Delaware to Erase a Remnant of Prohibition?

On April 6, a remarkable bill was quietly introduced in the Delaware state house. If it passes and is signed into law, House Bill 84 would allow small brewers to deliver their own product to licensed retailers of their beer. This would mean that, for small brewers like Dogfish Head, which is headquartered in Milton, Delaware, they could skip the onerous and expensive middle man (aka as a distributor or wholesaler) that is mandated in most other states. That is if they want to bypass the distributor.

Introduced by Republican Rep. Ruth Briggs King, HB 84 would essentially end the mandatory three-tier system for small brewers in Delaware. As both I and my colleague Angela Logomasini have written, the three-tier system is an archaic remnant of Prohibition. In an attempt to create a safe product and limit corruption in the wake of the mobs that grew up during the alcohol ban, lawmakers attempted to separate production, distribution, and sales of alcohol. The fear was that a large distributor of alcohol who also owned the production could shut out competition. Since the end of prohibition, the mandatory three-tier system has created the very powerful and profitable wholesaler industry. Producers of alcohol must contract a wholesaler who then finds the retail operations that will stock the producer’s products. Sometimes though, this doesn’t work out so well for producers — especially smaller ones — who often find that a wholesaler will do a poor job in distributing their products, perhaps to favor other more popular brands. In a system where they are forced to rely on middlemen to get their products in front of consumers, this sometimes leaves brewers with little or no recourse if their distributor underperforms.

Past attempts to end the three-tier system, or at least make it voluntary, have met with strong opposition from the powerful wholesalers lobby. They believe that if the system was switched to a voluntary basis, they would lose jobs, power, and money. Perhaps they are right. But is that reason enough to perpetuate an archaic, wasteful, and corrupt system?

While some wholesalers would have a harder time making a profit, a voluntary system would give them the incentive they currently lack to treat their craft products with the same respect as their macrobrews; otherwise the craft brewers could leave and distribute their product on their own. In short, a voluntary system would encourage wholesalers to treat the brewers like customers instead of captives. Some wholesalers might even specialize in getting craft beer onto retail shelves, providing an incentive for brewers to use their services.

Freeing the alcohol market is the right thing to do. Brewery owners invest time and money to create and nurture a product consumers want — they ought to have the right to determine where it is sold and have control over the distribution of their own product. Not only would freeing the market be just, it would likely attract more brewers to the market, creating competition, jobs, and wealth. Here’s hoping Delaware is the first of many states to move toward a freer alcohol market.

Currently, the bill is awaiting a vote in the House Economic Development/Banking/Insurance/Commerce Committee.