Introduction
North Carolina was once the nation’s leader in wine production and distilleries, legal industries killed off by state prohibition in 1908. In 1937, in response to the end of federal Prohibition, North Carolina policymakers chose separate paths for sales of different types of alcoholic beverages. For beer and wine, North Carolina became a “license” state, letting the distribution and retail sales be handled by private ventures with permits from the state Alcoholic Beverage Control (ABC) Commission.
For liquor, however, North Carolina became a “control” state. The state exerts total government control over liquor distribution and sales. Only 16 other states are control states, but North Carolina is different even from them. North Carolina is the only state with local government control over liquor sales, which is done through 170 different ABC boards operating 433 different ABC stores.
Look at all the layers of control in North Carolina. Before a distiller’s product can reach a consumer, it must first be approved by the ABC Commission, then find storage in the ABC warehouse, then be ordered by a local ABC board, and then be offered for sale by that board’s ABC store at the price set by the ABC Commission.
As a government monopoly, North Carolina’s ABC system seeks to maximize revenues and minimize choice and competition. Advocates for the ABC system are quick to point to its over $1 billion in sales and talk about its government revenue transfers. But most of the sales revenue covers business expenses. In 2018 only 38 percent went to government purposes. Importantly, state government revenue from liquor sales is already built in by taxes and surcharges in state law. They don’t depend on whether North Carolina is a strict control state with an ABC system or a license state.
In 2019 the North Carolina General Assembly loosened state restrictions on alcohol in several ways. Among other things, distillers were allowed to hold tastings at ABC stores, receive ABC permits to sell beer, wine, and mixed drinks on premises, sell bottles to distillery visitors without limit, and self-distribute to mixed-beverage permittees and out-of-state consumers. In a major compromise, craft breweries were given much greater freedom to self-distribute.
Other state restrictions remain. For example, taverns, bars, etc. cannot offer “happy hours” or “ladies nights” promotions or a variety of drink specials other states allow. Tastings at distilleries are still strictly limited. Distilleries can’t sell bottles at farmers markets or state fairs, and distilleries can’t hold for-profit events or sell bottles or drinks offsite.
Key Facts
- Under the lighter regulatory regime for beer and wine, North Carolina sees thriving industries bringing pride to their communities, with over 300 breweries and 168 wineries at the close of 2018. With North Carolina’s strict control over liquor, however, there were only 63 active distilleries.
- Advocates for keeping the ABC system speculate that, without it, North Carolina would see a spike in teenage drinking, teenage binge drinking, DUIs, and alcohol-related deaths, which would create havoc for Alcohol Law Enforcement (ALE) and local law enforcement. Research and further consideration suggest those fears, while understandable, are overblown.
- Research finds no significant differences between control and license states with respect to the negative outcomes mentioned above. Meanwhile, sales of bottles of liquor for off-premise consumption (sales at ABC stores) are a small subset of alcohol consumption in North Carolina, dwarfed by sales of beer and wine for on- or off-premise consumption and also liquor-by-the-drink sales at restaurants, bars, clubs, etc.
Recommendations
- Make North Carolina a license state in liquor sales, as it is with beer and wine. Dissolve the ABC boards, sell the ABC stores, divest the state of the ABC warehouse, and free distillers from the ABC Commission dictating an approved products list and statewide prices.
- Continue to remove anticompetitive restrictions and overregulation of the alcohol industry. Consumers, distillers, brewers, vintners, cideries, private retailers, future entrepreneurs, local job-seekers, and local communities would all benefit from relaxing unnecessary alcohol restrictions in North Carolina.
- Tax cider at the same rate as beer. There are now at least 28 cideries in the state, mostly in western North Carolina and most supported by apples from Henderson County, the seventh-most productive county for apples in the U.S. The state’s definition of cider, however, is stricter than the federal government’s, and the state taxes cider like unfortified wine instead of beer. Taxing cider like beer would result in a 38 percent tax cut. Matching the state’s definition of cider to the federal government’s definition would remove uncertainty from cider production and allow that natural industry to grow faster.
