Eighty-four Years After the Twenty-first Amendment, Are North Carolina’s Liquor Laws Ready for the Twenty-first Century? | North Carolina | Indy Week

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Eighty-four Years After the Twenty-first Amendment, Are North Carolina’s Liquor Laws Ready for the Twenty-first Century?

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On a recent Friday night at Durham's Fullsteam Brewery, founder Sean Lilly Wilson is pointing to a color-coded menu, helping three customers on the opposite side of the bar decide what to order.

"I'm partial to this one," he says, recommending the Brumley Forest porter, "because we all went out and foraged these nuts to make this beer."

Fullsteam is packed with young couples, families, and dogs. And that's just how Wilson, who until recently was president of the N.C. Craft Brewers Guild, wants it. Before opening Fullsteam in 2010, he helped organize the Pop the Cap movement that in 2005 increased the limit on alcohol content in beers brewed and sold in North Carolina from 6 percent to 15 percent, part of a further-reaching effort to make the state's laws more brewery-friendly in order to foster the kind of community that has grown up around his Rigsbee Avenue business.

It's easy to tell here that North Carolina's craft beer scene is alive and well. Since Fullsteam opened, the number of breweries in the state has grown from 45 to 204, making North Carolina eleventh in the nation for beer production. Albeit with less clamor, the state's craft distilling industry has surged as well, from 13 establishments in 2013 to 46 now.

Some craft brewers and distillers, though, say the state's distribution laws are keeping their industries from reaching their full potential. Two bills currently in the General Assembly could change that by putting more leverage in the hands of alcohol producers. HB 500 would increase how much beer breweries can sell without bringing in an outside distributor; SB 155 would give distilleries more opportunities to directly sell liquor to customers. The debate over these bills pits North Carolina's Bible Belt roots against its more progressive metropolitan centers, entrenched political interests against the conservative cry for small government, and the way things were against the way things can be.

"It's economic development, it's innovation, it's tourism—it's all the things that North Carolina loves to celebrate," Wilson says. "But at the same time, it comes down to yet another battle between red state, blue city."

In 1908, North Carolina became the first state in the South to ban the sale of alcohol, eleven years before the Eighteenth Amendment was ratified, and it didn't give counties the option to allow liquor sales until two years after Prohibition ended. In fact, when the Twenty-first Amendment came before the states in 1933, North Carolina—along with South Carolina—refused to ratify it.

It was out of this post-Prohibition era that our current alcohol-control system originated. And like many octogenarians, it does not take kindly to change.

Like most states, North Carolina has a three-tier distribution system for beer sales. Producers and importers are the first tier, distributors the second, and retailers the third. North Carolina breweries that sell fewer than twenty-five thousand barrels of beer per year can get a wholesaler permit and distribute their own product. Once a brewery hits 25,001 barrels, though, it must sell all of its beer through a wholesaler and sign a distribution agreement giving that wholesaler exclusive rights to sell the product in a given territory. HB 500 seeks to raise the cap on self-distribution to two hundred thousand barrels per year, which state representative and bill sponsor Jon Hardister, R-Guilford, says is the middle ground among the fifteen states that allow limited self-distribution.

HB 500 marks the ninth attempt to raise the cap since it was set at twenty-five thousand in 2003. (Before that, it was ten thousand barrels.) With the support of a brewer-backed campaign called Craft Freedom and some suds-loving legislators, HB 500 appears to have momentum. The House Alcohol Beverage Control committee was expected to vote on the bill Wednesday morning.

When the cap was last raised, there were about twenty breweries and one hundred wholesalers to serve them, says Margo Metzger, executive director of the N.C. Craft Brewers Guild. Today, she estimates, there are about forty independent beer wholesalers that each markets about 980 products. For small breweries, this means competing with larger brands for a wholesaler's attention, and therefore tap and shelf space.

Wilson says the barrel cap is "always on my mind" as he projects his company's growth. Fullsteam, which is on track to brew about seven thousand barrels of beer this year, self-distributes and uses a wholesaler, both locally and in three other states.

"The more successful we are as a self-distribution brewery, the more we're actually going to need a wholesaler as well." Wilson says. "Even in our local market, we rely on a wholesaler to penetrate deep because we just don't have those relationships."

For those rallying to raise the cap, HB 500 is a free market issue—breweries should be allowed to decide if and when they want to hire a distributor, not be forced to retool successful business models to make sure the middle tier gets a cut. Indeed, the John Locke Foundation, Americans for Prosperity, and the Civitas Institute have all voiced support for raising the cap, if not eliminating it altogether.

Hardister, the House majority whip, argues that there should be no cap at all.

"Our laws are outdated," he says. "Obviously our laws are not completely terrible, because then there would be no growth in the industry. But there is potential to make these businesses more successful, and that involves getting the government out of the way."

Just three breweries in the state—NoDa Brewing Company, Olde Mecklenburg Brewery (both in Charlotte), and Red Oak Brewery in Whitsett—are pushing the current barrel cap. But given the industry's growth, that likely won't be the case for long.

"All you have to do is look at the curvature and the time it takes to change these different complex laws with a lot of entrenched interests to know that you have to be thinking about the future," Wilson says.

