The Brothers Vilgalys & The Law (Part 2)

05
Dec
2011

Today marks the 78th anniversary of the repeal of Prohibition in the United States. It’s certainly a good occasion to raise a glass or two, and celebrate the American ability to sometimes back down from crazy ideas that don’t work.

At Brothers Vilgalys, we’re going to celebrate with a history lesson. We know you’re excited about that. We’re going to sit down for a drink with the ghost of prohibition and take a look at just how our seemingly bizarre set of alcohol regulations came to be the way they are.

In Part 1, we looked at the web of permits and approvals that stand between a business plan and actually making and selling some liquor. Needless to say, there’s a couple miles of red tape. The most significant difficulty facing a new distillery in North Carolina is the lack of any direct-to-consumer sales, an oversight that would be corrected by some pending legislation, NC Senate Bill 713. Obviously, this is a bill that would affect our eventual launch quite a bit.

But first, let’s back up a bit, to the days just before repeal. The ‘noble experiment’ was an obvious failure. It had absolutely failed to reduce drinking in the US, and had only driven the profits from booze away from legitimate taxable businesses and into the hands of criminals. At that, ordinary citizens routinely flouted the rule of law visiting speakeasies and supporting a booming trade of moonshiners. The government was missing out on tax revenue from alcohol, and spending even more money to try and stop its illicit trade. And to add to that, none of the social problems of poverty, alcoholism, crime, or domestic abuse had diminished — in fact they had only increased.

The only question then, was what would come next. And on that topic, there was very little public debate. Repeal was enacted, and regulation was left up to the individual states. This is the largest singular reason for why our alcohol laws are such a patchwork mess — each and every state is responsible for their own system of regulation, and every state more or less invented their own methods of control.

However one study was conducted, commissioned by John D. Rockefeller Jr. Rockefeller, himself a teetotaler, had been on the of the key proponents of prohibition. But his support had waned after seeing years of lawlessness and chaos, and now he was one of those leading the charge towards repeal. Rockefeller asked Raymond Fosdick and Albert Scott to come up with some kind of structure for “the self control and temperance as regards to the use of alcoholic beverages.”

The result was a tome known as Towards Liquor Control. This set in place the system used, in some way, but almost every state today. Well, except Missouri. But let’s be real, in Missouri you can distill your own alcohol, serve teenagers in restaurants, and drive with an open beer in the car. So pretty much anything goes there.

As for the rest of the country, we have either ‘control’ or ‘license’ states. In control states, of which North Carolina is a prime example, you have state-run control over the wholesale, and possibly also the retail, of spirits. Wine and beer are sometimes included, or excluded. Once again, see the part about every state being different.

In license states, you have what’s called a three-tier system. That is a mandated separation of producers of booze, wholesalers and distributors of booze, and retailers of booze. Any one party is prohibited from any kind of financial interest in another.

These regulations go back again to the cause for prohibition in the first place — the saloon. Saloons were pretty much the main reason we had prohibition in the first place. You had large producers of booze who would finance the saloons directly, then do anything possible to drive up sales, regardless of social consequences. Imagine if Wal-Mart was a chain of bars. Only along with low prices they offered hookers and free drinks. Then they hand you your car keys and tell you to drive as fast as you can so the cops don’t catch you driving drunk. That’s kind of what things were like, or at least it summarizes how most people felt about saloons in those days.

The main idea in the three-tier system was to protect the retailers. The tavern owners would no longer get bossed around by the big producers, who now had to work through independent regional distributors. And by removing the producers as creditors, the tavern owners would be responsible to the actual needs of their community rather than just trying to drive up sales to pay their way out of debt.

Of course, the big winner here were distributors. At one time they provided a convenient service for producers too small to distribute their own products, but now they are legally-enforced middle-men. Retailers need them to supply the booze, and producers need them to sell it. As the economy has grown, distributors have consolidated their power, and are now effectively the gatekeepers as to what kind of brands get sold where.

At Brothers Vilgalys, we’d really like to change that. We want to be a brand that connects to our consumers directly. That’s a big part of why NC Senate Bill 713 is so important to us, because that allows us to focus less on red tape and working through a good-ol-boys network, and more on the community of Durham and the rest of the triangle. This bill wouldn’t change everything, but in this modern economy, allowing us to sell our own product just makes more sense. We’re past the days of the Anti-Saloon League, and fear of the demon rum. We’re now in the era of the microbrew revolution, and thanks to recent reforms like Pop the Cap, we’re seeing a blooming of fantastic new libations made here in North Carolina. NC Senate Bill 713 offers a chance to bring the same kind of reforms to distillers, offering them a couple of the same advantages already granted to breweries and wineries. We hope to soon be joining this renaissance, and we also hope you’ll join us for the journey.