Alcohol lobbyists have flooded Washington in the past three weeks to talk to lawmakers about the Community Alcohol Regulatory Effectiveness Act.
But while booze lobbyists usually agree on most issues -- fighting excise taxes, for example -- they were not all drinking from the same cup this time. There were the lobbyists for wholesalers who support the legislation, and then there were the lobbyists for producers who oppose it.
The CARE Act reinforces states’ rights to govern the distribution of alcohol, making it harder for the federal government to intervene with state laws. Wholesalers say the bill is simply a way of maintaining the status quo, which in their view is a good thing.
"The system we have now is the best system for the distribution of alcohol," said Mike Johnson, executive vice president of the National Beer Wholesalers Association. "CARE won't be changing laws on the books, it's simply a way to maintain an effectively regulated marketplace."
But producers counter that if it's status quo they want, then why not actually keep the status quo.
"The law will open up a vast number of loopholes that the wholesalers will be able to exploit to maintain and strengthen their dominance over alcohol distribution," said Cary Greene, the COO of Wine America, a group that represents hundreds of wineries around the country.
At stake is who has the right to regulate the distribution of alcohol -- states or the federal government. Beneath the legislative battle lies a professional, sometimes personal battle that has turned allies into adversaries and put drinking buddies on opposing sides of the bar. Producers feel they should have more control over how to distribute their product, while wholesalers believe the current system is in place for good reason and should be maintained.
The fight goes back to a 2005 Supreme Court ruling overturning a state law that discriminated against certain types of direct shipping. That case opened up what wholesalers consider a floodgate of lawsuits against anti-direct shipping legislation, and poses a threat to the three-tiered system (in which wholesalers are the only state-sanctioned distributors of alcohol) that exists now.
With groups like the NBWA and the Wine and Spirits Wholesalers of America are fighting hard to get the CARE Act passed, it has created a seam in a lobby used to working together on many issues.
“This has been a distraction, taking away from productive communication,” Greene said. “With wholesalers putting all their efforts into CARE, it’s taking away our ability to talk with them. I’d rather be having a constructive conversation about how to help distribute small brands, but they’ve sucked out all the oxygen in the room. It’s hard to talk with them at this point. They say it’s not personal, but it really feels that it is.”
The question at the heart of the CARE Act begins with the repeal of Prohibition in 1933. One of the first issues the country had to deal with was how to fairly distribute a now-legal product. When it was illegal, the alcohol industry was primarily run by the mob. So as a way to keep gangsters from running the game, the government set up a three-tiered system, by which the producer of alcohol had to sell to a wholesaler who was then tasked with selling to retailers and bars. This would keep anyone from having too much power, and provided a manageable way to regulate the product.
The fact is, no one is prepared to distribute alcohol like the wholesalers, and Premium Beer -- the biggest beer distribution company in Washington, D.C. -- is the perfect case in point. Premium's warehouse, a 125,000 square-foot city of bottle, can, and keg skyscrapers, is a model of efficiency. The warehouse holds more than 5 million bottles of beer and 1 million pints of draft beer. And, not only are they capable of sending out 20,000 cases of beer per day, they are also well-equipped to track their product in case of a problem.
And, in April 2008, a problem arose. Sam Adams issued a recall on some of its beer due to an issue with glass particles in bottles. Within a week, distributors, including Premium Beer, stormed grocery and liquor stores and were able to remove about 95 percent of the possibly-affected bottles. Within two weeks, they got at least 99 percent.
“We’re the only guys capable of getting those beers off the shelves,” said Charlie Harris, warehouse manager at Premium. “We have a traceable system and the people to go out and hand-inspect the product. I had my sales team out there going to supermarkets and liquor stores to make sure none of the recalled bottles got sold."
The response was so quick that few people remember the recall today.
“People are always saying they’ve never heard about the recall,” said Premium Marketing Vice President Jessica Muskey. “Well, there’s a reason for that. It’s because we didn’t allow it to become a problem.”
Even Jim Koch, the founder of Sam Adams, agreed, telling MSNBC shortly after the recall that “we could not have done what we did without the three-tier system -- no way, no how.”
To Mike Johnson of NBWA, CARE is simply a way to protect against attacks on the three-tier system.
“Alcohol is not soda, not blue jeans, not music online,” he said. “Alcohol is different.” Johnson says that there is no such thing as a free market for alcohol, pointing out that there are already many limits on its distribution, from age requirements to the fact that different states sell it at different times. To Johnson, CARE is the best way to maintain a system that he says has allowed for the “exponential growth” of the alcohol industry, and claims that it would hurt producers are unfounded.
Proponents of the bill, who also include the state alcohol regulators and alcohol watchdog group the Marin Institute, say they have the public on their side. A recent study from the Center for Alcohol Policy says that 77 percent of people support the right of individual states to set their own regulations surrounding the sale of alcohol.
But small brewers and other producers worry that without the ability to challenge state laws on a federal level, they may have a hard time making ends meet.
In writing the original bill, now-retired Rep. Bill Delahunt, D-Mass., said he was simply trying to maintain the system that had been in place for decades.
“Alcohol is a unique consumer product that requires effective legislation,” Delahunt wrote in a prepared statement for a judiciary hearing last fall. “Ultimately, this is about states’ rights -- it does not change any existing state’s laws, or reinstate any state’s laws that have already been invalidated.”
But even if the bill doesn’t change current laws, limiting the federal government in its power to regulate alcohol could allow states to impose expensive regulations. One particularly onerous possibility is that each state could require its own labeling requirements.
And it’s not just a hypothetical. The New York state legislature already passed a law that required beer sold in the state to have a unique universal product code. And while this particular law was struck down in federal court, it could have been enforced.
Rich Doyle, the president and founder of Harpoon Brewery, sells his beer in 25 states. He said that if he were required to have different labels by state, his company could go out of business because of prohibitive printing costs. Doyle said his company, like many breweries across the country, is not immune to the effects of costly legislation.
Sam Calagione, president of Dogfish Head Brewery, likens the battle with wholesalers to fighting a sibling. He said he knows he could never exist without wholesalers, and that it’s tough to be on opposing sides of the issue. Still, he said: “If I was getting into the business now and CARE was passed, it would dissuade me from being a distributing brewery. I might just have a brew pub in a town. Small breweries are just going to get overwhelmed trying to distribute in that environment.”
Mark Gorman, senior VP of the Distilled Spirits Council, a trade association of distilleries, called the bill "unnecessary and misguided" and "nothing more than an intra-industry feud that Congress should avoid like the plague.”