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  home - beer news - 3.2 Beer Legislation Part I  
by Mike Laur
with additional reporting by Carol White
2/18/09
(Editor’s Note: Legislation introduced at the Colorado Statehouse - House Bill 09-1192 - proposes to eliminate 3.2 from your grocer’s shelves, and replace it with “full beer”. Sounds like a good idea, right - Sam Adams at Loaf ‘N Jug? But the bill’s unintended consequences could drastically alter more than just beer coolers. Grocers say, “It’s about damn time for this.” Liquor retailers say, “If they can sell beer, how come we can’t sell a bag of chips?” And brewers say “You’re not just killing 3.2 beer - you’re gonna kill us too.” The BDG2C spoke with dozens of people - all with with substantial stakes in HB 1192 - to get their take. This is the first part of our story. Read Part II here.)

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3.2 beer is a freak child of the beer family, born of the sordid, back-door relationship between politics and moral flip-flopping that defined Depression-era America in 1933. Vital in its early years, and popular through middle life, “three-two” has not aged well. Today it struggles to survive, and lives on as an anachronism - it’s sold in less than a handful of states, and generally scorned and disdained by almost all beer lovers. Once the toast of the town, 3.2 has seen better days. It’s future is bleak.

If Colorado legislators have their way, 3.2 beer will be killed by legal inflection, and our love affair with it will be but a memory ...

In times past, mere 18-year-olds could buy 3.2 beer in Colorado, and they often drank it with gusto as a sort of “practice” brew that promised access to the real stuff at age 21. Clubs that served 3.2 beer were wildly popular from Durango to Greeley and all points in between, where college students perfected their drinking skills. But in 1987, in deference to the Feds, Colorado lawmakers upped the age requirements for 3.2 beer sales to 21 in order to keep getting highway tax funds that would have otherwise been given to more righteous and morally pure states like Illinois and New York. Today, no matter what the alcohol content and where you are, you gotta be 21 to buy beer in the United States of America.

So why has 3.2 beer survived? Who keeps this product alive?

You have to rewind to 1933 to uncover government’s first love affair with 3.2 beer. Back then, people thought 3.2 was the cat’s pajamas. The Volstead Act had kept a tightly-sealed cap on beer bottles since 1919. Think about it: No Booze. Well, not Legal Booze - speakeasies and bootleggers kept everybody’s whistle wet, wink-wink nudge-nudge. It was said that if you couldn’t find a drink, you weren’t looking hard enough. Congress was casting a lustful eye on all that booze selling in the black market, and recognized a river of uncollected taxes that they were eager to siphon.

Curiously, beer manufacturing was permitted during Prohibition, but only on condition that brewers reduce the alcoholic content to 0.5 percent for legal sale and distribution. Near Beer - 3.2 beer’s older bastard brother - was born. Intoxicating Liquor was defined as anything that contained over 0.5% alcohol - keep it “non-intoxicating”, and you could brew whatever you wanted. Malted milk, tea, coffee, carbonated soft drinks - anything other than Real Beer. Most established breweries at the time did one of three things: roll over and die, retool and distribute other products, or make “non-intoxicating” near-beer and hope prevailing opinion would change in favor of them and their friends, Johnny Walker and Jim Beam.

Congress voted to repeal Prohibition in February, 1933, but it would take many months for the necessary 3/4 of the states to ratify the new amendment to the old amendment and make it all Constitutionally kosher. “We’re thirsty, and want a drink now!” cried America. So, at President Franklin Roosevelt’s urging (he had campaigned with a promise to repeal Prohibition), Congress drafted a new twist to the Volstead act that didn’t require Constitutional amending and that pesky approval by 3/4 of the states. “Intoxicating” was simply redefined, from 0.5% alcohol by weight to 3.2% ABW. Gotta love the political process, huh? Twist the words a little bit, and you change history...