Durham Distillery co-owner Melissa Katrincic is talking excitedly, listing all the things SB 155 would let her do: hire another two or three retail employees, expand business hours, pay off debt twice as fast, maybe put money toward an expansion.

The bill would allow distilleries to directly sell to customers up to five bottles per person per year. Currently, the limit is one bottle per customer per year. That may not seem like much, but just two years ago, distilleries were barred from selling any bottles directly to customers. As Katrincic explains, SB 155 would allow Durham Distillery to not only expand its production and retail operation, but also experiment more with recipes and receive more feedback from customers.

According to Katrincic, about 70 percent of people who tour the distillery take a bottle home with them. Half would buy more than one if it were allowed.

"It's so hard for us to say, 'You bought that bottle nine months ago. Legally, I can't sell you another,'" she says.

Perhaps more important, SB 155 would subtly chip away at the near-monopoly the state has over liquor sales in North Carolina, one of seventeen control states in the country. Besides the one bottle per year you can buy at a distillery, all booze sales happen at ABC stores run by local governments.

"Senate Bill 155 would start to illustrate how restrictive that control state framework is," says Michael Boyer, managing attorney at Carolina Craft Legal, a firm that specializes in alcoholic beverage law.

SB 155 has plenty of cheerleaders outside of the distilling world, too. If it passes, another provision will allow cities and counties to permit restaurants to begin selling alcohol at ten a.m. on Sunday, as opposed to noon. (Groceries stores and other retailers would still have to wait.)

The state's current law on Sunday sales has been in effect since at least 1963, a remnant of so-called blue laws that set aside Sunday as a day of rest and worship. North Carolina briefly enacted a broader Sunday closing law in 1961, but it was struck down by the state Supreme Court the next year. Yet the Sunday alcohol sales law remained.

Ideally, says Hardister, who is sponsoring a companion bill in the House, there would be no restrictions on Sunday alcohol sales whatsoever. "People are allowed to make that decision as adults every other day of the week," he says.

Not everyone agrees.

There are two main fronts of opposition to HB 500 and SB 155. Both have an interest in maintaining the status quo. One is biblical, the other financial.

For Mark Creech, director of the Raleigh-based Christian Action League, HB 500 and SB 155 are very troubling. Sunday alcohol sales are disrespectful to churches, he wrote on the organization's website, and HB 500 would undermine a system that ensures checks and balances on a dangerous commodity.

Sean Lilly Wilson, founder of Fullsteam brewery - PHOTO BY BEN MCKEOWN
  • Photo By Ben McKeown
  • Sean Lilly Wilson, founder of Fullsteam brewery

Creech spoke against both bills during a committee hearing last week and detailed his opposition in a two-part article on the league's website titled "The Two Worst Pieces of Alcohol Legislation I've Seen in Nearly Twenty Years of Addressing Alcohol Policy."

"Both of these bills are very egregious," he wrote, "But the worst of the two, I believe, is HB 500. It must die or you can kiss alcohol public safety and health goodbye!"

Creech, who was not available for comment, seems to be carrying the torch for religious and public health objections to these bills. During last week's committee hearing, most comments on either side of the issue dealt with economics and consumer choice, not morality.

"There are social conservative forces at work at any kind of alcohol issue that comes before the General Assembly," says Metzger. "But they don't hold the sway they used to. The real challenge for changing these laws is they do have an effect on the wholesaler tier, and the wholesaler tier wants to hold on to their piece."

The N.C. Beer & Wine Wholesalers Association has come out against HB 500 for myriad reasons, but they all boil down to wholesalers not wanting to be cut out of a lucrative business: Raising the cap would harm the state's $1.9 billion distribution industry and the 3,939 employees who rely on it, the association says. It would allow beer industry giants to self-distribute, reduce consumer choices, and inundate an already-crowded craft beer market. And, the association suggests, many brewers aren't responsible enough to distribute their own beer. Last week, the association put out a memo arguing that 23 percent of brewers are not compliant on their taxes, so "it makes no sense to expand self-distribution."

At the committee hearing last week, Tim Kent, the wholesalers association's executive director, invoked an image of an Anheuser-Busch-run brewery self-distributing in North Carolina. He told supporters to "be careful what you ask for."

Sean Lilly Wilson, founder of Fullsteam brewery - PHOTO BY BEN MCKEOWN
  • Photo By Ben McKeown
  • Sean Lilly Wilson, founder of Fullsteam brewery

In a letter to the editor of the Rocky Mount Telegram last month, he argued that HB 500 is unconstitutional because it would "award a special privilege to in-state suppliers at the expense of out-of-state suppliers. ... Make no mistake about it—this is a Charlotte-driven legislative initiative designed to squeeze out competition in the Charlotte market. Their legislative initiative is unfair and anti-competitive." (Kent did not respond to the INDY's requests for comment.)

Wilson has gone toe-to-toe with the wholesalers association before. When he brought up raising the barrel cap during the Pop the Cap debate a decade ago, he was told that was "a no-fly zone."

"The thing I learned during Pop the Cap is that the issue is never the issue," he says. "It's about power, it's about authority, it's about who controls the messaging, and for many, many years, the wholesalers have been the voice of N.C. beer, and now they're learning to have to share the stage on that."

This article appeared in print with the headline "Control State."

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