Spirited Debate

Maryland's laws have kept alcohol in shackles for years. A court ruling could open the door for changes.

July 04, 2004|By Michael Hill | Michael Hill,SUN STAFF

You walk into a grocery store in Virginia and buy a bottle of wine. You drive across the border to Maryland and find no wine in your supermarket.

You visit a small winery in California and enjoy its wines. When you get back to your Maryland home, you can't find these wines in any store. You go to the winery's Web site and order a case. But the winery tells you it's illegal to ship to Maryland.

You visit England and find a beer you like. You manage to get a few six-packs back in your luggage. You take them to your private club or lodge and ask that they be kept there so you can drink them when you visit. But you are told that that's impossible, that the club would be breaking all sorts of laws.

For three decades the winds of deregulation have swept over the United States' business environment, bringing the efficiencies of the marketplace to such varied things as airlines, telephones and electricity. The alcoholic beverage industry - at least in Maryland - has remained resistant to these forces.

But that might be changing. Cases on their way to the Supreme Court allege that these regulations - originally justified as protecting us from the evils of overindulgence in drink - are an illegal restraint of trade.

A federal judge put a small chink in Maryland's regulatory armor last month, ruling that the state cannot require wholesalers to charge everyone the same price, thus allowing volume discounts. But, for the most part, Maryland's labyrinth of alcoholic beverage regulations remains secure in a fortress well-guarded by powerful political interests.

"Maryland is a little bit in the dark ages in the distribution of wine and spirits," says Tom Shelton, president of Joseph Phelps Vineyards, one of the top wineries in California's Napa Valley. "It is very, very tightly controlled.

"It is a relatively clean market, so it gets high marks for orderly transactions, but it gets very low marks for consumer-friendly innovations," he says.

The origin of these laws can be traced to 1933 and the passage of the 21st amendment, which repealed prohibition. The first clause did away with the 18th Amendment, which in 1919 made it a federal crime to manufacture or import alcoholic beverages. The second clause was interpreted as returning control over these products to the states.

It reads: "The transportation or importation into any state, territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

The result is a patchwork of regulations that vary not just state by state, but often county by county.

In Maryland, only Montgomery County takes the "local option" to run its own liquor stores. Government stores dominate the market for alcoholic beverage sales in Pennsylvania. In Virginia, though a grocery store can sell you beer and wine, you have to buy hard liquor from the government.

"Maryland tends to have pretty severe restrictions," says Jerry Ellig, an economist who studied Internet wine sales while with the Federal Trade Commission. "Virginia was quite restrictive until about a year ago. The District of Columbia is a little more liberal."

Shelton, who helped found a group called Free the Grapes, says the main argument against these regulations is that they are not following the intent of the 21st Amendment. "You have to ask, what was the core purpose of that amendment? We believe it was to encourage temperance. It had nothing to do with business protection, but that is the way it has evolved."

Maryland follows the common model - a three-tier system that separates producers, wholesalers and retailers, giving each a piece of the action in a highly regulated environment. Among the Maryland regulations are ones that keep beer and wine out of most supermarkets, a protection for small liquor stores.

Jane Springer, executive director of Maryland's Licensed Beverage Association, says that system is exactly what the 21st Amendment had in mind. "The reason prohibition began in the first place is that large groups dominated the market, and that led to corruption and excess alcohol abuse. The large companies that dominated promoted that."

The three-tier system, Springer says, makes sure no one can dominate. "Everyone in the business is tied to the community, and they are concerned with the end result," she says. "When companies outside the state were dominating the market, all they were interested in was making money."

But the three-tier system does allow the local companies to make a lot of money.

"The system tends to create certain bottlenecks," Ellig says. "There is an opportunity for businesses to earn a pretty decent profit in this process, so you shouldn't be surprised to see businesses defending these regulations."

The result, many observers say, is that the alcoholic beverage industry is the most powerful lobbying group in Maryland, so powerful that otherwise consumer-friendly legislators are afraid to cross it.

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