So it’s no secret that I am a supporter of tied-house laws and the three-tier system. They serve the following important policy objectives: preventing vertical and horizontal integration in the alcohol market, prohibiting unfair competition tactics (pay-to-play, kickbacks, etc.), and, to some degree, promoting responsible drinking. Given that these laws have been around awhile, many legislatures have created exceptions to the three-tier system for any number of reasons. California has dozens. That’s not great for longevity.
It would take this whole blog post to even bullet point all of the exceptions to California’s tied-house laws. Perhaps the most striking exception is that a beer (or wine) manufacturer can self-distribute its own product. See Cal. Bus. & Prof. Code § 23357. Thus, California has done away with the second tier of the system to some extent. That is very helpful to new breweries hoping to get their products out and into the market because they do not have to engage a distributor prior to any marketplace reputation. So while I like the exception (because it is helpful to craft brewers), its very existence makes me a little nervous.
There are many exceptions; their existences make me nervous too. For example, a manufacturer can set up window displays and stack its own beer at a retailer’s premises. Id. at § 25503.1(a)(1). A beer manufacturer can serve and discuss its beer at a retailer’s premise if it is for a “course of instruction,” as vague as that is. Id. at § 25503.55(a). And a beer manufacturer can sell its product at a farmers market (provided it obtains a permit). Id. at § 23399.45. Without a doubt, these exceptions are helpful to craft breweries. But their helpfulness might be overshadowed by the long-term risk that they, and the many others like them, pose.
Why do they make me nervous? As I’ve said before, there is a concerted effort out there to get rid of or to minimize tied-house laws. That would benefit big beer manufacturers to the detriment of craft breweries (I recognize some people don’t agree—we can argue about that later). So, as an attorney, if I were hired to defend the three-tier system in a lawsuit, I would be a little hesitant to argue the importance of upholding that system when there are so many exceptions. A multitude of exceptions tends to lessen the government’s ability to argue that the law must be upheld because the interests it serves are so important. If those interests are so important and fundamental, why so many exceptions? It also gives opponents a modicum of ammo to argue that the three-tier system disfavors big beer or, as applied, constitutes naked protectionism. I don’t think that these are winning arguments. But I also thought I could slip out the final tile when I last played Jenga.
Let me know what you think. Cheers.