Roosevelt, pen in hand, proclaimed, "I think this would be a good time for a beer,” as he signed the Cullen-Harrison act into law on March 23, and it was slated to go into effect on April 7. The countdown began for New Beer’s Day.

At the stroke of midnight local time, all across America, brewers began delivering thousands of barrels of 3.2 beer to bars, taverns, churches and clubs. Anywhere people could gather together and celebrate the effective end of Prohibition, they did. And they did it with a 3.2 beer in hand. Prohibition was not yet officially over - it remained the law of the republic until December 5, 1933, when Amendment 21 was finally ratified by the 36th state. But 3.2 beer was, for the time being, the one beer to have, and happy hour was happy again.

Even with the re-sanctioning of real beer, wine, and liquor in late 1933 - and the attendant flow of attached tax dollars into government coffers - 3.2 beer thrived. Congress, while keeping a cut of the pie for Uncle Sam, granted states the right to regulate alcohol sales. Some states simply said to it’s citizens, “Sorry, no booze here. We legislators know more than you do, we like Prohibition, and you will, too.” Other states allowed only for the sale of 3.2 beer, while still others threw open their doors to licensed sales of anything they could slap a tax label on.

It’s important to realize that the sale of alcohol is still a highly regulated, government-controlled enterprise in every US state. National, state and local laws have created a bizarre set of different rules and regulations throughout the land. Take extra pity on yourself if you get stuck in Plainview, Texas during a blizzard. Hale County, like 50 other Texas counties, is still dry today. You’d better BYOB. The whole state of Mississippi was dry until 1966, when they flip-flopped and decided they liked the business of selling alcohol so much, they opened up a few of their own state-run liquor stores. “We serve all kinds of beer - Bud and Miller both.”

In Colorado, 3.2 beer has been officially proscribed in liquor codes since the end of Prohibition. In 1935, state law spelled out the difference between “non-intoxicating” 3.2 beer and everything else, and codified the three-tier system of distribution that survives today (more on that in a moment). Liquor stores - privately owned, with only one license allowed per person - were prevented from selling food items and anything else other than alcohol (don’t get us started on this
one!), and grocers could not sell alcohol, except for 3.2 beer. The laws don’t call it “non-intoxicating” anymore.

Coloradans have learned to live with 3.2, if not actually enjoy it.

In fact, many businesses have thrived on it. Since the law prevents almost all grocery stores from selling “full beer” (as a new
bill snaking its way through the Colorado legislature now wants to call it), many an entrepreneur has realized the potential to sell high-quality beer, wine and spirits in well-stocked stores located adjacent to busy grocery stores. It’s almost a given wherever you go in Colorado: find a grocery store, and you’ll likely find a liquor store nearby, like white keys next to black ones on a piano.

In case you hadn’t noticed, a few Colorado grocery stores already sell “full beer”, wine and liquor. They aren’t getting some special consideration. Like every other purveyor of alcohol, they, too, strictly follow the Colorado liquor code which allows one grocery store (pharmacy attached, please) in a chain or corporate group to sell booze within the state. The law is explicit about this. An individual or group may only be permitted ONE LICENSE to sell liquor. One license, one location. That’s why we don’t have chains of liquor stores like Sudsy’s Drive-Thru Liquor Barn here in Colorado.

Rewind again to 1933, when America was still hung over from New Beer’s Day. The three-tier system was established - and still exists today - to control distribution of alcohol, collect taxes, and thereby inhibit the shenanigans of bootleggers and organized crime. IRS Training Document 3147-112 sums it up well: “The first tier is the manufacturer, the second tier is the distributor or wholesaler, and the third tier is the retailer. The manufacturer sells or grants licenses based on different criteria. The manufacturer may or may not be located in the state. Each state controls what products may be brought into its borders. The distributor or wholesaler sells and distributes the products to the retailers.”

