By Decree, No Beer on Christmas Day - On Hyper Regulating Alcohol Sales

Originally published on www.denverlibertarian.com

Much ado has been made regarding the passage and implementation of Colorado State Bill 18-243, which modifies existing laws to allow a limited number of retail establishments, primarily grocery stores and gas stations, to sell full strength beer. On the surface, this is a win for the free market and a rollback of onerous government regulations, but upon closer analysis, it is merely a continuation of a smothering government bureaucracy, to the detriment of the consumer.

To clarify for those residing outside of Colorado, prior to the passage of the legislation, full strength beer (anything above 3.2% ABW), wine and liquor could not be sold in grocery stores, but they were able to sell beer that was below 3.2% ABW. The obvious follow up question is, what is 3.2 beer? The answer is not unique to Colorado, but does go back to the end of the Prohibition Era. Under Prohibition, it was illegal to produce, sell or distribute anything higher than 0.5% ABW, but with the passage of the Cullen-Harrison Act (which ended Prohibition), that limit was raised to 3.2% as a means to “ease society back into drinking.” Individual states were allowed to implement their own laws and regulations regarding alcohol production, sale and consumption. In Colorado, it was deemed that you will only buy food at a grocery store and if you must, you will go to a separate store to get hard liquor or wine and that store shall be closed on Sundays (repealed in 2008), all for the health and safety of the general public, of course. Admittedly, that’s far too brief of a summary, but this sets the stage for the passage of Colorado SB 18-243.

At the time, the debate surrounding this legislation was primarily focused on the notion that it would give undue power to large corporations and mom-and-pop liquor stores would be forced to close down once grocery stores were able to sell full strength beer. This was a very useful distraction to deflect from the fact that this was a government created problem in the first place. In a competitive market, businesses open and close all the time, it is a painful correction that needs to occur. Alas, the devil is in the details and as it is with most legislation, its tentacles have extended far beyond the limited scope of simply allowing beer to be sold in grocery stores. The legislation is framed in terms of parity (by which they mean equality of outcome, not opportunity), the ever popular safeguarding of the health and safety of the public and the prevention of monopoly. Predictably, however, this legislation provides for a continued cartelization of the liquor industry enforced under the threat of violence from the State.

The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.
– Ludwig von Mises, Human Action

The Speed of Government:

Shockingly, the current legislation came into existence due to the inaction of previous legislation. In 2016, Senate Bill 16-197, a 26 page beast in and of itself, repealed the limit on the alcohol content of fermented malt beverages effective January 1, 2019, which would have allowed grocery stores and gas stations to sell full strength beer. As a part of the provisions of the 2016 legislation, a working group of government and industry professionals was to be convened and tasked with developing a plan to implement the transition process, but nothing was achieved. The establishment of a working group is common and often a pre-condition when new legislation is introduced (similar groups were required during cannabis legalisation in Colorado, for instance). But, where there’s no incentive, there’s is no solution: in the back and forth blame game that ensued, everyone forgot to point the finger of blame where it truly lies, with government and its fealty to pietistic prohibitions aimed at keeping the populace safe, or any other number of quasi moral platitudes. Now, after all this time, your fearless legislators must enact new legislation to make sure this happens safely and fairly!

But What About the Jobs?

One of the main objectives of the legislation was to ease the transition so as to not adversely affect the jobs of the local mom-and-pop liquor stores. People want convenience and since grocery stores were prohibited from selling beer stronger than 3.2 ABW (and wine and liquor), small liquor stores popped up right next to grocery stores throughout Colorado. With the lifting of the grocery store sales ban, this government created distortion has necessarily created a market problem (or opportunity), with two stores selling the same thing right next to each other. But, had the prohibition on grocery store sales never been in place, the stand alone liquor stores would have located their business in a more advantageous spot, or maybe not, perhaps they would have chosen to out-compete via some other mechanism (read on to see how government is killing opportunities in this realm, too). But I digress, let’s return to the alleged saving of jobs. The legislation has several provisions that adversely affect potential jobs. One section eliminates the delivery of factory sealed beer in conjunction with food delivery. Another section requires the delivery of liquor from a store to another location to be made by an employee of the retailer who is using a vehicle owned or leased by the licensee to make the delivery, which creates a significant barrier to entry, as only big box retailers can afford a fleet of vehicles and the requisite commercial insurance requirements.

Government Economics:

At its core, this legislation is all about a continuation of pietistic control over what you are putting in your body. The legislators are hell bent on making it far more costly with the hopes that it will curb your enthusiasm for doing what you want to do.

