12 March 2023
Under current law, for a craft brewery to sell its beer at an offsite tasting room or taproom, it first has to sell it to a wholesaler … and then purchase it back at markup.
With average markup being somewhere between 25 and 38 percent, it’s no surprise wholesalers showed up in force to oppose a bill that would have removed them as a government-mandated middleman between a brewery and its taproom.
SB108, sponsored by Sen. Rochelle Nguyen (D-Las Vegas), would carve out a limited exception to the state’s “three-tier system” for alcohol sales — a regulatory structure that requires producers, distributors and retailers to remain separated from each other. If passed, the bill would allow craft breweries to move their product to their own off-site taprooms or tasting rooms without having to first sell it to a distributor or wholesaler.
Wyndee Forrest, head of the Nevada Craft Brewers Association and owner of Henderson-based CraftHaus Brewery, argues that the bill would provide relief for local producers that currently face unnecessary costs under the three-tier system when moving product between their locations.
“To get our beer to our Arts District location — which is eight miles away [from our brewery] — we submit a purchase order on Monday, the distributor comes in, picks it up from us on Tuesday, and then they deliver it to us on Thursday,” Forrest said. “And we pay about 36 to 38 percent more for our own product than we sold it to them on Monday.”
Wholesalers testifying against the bill on Wednesday disputed the markup amount — claiming it was closer to 25 percent. However, the bones of Forrest’s complaint seem quite reasonable, whatever the markup might actually be. Being forced to purchase their own product from a third party to sell at one of their own properties is a cost that seems wholly unnecessary for craft producers.
In fact, even if a brewery wanted to distribute its product at a festival or special event taking place on the street right outside of its main brewery, the state’s three-tier system would still require such a middleman transaction to occur.
And if that seems like an unreasonably pointless requirement, that’s probably because it is.
Of course, pointless regulations routinely have throngs of supporters — especially when such rules benefit specific corporate interests. Naturally, the wholesalers who currently profit from selling beer back to the very people who brewed it aren’t going to let go of such a government-mandated business model without a fight.
Sounding remarkably like lobbyists for buggy whip manufacturers upset about horseless carriages, alcohol wholesalers decried the bill as a “job killer.” However, the point of the three-tier system in Nevada is not to provide distributors with guaranteed jobs or sources of revenue. Ostensibly, it’s to stop a producer from running the market like a cartel by controlling all aspects of distribution and sale — a threat that is simply not posed by small craft breweries.
The three-tier system for alcohol sales is a relic from the pro-temperance movement of the 1930s — an attempt to regulate the alcohol industry and limit the influence of major alcohol producers following the repeal of Prohibition. By separating the manufacturing of alcohol from its distribution and sale, it was designed to prohibit vertical integration in the industry, reducing the regional influence many brands had enjoyed in the market pre-Prohibition.
Of course, it’s hard to see how anyone can call it a tremendous success, given the way large producers have since dominated and controlled the alcohol industry. After all, anyone familiar with brands like Anheuser-Busch understands market dominance isn’t exactly being kept in check by these rules from the early 20th century. Indeed, large national manufacturers have found ways to exert significant influence on wholesalers and retailers, creating similar cartel-like relationships that three-tier systems were supposedly designed to curb.
Instead, the three-tier system has largely acted as a barrier to entry for smaller brands and craft producers — making distribution a nightmare for small-batch startups that don’t have the capital or inventory to compete with deep-pocketed and well-connected national behemoths.
Attempting to help such producers get their products into the hands of thirsty Nevadans shouldn’t be a controversial issue — nor should anyone take seriously the idea that it would somehow result in massive layoffs among wholesalers.
After all, Nevada’s 51 craft breweries are estimated to account for a mere 3 percent of beer sold in the state, according to Forrest. If the survival of wholesalers is dependent on the fraction of those sales that are simple deliveries between breweries and off-site taprooms, there must be far deeper market challenges facing the industry than SB108.
But even if distributors were poised to take a substantial loss, alcohol regulations should be primarily concerned about ensuring consumer safety … not ensuring a revenue stream for any specific set of businesses in the supply chain. Maintaining the status quo merely because a major political campaign donor happens to feel threatened by it is nothing short of protectionism.
Sen. Nguyen’s bill is an extremely limited reform to a three-tier system that has disproportionately burdened local craft producers. Her reform would be a small, but powerful, commonsense step toward easing that burden on local producers who have struggled to expand in an otherwise beer-loving region of the country.
Besides, it might mean slightly cheaper craft brews at your local taproom — which is something many Nevadans would consider a real-world benefit.
Michael Schaus is a communications and branding expert based in Las Vegas, Nevada, and founder of Schaus Creative LLC — an agency dedicated to helping organizations, businesses and activists tell their story and motivate change. He has more than a decade of experience in public affairs commentary, having worked as a news director, columnist, political humorist, and most recently as the director of communications for a public policy think tank. Follow him at SchausCreative.com or on Twitter at @schausmichael.
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