Does Your Distillery Need a Wholesaler? And Other Questions About Tied-House Laws

As distillers develop and produce alcoholic beverages and prep them for consumption, eventually the question comes up: “Do I need a wholesaler to distribute these bottles?” It’s a common enough question and we hear it often. The answer? Well, honestly, it’s complicated.

Navigating the complex three-tier system can be a dizzying feat for anyone. It’s especially difficult for up and coming distillers who are newer to the industry and not as familiar with all the minute details that go into distribution.

Basically, the answer varies depending on location, production size, alcohol content, etc. etc. – the list of criteria grows longer with every new law.

Luckily, we’ve built a primer and a guide to help you connect some of these dots. Scroll on for the details.

Let’s Talk Three-Tier System

After Prohibition ended in the U.S. back in 1933 through the Twenty-first Amendment, the federal government needed a way to keep liquor manufacturers in line.

To do this, states would be required to regulate the sale of alcohol within their own borders. This became known as the three-tier system, a way to limit the reach of alcohol companies post-Prohibition. The desired effect was to prevent liquor brands from influencing consumers by separating the two as much as possible.

Generally, alcohol producers could not directly market or sell to consumers. Instead, distillers and other adult beverage companies would need to sell to third-party wholesalers or distributors who would then sell into retailers who would in turn sell to consumers.

In the last 90-plus years, adjustments have been made to this structure. Many states adopted exceptions for distilleries based on size, distribution footprint, alcohol content and other components. So that means any individual distiller introducing product into the market needs to check in with the state to see what they need to do.

What Do You Need to Know About Tied House Laws?

Often the reason alcohol manufacturers are required to work with wholesalers originates with tied-house laws. These regulations, which date back to pre-Prohibition years, prevent spirits companies from owning, operating or otherwise controlling liquor retail locations.

Back then, alcoholic beverage manufacturers, particularly breweries, would set up relationships with retailers to promote and prioritize their products. Think Budweiser Tavern or Jack Daniels Lounge. It gave companies the ability to shove marketing in front of as many consumers as possible, lending them an unfair advantage – and a captive audience to sell to.

As a way to prevent this and make for a fair market, the federal government and most states designed tied house laws that separated alcohol manufacturing from alcohol sellers. This is a big influence in the three-tier system – both on a federal level and within each state.

What State Are You In?

Ultimately, the details of the three-tier system were left to states. Across the country, states established their own agencies to oversee liquor licensing, sales and marketing (even social media marketing). And each one dictates its own set of laws and regulations when it comes to distribution.

For instance, Wisconsin prevents manufacturers from holding a retailer license, meaning they cannot sell directly to consumers as a retailer. However, the state also allows for distillers to sell directly to consumers who visit the distillery location as a manufacturer.

In Oregon, the Oregon Liquor Control Commission oversees the sale and distribution of alcohol. While it does allow distillers to sell product at the distillery site, it also strictly controls where spirits can be sold outside of the distillery, appointing liquor agents to operate designated retailers. Oregon spirits makers must work with the state to distribute product.

Each state applies the three-tier system in its own way. Many require distribution through wholesalers but it truly depends on the unique laws imposed by the state itself. Cities and counties may also weigh in on the topic. Before any liquor sales take place, a distillery needs to review the laws and regulations unique to its state and local area.

Can You Self Distribute or Do You Need a Wholesaler?

Many states require the involvement of a third-party distribution partner. However, some allow for self-distribution. This means that distilleries may task salespeople with selling directly into retailers – both on-premise and off.

If self distribution is an option for a distiller, this would require the employment of staff to achieve sales. This can be a tricky job for a salesperson given that they need to tackle local regulations while also contending with a complicated network of buyers – who may be located elsewhere if dealing with a chain. It can be tough to break into a market through self-distribution alone.

Generally, self-distribution is not widely available for spirits makers. This is typically a benefit extended to breweries and occasionally winemakers. But spirits distillers rarely get to participate.

How Far Do You Want to Distribute?

Even if a distillery is located within a state that allows self-distribution, the regulatory agency may limit how far self-distribution can reach. If a distillery hopes to distribute outside of a prescribed area, the state may require that a wholesaler step in to manage distribution to retailers.

Additionally, neighboring states may not be as accepting of self-distribution. Many alcohol makers have to find wholesalers who can operate across state lines when attempting to extend distribution. This often means building a network of distributors and wholesalers across the country.

It’s wise to become familiar with your state’s regulations and get acclimated to those before extending distribution and stepping into other states.

How Much Product Are You Making?

Once again, those states that are self-distribution friendly may also limit distilleries based on how much the business is producing. More alcohol production may mean less access to self-distribution and an increased regulation around working with wholesalers.

A number of other exceptions and requirements may apply to any distillery based on so many different factors. It’s important to review and get educated about each and every law your state applies.

If you need a hand navigating the three-tier system, tied house laws or distribution, call us! We’re a third party who can help ease the pain of the three tiers – and we know a thing or two about how these regulations work. Set up a consultation and we’ll dig in with you and your distillery.