Colorado adheres to the classic three-tier system. But there’s a unique regulatory twist to it here that means a lot to brewers and beer lovers alike. In language spelled out in C. C. R. 203-2, Section 12-46-103 (5), Section 12-47-415, and other sections you can
read for yourself, a brewpub may sell directly “at wholesale to licensed retailers in an amount up to three hundred thousand gallons per calendar year.”

This regulated end-around of the traditional three-tier system opens up the option for small brewers to “sell direct”. They are entitled by law to sell beer not only by glass and growler to their walk-in trade, but also to restaurants, retail liquor stores, and - if they choose to make 3.2 beer - even grocers and convenience stores. Dozens of Colorado craft brewers have been thus nurtured and allowed to grow, and the law provides the incentive and a half-million six-packs per year worth of motivation to encourage them. Here, they can enter and develop a market that is closed off to brewers in many
other states.

Without this ability to sell directly to retailers, brewers such as Del Norte, Arctic, Odell, Twisted Pine, Ska and many others would have never made it into your favorite liquor store cooler. Since they are licensed to sell and deliver to individual liquor stores, brewers can make enough money bypassing the middle-man tier to pay for the cost of craft beer production, packaging and self-distribution, and hopefully come out ahead.

Most interestingly, a small craft brewer like Durango Brewing and a megaproducer like MillerCoors actually do compete head-to-head for cooler space in many Colorado retail liquor stores. Brewers can start small, perfect their craft, make good beer, sell it in a couple of local stores, make more good beer, sell it in a few more stores, etc. Since each liquor store is independently owned, it truly levels the playing field for brewers of all sizes. Each and every retail business is its own sales universe, and if one store doesn’t want to sell your product, maybe the next one will.

We, as craft beer lovers who buy and appreciate Colorado craft beer, are the beneficiaries of this unique confluence of regulation and entrepreneurship. Colorado beer is stocked in every liquor store in the state. While there is no law that says you have to run a well-stocked liquor store with friendly, knowledgeable, beer-loving staff, and plenty of Colorado craft beer, we as consumers know what we like. We like selection, service, reasonable hours, and of course a low, low price on all our beer. We like to believe, too, that in a “free market”, the good businesses prosper and the crappy ones - and crappy beer - go away.

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Speaking of crappy beer, who buys all this 3.2 stuff? Well, Mr. Beer Snob and Ms. Craft Beer Geek, you do.

Guinness Stout, a brilliantly-smooth, dark, tasty beer quaffed for generations, is (you may want to sit down for this) 3.2 ABW beer. Really. And they don’t add de-oxygenated water to it, or use de-sugared malt, or perform any other secret-sauce alteration like some other brewers do to dumb it down. It’s just naturally 3.2% alcohol by weight beer. In fact, go into a Colorado grocery store to buy beer - go ahead, it’s okay - and you’ll see plenty of beer variety.

You, naturally, got yer Bud-BudLight, Coors-CoorsLight, Miller-MillerLight, etc. These three make up about 80% of the total market of all beers in the US. But you’ll also find imports like Corona and Heineken, and (I told you to sit down) craft beers from many parts of the US, including (sitting down yet?) Colorado.

Breckenridge Brewing, Boulder Beer, Tommyknocker and a few other Colorado craft brewers make and distribute 3.2 beer. 3.2 Boulder Beer has been in coolers since 1996. This being Colorado, many beer buyers look for unique, local beers wherever they shop. A smart brewer sees a business opportunity in 3.2 beer sales, and can strive to fill the market need. Estes Park brewing made a 3.2 beer for a while, just for sale on Sundays, but couldn’t justify the extra expense of such a niche product and stopped brewing it.

Obviously there is a market for all this 3.2 beer, or no one would be making it and selling it. Up until July 2008, grocery and convenience stores had an exclusive market monopoly on Sunday beer sales in Colorado, and it was all 3.2. Last summer, though - as any Colorado beer drinker will happily tell you - liquor stores got the “go” from Laura Harris and her crew at Colorado Liquor Enforcement to unlock their doors on Sunday. No more runs to Loaf ‘N Jug to pick up a twelve-pack for the Broncos game... unless you want chips and dip with your beer. For that you HAVE to go someplace other than a liquor store.

