the state. Known as “control” states or jurisdictions, these states generally either operate the “middle” tier by conDoing trolling the wholesale and business distribution of alcoholic with a state beverages within the state directly can and/or the “lower” tier by add a layer of controlling retail package complexity to stores. Doing business an alreadywith a state directly can nuanced add a layer of complexiregulatory ty to an already-nuanced landscape. regulatory landscape. The U.S. alcohol industry operates according to a traditional “three-tier system” of licensure and regulation, separated into three distinct tiers: manufacturing, wholesaling, and distributing, and retailing alcohol beverages. Federal and state “tied house” laws and regulations set forth provisions prohibiting one “tier” of the alcohol industry from having
an unlawful relationship with an entity in another “tier.” Such tied-house and cross-tier prohibitions provide clear delineations and separations between the tiers and narrowly govern the relationships between tiers to the extent such relationships are even allowed. However, given the varying federal, state, and local laws and regulations, there can be vast differences between the governance of these three tiers, especially when one is state-controlled. In control states, the relevant state-operated governmental authority holds a position within the three-tier system. The state agencies that operate within the middle tier are generally responsible for purchasing alcoholic beverages from manufacturers and reselling them to retailers, which usually involves operating state-owned warehouses to store, process, and ship the alcohol beverages. In some control states, the state agency will also act as the retailer by operating retail stores that sell alcohol beverages directly to consumers. Control jurisdictions operate in contrast to non-control states, where independent entities are licensed as wholesalers or distributors and take the role of purchasing alcohol beverages from manufacturers and making the products available to retailers.There are currently 17 states in the U.S. (and several local jurisdictions) that operate as control
jurisdictions: Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, West Virginia, and Wyoming. Although each state is considered a control state, it is important to note that the control systems in these states do not all operate similarly. While some only control the wholesale sales of spiritous liquors, others control spiritous liquors, wine, and beer. And in others, the state agency operates package stores directly, while others designate private entities as the state agency’s agents to operate as state-approved retail stores. For example, Alabama through the Alabama Alcoholic Beverage Control (ABC) Board controls the sale of spiritous liquor at both the wholesale and package retail level, allowing independent wholesalers to control the distribution of wine and beer. On the other hand, Maine’s Bureau of Alcoholic Beverages and Lottery Operations contracts with a private company to manage the warehousing, management, and shipment of spirits to agency-approved retail locations. One question that often arises when manufacturers are looking to expand their business into control jurisdictions is how to get their product into the
There are currently 17 states in the U.S. (and several local jurisdictions) that operate as control jurisdictions: Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, West Virginia, and Wyoming. W W W . ARTISANSPIRITMAG . C O M
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