Thursday, March 22, 2018

Coming Soon, Whiskey at Walmart in Texas



The 21st Amendment to the Constitution, which repealed Prohibition, gave the states unusual authority to regulate alcohol as they see fit. Although in most ways U.S. law operates to create an 'open market' within the United States, it is different with alcohol. On top of complying with federal law, producers have to navigate through a confusing web of 50 state regulatory schemes. Chain retailers who sell alcohol (or want to) face similar challenges.

Because updating alcohol legislation is always fraught, most of these schemes have changed little since they were first put in place 85 years ago.

Peculiarities abound. In Indiana, only liquor stores can sell cold beer. In Utah, bartenders have to conceal their drink preparations from underage eyes. Some states still prohibit alcohol sales on Sunday.

In Texas, only individuals and privately-owned corporations can get retail licenses to sell distilled spirits. Publicly-owned corporations such as Walmart cannot. Texas is the only state that bars public corporations from selling liquor solely because of their status as public corporations.

That will change if the decision of a U.S. District Court sitting in Austin is upheld. It ruled that the public company ban and some other restrictions are unconstitutional. The decision, filed on Tuesday, won't go into effect until all appeals have been exhausted, or in 60 days, whichever comes first.

The defendants in the suit are the Texas Alcoholic Beverage Commission (TABC) and the Texas Package Stores Association (TPSA). The TPSA is the trade association of Texas package stores. It only accepts applications from package stores that are majority-owned by Texans.

As reported by ABC News, the CEO of the TPSA, Lance Lively, had this to say about the ruling: "The Texas Legislature put a system in place to ensure safe access to alcoholic beverages in Texas, and that system has worked for over 80 years. We will appeal the trial court's decision and continue to fight for family-owned liquor store owners against the world's largest corporate entities that seek to inflate their profits by upending sensible state laws that protect both consumers and small businesses."

In business, the only profits that are ever 'inflated' are the other guy's.

Consumers, of course, are expected to benefit from the competition Walmart and other national chain retailers will bring to the Texas market.

If you think this rule exists to keep liquor retailing a 'mom and pop' business, think again. Out of a total of 2,578 active package store permits issued by TABC, 574 are owned by a package store chain (meaning, a business holding six or more package store permits). There are now 21 such chains operating in the state. The largest, Spec�s, holds 158 permits. Since 1944, the chains have greatly increased their number of stores and volume of sales, even as the total number of package stores has stayed approximately the same. The four largest chains control about 60 percent of the market.

Is anybody in Texas crying because Specs and Gabriel's may have to compete with Walmart?

Walmart did not challenge the law that will require them to build separate liquor stores next to their existing stores. They already do this in other states that have the same requirement.

The decision describes a legal tug-of-war that has been going on since the early 1990s, in which the TPSA keeps trying to limit retail distilled spirits licenses to Texans only. That triggers what is known as the dormant Commerce Clause, which says that if Congress has the power to regulate commerce among the states, then the states lack the power to impede interstate commerce with their own regulations.

Because of the 21st Amendment, state liquor laws are a little bit different but they aren't that different. The court concluded that the sole purpose of the ban was to protect Texas package store owners from out-of-state competition, which is unconstitutional.

In its arguments, TPSA was really grasping at straws. They conceded that allowing in Walmart and other national chains would lower prices for consumers, then they argued that this is a bad thing because lower prices encourage more consumption leading to more liver disease, heart disease, strokes, and cancer, and numerous other social ills such as drinking and driving, child and spousal abuse, homicides, and suicides.

Yes, consumers, our high prices are actually good for you. (But we're not inflating our profits.)

Texans, unlike most people in most other states, are fiercely loyal to their in-state champions. Texans love all things Texas. I get that and I think it's beautiful, but you gave up some of your independence when you joined the United States in 1845, a decision I know some of you now regret.

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