The convenience store trade lobby today laments the loss of their monopoly on Sunday beer sales. Predictably, they trot out their own statistics to show how much income they’ve lost, how many people they’ve had to fire and put out on the streets, how desperate their situation has become because liquor stores are open on Sunday and nobody’s buying 3.2 beer.

(While tax collections on 3.2 beer were up slightly from 2005 to 2008, Colorado DOR doesn’t have statistics on 3.2 tax collection since July 2008, which is the start of the fiscal year. Since sales of everything is way down, it makes perfect sense that sales of 3.2 beer would be down, too, Sunday sales or no Sunday sales.)

So the grocery and convenience store lobby is looking for relief from the legislature. House Bill 09-1192 takes aim at 3.2 beer, and proclaims “that the economic viability of a business selling only low-alcohol-content beer no longer exists in Colorado”. The proposed bill pulls the old Cullen-Harrison gambit out of retirement, and aims to redefine “3.2” as “full beer” in the beer and liquor codes, and grant the right to sell all kinds of beer to grocery and convenience store owners. Importantly, the bill does not give grocers the right to sell wine or liquor - just “full beer” (whatever that is - does Sam Adams Utopia qualify?) A similar bill is running through the Kansas legislature, too.

The push to kill 3.2 beer is not new. It goes back decades, and it’s always been a bloody battle, Selling beer, wine and spirits in grocery stores has been advocated in Colorado by industry groups such as the Distilled Spirits Council of the United States, Rocky Mountain Food Industry Association, and the Colorado/Wyoming Petroleum Marketers Association. You can buy beer - and wine, too - at grocery stores in over 30 other states, and many argue that Colorado consumers would be well-served by having that choice, too.

As you may imagine, there are many opinions about 1192, and no clear consensus. Brewers, liquor store owners, consumers, grocers - it seems like everybody has a stake in this law. You, Dear Reader and Colorado Beer Drinker, may have the greatest stake of all.

You might think that just changing a little, old definition and letting Safeway sell Sierra Nevada is a good thing, but you would be wrong.

HB 1192 is a short-sighted, incomplete, injurious, politics-as-usual attempt at benefiting a well-lobbied few. It does not address complex one-person-one-store licensing laws, store location issues, and all the other myriad beer and liquor regulations that will be thrown into chaos by its inadequacy. It is a bad law for what it leaves out as much as for what it contains.

It’s one-sided and clearly aims to benefit a well-organized special interest. “But hey, it’s looking out for me - the consumer.” No, it is not. It’s looking out for the grocery and convenience store industry. Consumers will be hurt. And it will completely change the landscape of craft beer sales and production in Colorado.

Liquor store owners are not especially keen on the proposal. Many say, “Bring it on - we’ll be happy to compete with you, King Stupors.” They know that superior service and selection will distinguish their stores from any grocery store. Some fear that grocers will use their superior bulk-buying firepower (that individually-owned liquor stores don’t have) to drive prices down and try to run them out of business. Many store owners see the proposal as the classic camel’s-nose-under-the-tent ploy for the grocer’s next requests: for wine sales, then liquor sales. “Hey, at least give us a fighting chance by giving us the right to sell food in our stores”, say the liquor store owners.

HB 1192 only addresses the desires of the chain grocers and convenience stores, and does not help the small business liquor store owner in Colorado.

Most Colorado brewers say that they will be hurt, and if the law passes many will be hurt. It will fundamentally alter the regulatory craft beer petri dish that spawned the vibrant craft brewing scene here in the first place. The one-store, one-sale model of beer wholesaling, as imperfect and tedious as it is, provides a level playing field for brewers of any size to enter and thrive in the marketplace. Changing the laws to favor centralized out-of-state buyers and massive-scale beer manufacturing will not benefit small, local brewers. HB 1192 will force them to compete in a market where there is no level playing field. They, too, fear that they will get run out of business.