There are a number of ways this legislation impacts the cost of beer. One section establishes that a retailer shall not sell beer to consumers at a price that is below the retailer’s cost, as listed on the invoice, unless the sale is of discontinued or close out nature. This section does not prohibit a retailer from offering a bona fide loyalty or rewards program so long as the price for the product is not below the retailer’s costs as listed on the invoice. This simply means that there is no real sale or reward occurring as sellers will just bump up the price ever so slightly so that you feel like you are getting an amazing deal when they offer you that five dollar loyalty credit! This also means that if a small retailer wants to take a short term loss and offer a mega sale to drive customer traffic to their store (to compete with a big box retailer), it would be illegal. The stated goals of the legislation was to ensure the concept of parity, but there is nothing more equalizing than a free market.

Another section disallows a retailer with multiple licensed establishments to commingle purchases of malt beverages from a wholesaler. Ostensibly, this protects the little guy, but ultimately, the consumer ends up simply paying more. The market would not support a big box store on every other block and behind the scenes, even small retailers are required to purchase from a wholesaler. It’s obvious that the true beneficiary in this cartelized system is the wholesaler.

Finally, with respect to delivery, another section presents this tongue twister:

“The fermented malt beverage retailer derives no more than fifty percent of its gross annual revenues from total sales of fermented malt beverages from the sale of fermented malt beverages that the fermented malt beverage retailer delivers.”

Talk about government-speak! In plain English, this means you can’t be the Amazon of beer delivery. It can’t be convenient and inexpensive for someone to sell and deliver beer. This legislation inhibits innovation and the only thing it guarantees is that the legislation will have to be rewritten in the future to deal with changing technologies.

Competition Review Board:

This section requires that all licensing authorities shall consider the effect on competition of the granting or disapproving of additional licences and shall not approve an application for additional licenses that would have the effect of restraining competition. In theory, this provision is in place to prevent one large company from gobbling up all the licenses in a given area, thus preventing a monopoly (never mind that literally all the liquor stores in any given area could be using the same wholesaler). The only effect we should be concerned with is that there is competition. Making sure that Company A’s bottom line doesn't get hurt on account of Company B’s sale is the role of the market, not legislators. This type of legislation is indicative of a cartel, where all the profits and procedures are decided beforehand; if you want to play ball you need to pay up or go out of business. Speaking of cartels, although not a new section of the legislation, it bears emphasizing that all retailers are required to purchase malt beverages and spirituous liquors only from a licensed wholesaler, the classic three-tier system with government taking it’s cuts (plural, intentionally) all along the way, further driving up the costs to the consumer.

Magic Distances:

The legislation establishes distance requirements between liquor stores, ranging from 1,500 feet to 3,000 feet depending on the size of the municipality. Furthermore, a liquor store cannot be located within 1,500 feet directly adjacent to the city and county of Denver. This indicates that lawmakers implicitly understand the ludicris nature of onerous regulations. For who wouldn’t just move their business outside of the city limits to avoid regulations? Magic distance requirements allow politicians to grandstand in front of everyone and act like they are helping to keep neighborhoods safe, but the market would solve the problem of too many liquor stores in one geographic area rather quickly. Imagine four liquor stores right next to each other, absent any regulations or compulsory distribution schemes, naturally, one store would float to the top via any number of mechanisms: better deals, friendlier staff, better promotions, better selection, the options are endless for a business owner.

This should come as no surprise, but the state sets different rules for itself than it does for you. One case in point is a section that disallows a liquor store to be located within 500 feet of public schools, colleges and universities, unless the licensed premises is located on municipal land, an existing license is owned by the state, or if it is a club on a college campus that limits its membership to faculty and staff. Add to that, there is a different calculation method for these distance requirements! You can’t operate a liquor store near a school, but the State can.

Incremental Freedom:

This legislation has taken the planning of future expansion out of the hands of individual businesses. The regulators have decided that a licensee can add four more until January 2022. Then between 2022 and 2027, up to eight licenses can be held. Between 2027 and 2032, a maximum of thirteen. And then, finally, after 2037(!), an unlimited number may be obtained. This type of magic crystal ball economic prediction is a hallmark of government. Rest assured, in ten years, the newest crop of legislators will update, revamp and improve this legislation, job security par excellence.

In what appears to be a section that allows some flexibility and local control, therein lies the dirty secret of all government: the quid pro quo, wherein the local authority may eliminate the distance restrictions imposed by the legislation. As usual, if you have a connection or can give a sizeable donation to the right person, then you can get a reprieve on the distance requirements, otherwise you’re out of luck.

