Why Colorado's messy liquor laws make businesses happy
Some consider it the perfect model
Point a finger at 1933 and the 21st Amendment to the U.S. Constitution for the tangled mess of liquor laws in Colorado.
Yet, as imbibers who visit other states know, the Centennial State does not have the corner on the market for complicated liquor laws and distribution systems. Following the repeal of Prohibition, each of the states established customized liquor rules and regulations.
“It’s amazing how different the laws are. The states sort of set up their own fiefdoms, and over time, it’s grown depending on influences,” says Scott Van Ness, an instructor at the University of Colorado at Colorado Springs who specializes in supply chain management. “If you were to compare liquor to more efficient supply chains, it wouldn’t be very competitive. One thing that complicates it in Colorado is 3.2 (percent fermented malt beverages).”
Across America, the highly regulated liquor industry is generally dominated by a three-tier system that separates producers, wholesale distributors, and retailers of beer, wine and spirits. Van Ness says the supply chain is less effective in states such as Utah, with a more bureaucratic model of both 3.2 or lower alcohol beverages and state-run liquor stores.
Liquor commerce across state lines with the disparate laws makes multi-state distribution challenging, with some counties and cities scattered across the U.S. that are still “dry” or have mixed sales, Van Ness explains.
“Colorado is a perfect model in that it really protects the local industries, including local liquor stores and Colorado alcohol producers,” Van Ness says. “However, from an overall efficiency supply chain perspective, there are better economies of scale in some other states’ liquor distribution models.”
The quarrel to expand full-strength liquor sales into grocery and convenience stores has been debated in the Colorado legislature for years and is now brewing once again. Currently four other states – Utah, Kansas, Oklahoma and Minnesota – also have restricted sales that include 3.2 percent alcohol by weight.
John Carlson, executive director of the Colorado Brewers Guild trade association, passionately believes Colorado has the best and most “rational” liquor law model in the country. The proof, Carlson submits, is that Colorado is the land of opportunity for beer startups, with 314 brewers currently licensed.
“Colorado has provided crucial access to market for its brewers, vintners and distillers,” Carlson says. “A thriving industry has formed since 1979 unparalleled when compared to other states. Vital access to market is the No. 1 reason Colorado has become the state of craft beer.”
Doug Caskey, executive director of the Colorado Wine Industry Development Board, says Colorado liquor laws “are no weirder than anywhere else.” Caskey says with each state being so different, “it’s really impossible to compare apples to oranges.”
Some states have state-run or state-contracted stores for all liquor retail while some are just state-controlled for spirits. Still others do not allow sales on Sundays.
“We are very fortunate in Colorado to have an independent, privately owned business model at every level of the three-tier distribution system,” Caskey says. Colorado has 35 types of liquor licenses across the distribution chain, notes Patrick Maroney, director of the state’s Liquor Enforcement Division. The restriction of one retail liquor store license per individual or one retail liquor outlet per grocery chain in Colorado results in robust small-business ownership. As of Nov. 1, 2015, the state issued 13,428 Colorado liquor licenses including for out-of-state manufacturers and importers. Of those, 1,598 are retail liquor stores and 16 are liquor-licensed drug stores, Maroney says.
Maroney notes the Liquor Enforcement Division created a 25-member collaborative Liquor Industry Working Group in early 2014 that looks at rules and policies that could be implemented by the state division each year.
The last major change to Colorado liquor laws made by the Colorado General Assembly was the reversal of the blue law in July 2008 that had been in effect since Prohibition, restricting liquor sales on Sundays. Caskey stresses that any new significant modification to state liquor laws will only come via the work of a balanced coalition of alcohol-associated entities.
The competition for public opinion is underway. A coalition of locally owned and independent businesses called Keep Colorado Local (www.KeepCoLocal.com) opposes changes to the 3.2 laws standing with the Colorado Licensed Beverage Association and the Colorado Brewers Guild. The current citizen and business coalition on the other side, advocating for a free-market model with more consumer convenience, is Your Choice Colorado (www.YourChoiceColorado.org), represented by financial backers King Soopers, Walmart, Safeway and others. The group plans to push for a public ballot measure this fall, spokesman Matt Chandler says.
Jim Francis, director of the Beverage Business Institute at Colorado State University, points out Colorado is the largest overall beer producer in volume in the U.S. Francis remains impartial on the 3.2 issue, but he says consumers should do their research because “there is a lot of complexity behind any change in Colorado liquor laws that would impact distributors, small craft brewers and liquor stores.”