Why Don't Wholesalers CARE About Four Loko?

For many years, beer and wine wholesalers have ardently defended states’ right to regulate alcoholic beverages. Their wholesalers’ associations–the National Beer Wholesalers Association and the Wine & Spirits Wholesalers of America–have written countless letters to the editor, op-eds, press releases, and appeared in the media pushing for the passage of a bill they helped to write, the Community Alcohol Regulatory Effectiveness (CARE) Act (H.R. 1161).

The wholesalers claim the law would prevent the federal government from usurping the right of states to regulate alcohol under powers granted to them by the 21^st Amendment, which repealed Prohibition and set up the three-tier system of producers, wholesalers, and retailers that persists to this day. The law would exempt alcoholic beverages from the Interstate Commerce Clause’s protection against states enacting laws that discriminate against out-of-state businesses.

In effect, the beer and wine wholesalers associations want the feds to leave alcohol regulation to the states. So, it’s puzzling that when federal agencies heavy-handedly try to regulate alcoholic energy drinks like Four Loko, there’s hasn’t been so much as a peep from the wholesalers.

If you haven’t been following CEI’s writing on the issue, Four Loko was a flavored malt beverage that contained 12 percent alcohol by volume as well as stimulants like caffeine, taurine, and guarana, and was sold in brightly colored 23.5-ounce cans. After a few college kids drank themselves into the hospital and blamed the alcoholic energy drink, Four Loko’s manufacturer, Phusion Projects, found itself at the heart of a media firestorm.

Parents, lawmakers, and state attorneys general (AGs) asked the FDA to ban the drink. While some states banned Four Loko, the federal agency merely sent threatening letter to Phusion and other companies selling drinks containing caffeine and alcohol. Eventually those companies, including Phusion Projects, caved in to the pressure and agreed to remove the stimulants from their formulas.

Yet, it wasn’t long after Four Loko, now caffeine-free, reappeared on shelves, that parents and lawmakers again found problems with the drink. This time, 34 state AGs are asking the Federal Trade Commission (FTC) to force Phusion Projects to reduce the alcohol content of its drinks.

That nanny-state regulators and some pushy parents are demanding the government stop everyone from having access to a product because of the irresponsibility of a few is not a surprise. What is surprising is that throughout the whole Four Loko scandal we haven’t heard from the national wholesalers. Not a letter to the editor, not an op-ed, not even a press release defending the wholesalers’ longstanding position–that states, not the federal government, has the authority to regulate the alcohol content of beverages.

Perhaps the reason the wholesalers lobby isn’t going to bat for Four Loko is because it only affects producers and not wholesalers. It doesn’t much affect their bottom line if the makers of alcoholic beverages are forced by federal agencies to alter the content or the label of their product. As my colleague Angela Logomasini recently wrote, “Beer wholesalers contend that alcohol legislation they are pushing on Capitol Hill would safeguard state and local rights–but in reality, it is designed to simply serve the wholesalers’ special interests.”

Their silence on this particular instance of the federal government “usurping” states’ right to regulate alcoholic beverages lays bare the truth behind the wholesalers’ motivation for supporting the CARE Act. It isn’t, as they claim, to defend community-based alcohol policies or to protect consumer safety, but to protect their cherished three-tier system, which recent court decisions threaten.

The three-tier system of alcohol distribution mandates that producers of alcohol–vineyards, brewers, and distillers–must sell their product to wholesalers who then sell to retailers–stores, restaurants, and bars. That mandate, in place in most states since the end of Prohibition, has made the distributors very powerful.

However, as consumers become have become accustomed to buying all manner of products online, they are beginning to demand the same for their alcoholic beverages. This direct shipping of alcohol, in particular wine, cuts the wholesalers out of the deal–something they are desperately trying to curtail.

Unfortunately for the wholesalers, the Supreme Court dealt a major blow to the mandatory three-tier system in 2005 when it ruled, in Granholm v. Heald, that laws in New York and Michigan that allowed in-state wineries to ship directly to consumers, and banned out-of-state wineries from doing the same, were unconstitutional under the Interstate Commerce Clause. As a result, many states chose to open their markets to direct shipping from out-of-state producers.

Clearly, the CARE Act has nothing to do with protecting consumers or the Constitution and everything to do with protecting the wholesalers’ stranglehold on the alcohol market.

Michelle Minton is director of insurance studies for the Competitive Enterprise Institute.