WHY YOU SHOULD CARE ABOUT INDIANA’S PROBLEMATIC BEER REGULATIONS – PART 2 OF 4.

During Prohibition, booze flowed through unregulated channels and gangsters ruled the roost. In light of that, and some pre-Prohibition concerns, States were eager to adopt regulations that made sure all alcohol flowing into a State was taxed and that organized crime couldn't take control.
During Prohibition, booze flowed through unregulated channels and gangsters ruled the roost. In light of that, and other pre-Prohibition concerns, States were eager to adopt regulations that made sure all alcohol flowing into a State was taxed and that organized crime couldn’t take control.

Back to our regularly-scheduled programming. In our last content post, we promised an exploration of problems with protectionist legislation. In other words, laws that help in-staters while hurting out-of-staters, and why it’s no good for the brewing industry at large. Before getting there, though, today’s part of the discussion involves state concerns leading up to Prohibition, the problems that were still rampant during Prohibition, and how states dealt with it all after Prohibition (including implementing that three-tier distribution system we all know and don’t necessarily love). This is a general post, but you can find much more background in sections I–II here of Brewing Tension: The Constitutionality of Indiana’s Sunday Beer-Carryout Laws.

So, starting Pre-Pro. We didn’t have the Twenty-first Amendment yet (or, of course, that nasty Eighteenth, either). What we did have was the Commerce Clause. We know now that the Commerce Clause lets Congress regulate the instrumentalities and channels of interstate commerce as well as things that, in aggregate, are economic in nature and have an effect on interstate commerce. Well and good. Related to the commerce clause, however, is what’s been dubbed the “Dormant Commerce Clause.” That is, states can regulate things that Congress hasn’t but, in so doing, can’t discriminate against out-of-staters unless Congress says they can. This makes sense. It seems our Framers wanted us to live in the United States, and not a series of little countries that withheld their goods/services/resources or penalized other states for so doing. Anyway. The tricky part is that the Supreme Court has flipped back and forth in deciding whether alcohol is a “special” item exempt from Commerce Clause treatment. Could Washington, if it wanted, forbid out-of-state alcohol from being shipped in state while allowing full-blown production in state? Different answers, depending on the decade you ask the question.

So, go back to Pre-Pro. In 1847 in a series of cases known as The License Cases, the Supreme Court said, hey, alcohol is different and states were free from the restrictions of the Commerce Clause. But then in 1890, in Leisy v. Hardin, the Court struck down an Iowa law that confiscated alcohol shipped into Iowa if the alcohol lacked a proper permit. SCOTUS said that Congress was in charge of regulating interstate commerce, and if Congress hadn’t spoken, then states couldn’t. In response to this, Congress spoke, and passed the Wilson Act then eventually the Webb-Kenyon Act. The net effect of these acts was to basically give back to states the power to do whatever they wanted with respect to alcohol, whether discriminatory against out-of-staters or not.

Then, along came Prohibition. Everyone was “dry” on paper, but we all know about those zany flappers, the speakeasies, the booze that abounded underground. What States really didn’t like, though, was all the crime that went along with it. You had illegal distribution channels, and people like Al Capone vying for territory. No doubt about it, gangsters make for good movies, but States were not a fan. So, imagine the prospect of the Twenty-first Amendment from a State perspective. For years, alcohol was moving all over in ways that the State had zero control over. That booze was not being taxed. So, all of those underground trade networks out there stressed out states because, if they had to deal with grog, at least they could make some coin off of the whole situation. Apart from that, States were really worried about people drinking all the time. Like, all the time. Imagine seeing your people over-indulging with cheap whiskey, then heading off to the factory to operate heavy-duty machinery during the Industrial Revolution. Not a pretty combination, and one altogether too close in memory for State leadership now facing Post-Pro regulatory framework.

Another historic fun fact. You might have heard the term “Tied-house” thrown around. What’s that about? Well, back Pre-Prohibition the breweries figured out that rather than fight it out for tap share at every tavern in town, they could just open up their own tavern. They did, in droves, and some historians regale us with the consequences of all of that. You can imagine if a big out-of-town brewery opens up a tavern in a smaller town, then another big brewery does, then another, there’s not enough booze business to go around (or, if there is, the woman of the day were not fans). Consequently, some of those taverns turned to other forms of income, namely, entertainment of the illegal variety. States did not want to see this happen Post-Pro and they were also fearful that behemoth beverage producers would have so much cash, if they had tied-houses, they would be able to make all kinds of glitzy advertisements and everyone in town would be compelled to drink. Sort of a cute concern, when you think back.

At any rate, States were facing all of these competing concerns, with the realization that if they didn’t deal with it, they’d be back fighting all of the uglies they felt alcohol necessarily brought with it. The Twenty-first Amendment is on the horizon. What’d they do? States adopted the three-tier distribution system, and that’s what we’ll talk more about next time.

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