Eighty-Four Years After the Twenty-First Amendment, Are North Carolina’s Liquor Laws Ready for the Twenty-First Century?

On a recent Friday night at Durham’s Fullsteam Brewery, founder Sean Lilly Wilson is pointing to a color-coded menu, helping three customers on the opposite side of the bar decide what to order.

“I’m partial to this one,” he says, recommending the Brumley Forest porter, “because we all went out and foraged these nuts to make this beer.”

Fullsteam is packed with young couples, families, and dogs. And that’s just how Wilson, who until recently was president of the N.C. Craft Brewers Guild, wants it. Before opening Fullsteam in 2010, he helped organize the Pop the Cap movement that in 2005 increased the limit on alcohol content in beers brewed and sold in North Carolina from 6 percent to 15 percent, part of a further-reaching effort to make the state’s laws more brewery-friendly in order to foster the kind of community that has grown up around his Rigsbee Avenue business.

It’s easy to tell here that North Carolina’s craft beer scene is alive and well. Since Fullsteam opened, the number of breweries in the state has grown from 45 to 204, making North Carolina eleventh in the nation for beer production. Albeit with less clamor, the state’s craft distilling industry has surged as well, from 13 establishments in 2013 to 46 now.

Some craft brewers and distillers, though, say the state’s distribution laws are keeping their industries from reaching their full potential. Two bills currently in the General Assembly could change that by putting more leverage in the hands of alcohol producers. HB 500 would increase how much beer breweries can sell without bringing in an outside distributor; SB 155 would give distilleries more opportunities to directly sell liquor to customers. The debate over these bills pits North Carolina’s Bible Belt roots against its more progressive metropolitan centers, entrenched political interests against the conservative cry for small government, and the way things were against the way things can be.

“It’s economic development, it’s innovation, it’s tourism—it’s all the things that North Carolina loves to celebrate,” Wilson says. “But at the same time, it comes down to yet another battle between red state, blue city.”

In 1908, North Carolina became the first state in the South to ban the sale of alcohol, eleven years before the Eighteenth Amendment was ratified, and it didn’t give counties the option to allow liquor sales until two years after Prohibition ended. In fact, when the Twenty-first Amendment came before the states in 1933, North Carolina—along with South Carolina—refused to ratify it.

It was out of this post-Prohibition era that our current alcohol-control system originated. And like many octogenarians, it does not take kindly to change.

Like most states, North Carolina has a three-tier distribution system for beer sales. Producers and importers are the first tier, distributors the second, and retailers the third. North Carolina breweries that sell fewer than twenty-five thousand barrels of beer per year can get a wholesaler permit and distribute their own product. Once a brewery hits 25,001 barrels, though, it must sell all of its beer through a wholesaler and sign a distribution agreement giving that wholesaler exclusive rights to sell the product in a given territory. HB 500 seeks to raise the cap on self-distribution to two hundred thousand barrels per year, which state representative and bill sponsor Jon Hardister, R-Guilford, says is the middle ground among the fifteen states that allow limited self-distribution.

HB 500 marks the ninth attempt to raise the cap since it was set at twenty-five thousand in 2003. (Before that, it was ten thousand barrels.) With the support of a brewer-backed campaign called Craft Freedom and some suds-loving legislators, HB 500 appears to have momentum. The House Alcohol Beverage Control committee was expected to vote on the bill Wednesday morning.

When the cap was last raised, there were about twenty breweries and one hundred wholesalers to serve them, says Margo Metzger, executive director of the N.C. Craft Brewers Guild. Today, she estimates, there are about forty independent beer wholesalers that each markets about 980 products. For small breweries, this means competing with larger brands for a wholesaler’s attention, and therefore tap and shelf space.

Wilson says the barrel cap is “always on my mind” as he projects his company’s growth. Fullsteam, which is on track to brew about seven thousand barrels of beer this year, self-distributes and uses a wholesaler, both locally and in three other states.

“The more successful we are as a self-distribution brewery, the more we’re actually going to need a wholesaler as well.” Wilson says. “Even in our local market, we rely on a wholesaler to penetrate deep because we just don’t have those relationships.”

For those rallying to raise the cap, HB 500 is a free market issue—breweries should be allowed to decide if and when they want to hire a distributor, not be forced to retool successful business models to make sure the middle tier gets a cut. Indeed, the John Locke Foundation, Americans for Prosperity, and the Civitas Institute have all voiced support for raising the cap, if not eliminating it altogether.

Hardister, the House majority whip, argues that there should be no cap at all.

“Our laws are outdated,” he says. “Obviously our laws are not completely terrible, because then there would be no growth in the industry. But there is potential to make these businesses more successful, and that involves getting the government out of the way.”

Just three breweries in the state—NoDa Brewing Company, Olde Mecklenburg Brewery (both in Charlotte), and Red Oak Brewery in Whitsett—are pushing the current barrel cap. But given the industry’s growth, that likely won’t be the case for long.

“All you have to do is look at the curvature and the time it takes to change these different complex laws with a lot of entrenched interests to know that you have to be thinking about the future,” Wilson says.