Should They Stay or Should They Go?

JurisdictionSouth Carolina,United States
CitationVol. 34 No. 6 Pg. 40
Publication year2023
Should They Stay Or Should They Go?[1]
No. Vol. 34 Issue 6 Pg. 40
South Carolina BAR Journal
May, 2023

An Examination Of Three Tier Laws In South Carolina

By Patrick A. McCabe [2]

For eighty-nine years, three tier laws - in which manufacturers, distributors and retailers of alcoholic beverages are separated into different levels and different ownership - have served as the basis of alcohol regulation in the United States. However, in 2021, Presidential Executive Order 14036 directed the United States Treasury Department to examine the "current market structure and conditions of competition, including an assessment of any threats to competition and barriers to new entrants..."[3], in the hopes of "[p]rotect[ing] the vibrancy of the American markets for beer, wine and spirits and to improve the market access for smaller, inde-2 pendent, and new operations . . ."[4]. o As part of this report, the Treasury g Department was instructed to specifically examine the following:

(i) Any unlawful trade practices in the beer, wine and spirits market, such as certain exclusionary, discriminatory, or anticompetitive distribution practices that hinder smaller and independent businesses or new entrants from distributing their products.

(ii) Patterns of consolidation and production, distribution, of retail beer, wine and spirits markets; and

(iii) Any unnecessary trade practice regulations of matters such as bottle sizes, permitting or labeling that may unnecessarily inhibit competition by increasing costs without serving any public health, informational, or tax purposes[5].

The Treasury Department's report, published on February 9, 2022, ultimately found that three-tier laws unfairly restricted competition and artificially inflate alcohol prices, and thereby served as a major obstacle to the growth of the alcohol industry. The report's conclusion strongly suggested that state legislators consider alternative methods of regulating the manufacturing, distribution and sale of alcohol as three-tier laws may be causing more harm than good. The intent of this article is to offer the reader some basic information on three-tier laws and examine their impact in South Carolina.

The Birth Of Three Tier Laws

Knowing the Eighteenth Amendment would eventually be repealed, John D. Rockefeller, a self-proclaimed teetotaler, commissioned a nonpartisan report to examine the practices and experiences of other countries in their efforts to regulate alcohol. He hoped that this report would be helpful in creating a template for alcohol May 2023 41 regulation in the United States. This report, entitled Toward Liquor Control, had four main proposals. The first proposal called for a system "by which the state government takes over, as a public monopoly, the retail sale, through its own stores, of the heavier alcoholic beverages for off premises con-sumption."[6] The report reasoned that a state-run system could meet "an unstimulated demand within the limits of conditions established solely in the interests of society."[7]Moreover, state run stores would not be tempted to chip away at alcohol statutes and regulations to increase profits. Acknowledging the problems that could arise under a state-run dispensary program, the report offered as an alternative a licensing system which called for the "creation of a single state licensing board, with statewide authority and responsibility, appointed by the governor and working through a well-paid, full-time managing director."[8] This board would be responsible for granting and revoking all alcohol licenses.

The second proposal called for stricter regulations on the sale of alcoholic liquors, but less regulations on lesser forms of alcohol such as beer and wine. The intent behind this was to gently lead people to consume beer and wine instead of the more potent alcoholic liquors.

The third proposal would require the states to create legislation to prevent vertical integration in alcohol sales. Rockefeller argued that the vertical integration of alcohol sales led to the creation of tied houses[9]. Tied houses were "establishments under contract to sell exclusively the product of one manufacturer" and were generally considered to be "a menace to society.. [that] must never be allowed to return...Behind its blinds, degradation and crime were fostered, and under its principal of stimulated sales poverty and drunkenness, big profits and political graft, found a secure foothold"8 9. The temperance movement argued that tied houses were directly responsible for men "squandering] money that could be used to support the family . and rendered[ing] the drunkard unfit for either work or family life"[10]. It was popular opinion that the owner of a tied house "knew nothing and cared nothing about the community. All he wanted was increased sales. He saw none of the abuses, and as a non-resident he was beyond social influence"[11]. The report indicated that ""˜[t]ied houses' should, therefore, be prohibited, and every opportunity for the evasion of this system, should if possible, be foreseen and blocked"[12].

The fourth and perhaps most important proposal was for the legislatures to ensure that any laws regarding alcohol should accurately reflect the desire of the citizenry; after all, "intelligent lawmaking rests on the knowledge or estimate of what will be obeyed. Law does not enforce itself"[13].

On December 5, 1933, state conventions in Pennsylvania, Ohio and Utah approved the adoption of the Twenty-First Amendment, providing the three-quarter majority needed to end the federal prohibition against the manufacturing, sale or shipping of alcohol in the United States[14]. Interestingly, South Carolina has the distinction of being one of only two states that rejected the adoption of the Twenty-First Amendment, with the other...

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