The state already supports the wine industry in many ways. Some brewers suggest opening up sales opportunities for Colorado brewers (and their thousands of tax-paying employees) by requiring grocers and convenience store owners, new to the “full beer” scene, to sell a certain amount of local, Colorado craft beer. In these tough economic times, isn’t it wise to give a little boost to the home team?

But HB 1192 doesn’t support - or say a word about - Colorado brewers, either. It’s a shame, too.

The grocery and convenience stores are the ones vocally and enthusiastically supporting 1192. It’s been specifically written just for their special interest. The bill is charged with emotional stabs at the “economic hardship” allegedly “suffered” by 3.2 retailers. Grocers and convenience store owners argue that when they get the right to sell “full beer” in their stores, all will be well. Sales will go back up, and they can re-hire the employees they had to lay off because of tanked Sunday sales. Grocers claim, “We’re only watching out for the consumer. You can buy beer in California grocery stores, and it’s time Colorado entered the 21st century.”

But to us, these arguments don’t hold up. Consumers ALREADY have the choice to buy beer in grocery stores, and they do. Sure, its’ 3.2 beer, but who’s holding a gun to the grocer’s store telling them sell anything? Hey, if nobody is buying 3.2 beer anymore - Sunday or any other day - then why sell it? Why are grocers and convenience stores keeping 3.2 beer on their shelves if it’s “not economically viable”?

Unlike liquor stores, the law doesn’t prevent grocers from putting other products in their coolers that make more money. Ponder this for a moment: grocers’ shelves may be the most-studied and most-intensely analyzed patch of real estate in the world. Billions of dollars are spent every year establishing the value of every inch of every store shelf and then selling it to the highest bidder. Grocers seem to have enough sense to replace the Halloween candy with cans of cranberry sauce on about November 3 every year. Are they really sucking that bad with 3.2 beer?

And why are they stopping at just beer? If HB 1192 is trying to make the world so rosy for the consumer, then why not include wine and liquor in this proposal? We’re all consumers, and we can already buy beer in a grocery store. Survey after survey concludes that consumers want wine and liquor in grocery stores, too, and HB 1192 does not serve the consumer.

HB 1192 benefits the grocer and convenience store, pure and simple.

We say: HB 1192 is the wrong law at the wrong time for the wrong reasons. It will upset the balance of regulation and entrepreneurship that has allowed Colorado craft brewers to flourish through the years. It doesn’t go nearly far enough in addressing collateral regulatory issues. It is woefully incomplete, and we believe that if you’re going to change the law, then change it for the better. Don’t suck up to one special interest. What’s so evil about selling food in liquor stores? What’s wrong with supporting and advocating industry right here in Colorado? Do we really want to be just like California and Texas?

Hey, we’re The Beer Drinker’s Guide to C-O-L-O-R-A-D-O. We love great beer just like you do, and we know how blessed we are to live here and enjoy an abundance of fine, locally-produced beer. Colorado brewers have been encouraged to innovate and prosper by the existing licensing regulations, and we have all been the beneficiaries of their success: great beer, great selection, and a great boost to the Colorado economy. Let’s not get too hasty here to kill the goose that lays all these golden, frothy, pint-sized eggs.

We already have choice, and HB 1192 will take much of it away.

HB 1192 is bad news for Colorado beer.

But don’t just take it from us...

In Part Two of our story, you’ll hear more from the voices of those intimately involved in this unfolding story, and you can make your own decision whether HB 1192 will change all this for better, or worse.

And for crying out loud, SUPPORT YOUR LOCAL BREWER - WHILE YOU STILL CAN!

READ Part II (Opinions About the Bill) >>
 
 

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