Thursday, February 26, 2015

States Are Clamping Down on Illegal Alcohol Shipping

According to the software company ShipCompliant, the Illinois Liquor Control Commission (ILCC) announced at their board meeting last week that they have sent more than 100 cease and desist letters to retailers, wineries, and fulfillment houses. The letters state that the ILCC "has evidence that your business is transferring alcoholic liquor into Illinois from a point outside of Illinois without a license."

Letter recipients have five business days to respond if they believe they received the letter in error or would like to apply for the required license. The ILCC is threatening to notify the common carrier making the shipment about the non-compliance, which will result in a violation of the carrier agreement and potentially put shipments to all states at risk for that seller.

ShipCompliant reports that Iowa and Michigan are taking similar steps to compel compliance with state law regarding direct shipping.

Forty-three states now permit their citizens to receive shipments directly from producers, but only 14 permit direct shipment from out-of-state retailers.

Each state, of course, makes producers and retailers jump through different hoops, and that's why ShipCompliant puts out these reports. They want to attract attention to their product, an integrated software platform that handles all of the legal stuff on a state-by-state basis for producers and anyone else who wants to do booze business across state lines.

At this point direct shipping is mostly about wine, but every kind of beverage alcohol producer faces the same frustrations dealing with 50 very different jurisdictions. Probably the biggest shock for new producers -- whether they make wine, beer, or spirits -- is how much time they are forced to spend on regulatory compliance matters.

All of this regulation, over-regulation to some, is based on the premise that alcoholic beverages are a uniquely dangerous consumer product, evidently the most dangerous consumer product in existence, since it is the most highly regulated one. There is a good case to be made for 'normalizing' alcohol regulation, improving efficiency by making it better fit the need, but the first thing you would need to do is eliminate the 50-states solution, which probably would require a constitutional amendment since it was created by one, the 21st.

In addition to abiding all sorts of vested interests, alcohol regulation is politically charged. That's why virtually nothing has changed since 1933.


Chuck Cowdery said...

The 21st Amendment, which repealed Prohibition, also empowered the individual states to regulate alcohol in a way the Commerce Clause would otherwise prohibit.

tanstaafl2 said...

Although at the time of the 21st Amendment it was more a 48 state solution. Which doesn't make it any less annoying!

Long past time to change it but it doesn't ever seem likely to happen, especially if an constitutional amendment is needed to do it! States are far too entrenched in their own micro-mismanagement of alcohol policy to ever voluntarily give up control.

Anonymous said...

Not to nitpick Chuck but I think you mean that the 21st Amendment empowers states to regulate alcohol in a way that the Dormant Commerce Clause (not the Commerce Clause) would ordinarily prohibit. But See Granholm v Heald.

Chuck Cowdery said...

Granholm merely says that the 21st amendment only overrides the Commerce Clause (there is no DCC without the CC) when it's used to maintain an effective and uniform system for controlling liquor within the state by regulating its transportation, importation, and use.

"The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time."

Because of the 21st Amendment, we may have uniform regulation within each state, but anything but within the United States.

Anonymous said...

Chuck, perhaps this is another issue, but I have also been wondering for some time now: how is it possible for all the resellers (flippers) to resell alcohol (whisk(e)y in particular, in the US) online and ship it in without even a liquor license, and profit from it, all in an totally unregulated manner? Boggles the mind, if you consider how strictly alcohol sales is regulated in most states. Seems like correct regulation could actually solve part of (at least "the black market profit motive") the availability issues of some products

Chuck Cowdery said...

Secondary market transactions are definitely illegal and state regulators issue statements to that effect from time to time, but there is virtually no enforcement. You'll have to ask them why they make no attempt to stop those sorts of transactions, but they don't.

Funky Tape said...

So what you're saying is the answer to solving the "problem?" of illegal arbitrage in the secondary market is more gvmnt regulation, when the secondary market exists BECAUSE OF that regulation in the first place?

No, there is no problem. Its a natural consequence of state power and taxation. Note the correlation between the two over hundreds of years of free markets.

Its hilarious to think for even a second that any central governing power can make any market. If the state was really concerned about alcohol getting into the 'wrong hands' then they'd ban its production and consumption. Let's see, they tried that and it failed so miserably they caused the same thing that's happening now, not to mention the massive loss of tax dollars to the coffers at the Treasury.

What they've created in their unholy union with the distributors is a racket. The distributors are so incompetent and inefficient at meeting demand because of the laws that the state guarantees the failure of the primary market for these products. The solution, in all realty, is to axe the whole thing. But that's not going to happen cause the money is too good.

Anonymous said...

FunkyTape, you'll have to explain to me why the "secondary market exists because OF that regulation". To me, it seems that the secondary market exists because of supply issues, and demand outstripping the supply. The ability to profit, regardless of the risks (and probably because the lack of risk of regulatory intervention)on the secondary market is at least part of the problem. If you are fortunate enough purchase a limited release, why should you profit from reselling it when the manufacturer does not, and what license do you have to do so, alcohol being a moderately controlled substance? Yes, its regulated so the gvment profits, but in the wider analysis, they also provide standards for its mfg, marketing and sale that benefit the consumer, generally speaking and notwithstanding the TBB failing to uphold its duties. When I pay good money for a bottle, I'd like to be reasonably confident that I am not getting a product that's been tampered with or adulterated in some manner that's worse for me than the alcohol and wood residue desired.

Mark said...

As an Illinois resident who used to somewhat frequently order online this is incredibly annoying.

Doing this under the guise of morality (which many alcohol laws are) is a complete crock - alcoholism can still be well served by going and getting one of the many readily available 1.75L bottles of cheap vodka, with or without shipping laws. The only reasons to do it this way are 1) to maintain the relationship politicians have with the distributors, and 2) States haven't figured out how to tax online sales of anything that well.

It's really unfortunate because it ends up limiting consumer choice, promoting inefficiency and raising prices - Lagavulin 16, for instance is $100+ where I live. I ordered it online for $65. Now I'll just pick some up when I travel out of state because local distributors are allowed to gouge me on it.

Anonymous said...

Why not just post a link to the actual news article?

Anonymous said...

[What Mark said]...this issue has been a thorn in my side for some time. I live in a "control state" and there's little choice of the limited, high-quality stuff vs. the rotgut vodkas, gins, "brandies" etc. (some "distilled" an hour or so south of me) that are sold in bulk quantities to current and aspiring alcoholics here and make tons of $$$ in kickbacks from the ONE distributor to the state liquor board (I'm sure as shootin' this is going on). It's just a goddam shame - sorry for the language, but it makes me mad as hell! :-((