A lot of beer regulation came about in the post-prohibition era so that the mobsters wouldn’t “take over.” Of course, now, the mob is the government. - Dave Smith, probably

Tastings and Drink Pouring Training:

In perhaps the most entertaining section of the legislation based on the sheer number of ludicrous requirements, the legislators have determined that even getting just a tiny little taste of alcohol must be regulated ad nauseum. Once again, in direct contrast to the stated goals of parity, this section creates a barrier to entry by requiring anyone who wants to conduct a tasting to complete a server training program that meets the standards established by the liquor enforcement division. This is nothing more than government protection, effectively limiting tastings to a few big box retailers. If a store owner wants to implement a training program, there is nothing stopping them. Besides, most places naturally WANT someone who is knowledgeable with the product in order to drive up sales. That’s the whole point! It’s in the owner’s best interest and customers certainly value a knowledgeable person conducting the tastings. Not to mention it’s also in the drink purveyors best interest to have their product presented in a professional manner.

In a tiny baby step towards freedom (sigh, albeit within a cavalcade of regulations) there is a glimmer of hope! Allow me to present to you a two hour extension to the hours that tastings may occur. Hooray! Tastings shall occur no sooner than 11AM and no later than 9PM. Come on now, dear legislative busy bodies, it’s not as if everyone is out on the town and stops to think, hey, we could leave this full service bar and go get a small taste of wine at that big box store clear across town, that would be totally worth it!

Continuing on, we find the, “let’s not destroy perfectly good bottles of wine” section. For at least the last thirty years, it has been required that the liquor store destroy the samples immediately following the completion of a tasting event. The new legislation allows for any open containers of unconsumed alcohol (why did they have to specify unconsumed?) to be stored in a secure area outside the sales area of the premises for use at a later time or date. Indeed, this is necessary, because liquor stores are known to let ten year olds run around the warehouse floor and grab a sip of the opened bottles, right?

In a final section of the tastings portion, the legislation indicates that no liquor manufacturer shall induce a licensee through free goods or financial or in-kind assistance to favor the manufacturer's products being sampled at a tasting event and the retail liquor store bears the financial responsibility for a tasting conducted on its premises. This is yet another handout to the big box retailers, who have the overhead to cover the requisite costs to host a tasting event. Nonetheless, should a manufacturer find out that there are some backhanded dealings going on that is adversely affecting sales, they will be quick to pull their product and raise some hell. If a manufacturer wants to pony up some incentives to get their product in front of people as they walk in the door, who cares? This happens all the time! This is why government buildings are grandiose, enormous white marble structures situated in prominent locations! Advertising exists. Get over it. Now, read the final section if you dare.

Oh, For Christ’s Sake:

Buried on page 24 (of the 28 pages of legislation), about as deep as you are finding it in this article, (cheers if you have stuck with me thus far) by decree, you are no longer allowed to sell liquor in a sealed container on Christmas Day. This is absurd. Why was this provision added? Who benefits from this specifically added section? Perhaps it was a hand out to restaurants and brew-pubs? Is a restaurant allowed to sell a bottle of beer, or only draught beer? Or, is it only applicable to bottles to be consumed off the premises (another distinction for another day)? The legislation is unclear. If a store owner wishes to close their establishment on Christmas day, fine, lock the doors, it’s their decision. This does nothing except aggravate the end user. The people always get screwed.

Lastly, in a final paean to the SJW set, the following modification was made (edits verbatim in the legislation):

“Subject to subsections (9)(a)(I)(B)...a licensee may move his or her ITS permanent location to any other place in the same city…”

We’re talking about liquor stores, who give a crap? Eye roll. Whatever.

Conclusion:

Presciently, Clarence Darrow summed up the situation best in an American Mercury article from 1924 on Prohibition, with regards to the absurdity of trying to legislate every aspect of customary daily life:

“Most laws grow out of the habits and customs of the people. These customs grow into mores and are finally embodied in laws. Long before statutes are passed, the great mass of men have formed their attitudes and ways of living and the statutes are simply codifications of existing folkways. Now and then, however, this natural process is changed. Some active minority, moved by religious zeal, political intolerance or special interest, finds itself able to pass a law that has not originated like the others in the customs and habits of the people. Such laws are often extremely arrogant and oppressive; they violate the conscience, the practice and the beliefs of a large number of the citizens of the state.”

Mind you, this article was an analysis of just one piece of legislation on a very specific topic amid a veritable sea of laws and regulations surrounding the liquor industry writ large. State enforced laws and regulations are never ending, all-consuming and cover, nay, smother every industry and every aspect of life. There is no freedom in this legislative web in which we live. Every aspect of our lives is impacted by government manipulation, yet somehow it is always presented under the banner of freedom. So go ahead, since it’s that time of year, light those fireworks and celebrate.