Letters

R Street Institute Letter of Support to MD Governor Moore regarding SB 1041-Direct to Consumer Shipping of Alcohol

by Robert Melvin

April 22, 2024

issues: Alcohol Policy, Competition Policy, Northeast, State Policy

April 18, 2024

The Honorable Westley Moore

Governor of Maryland

State House

100 State Circle

Annapolis, MD 21401

RE: R Street Institute Support for Senate Bill 1041.

Governor Moore:

I am writing to you on behalf of the R Street Institute to share our support for Senate Bill 1041, a proposal that would establish a permanent system for direct-to-consumer (DtC) delivery of beer, wine, and liquor to Maryland customers. The R Street Institute is a nonprofit, nonpartisan public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government in many areas. Our work includes the analysis and promotion of rational alcohol policies that consider consumer choice, free enterprise and public safety. We are also one of the only nonpartisan think tanks in the country that analyzes alcohol laws and regulations. It’s for this reason that we find Senate Bill 1041 noteworthy.

SB 1041 would remove limitations for off-premise sales for certain breweries and distilleries, and authorize statewide direct-to-consumer delivery by employees of distilleries, breweries and wineries. In addition, the bill would permit direct-to-consumer shipping of alcohol by common carriers like United Parcel Service (UPS) or Fedex. These practices were established on a temporary basis during the COVID-19 pandemic, and this legislation would make them permanent.

Prior to COVID-19, many states—43 in total—allowed for DtC sales from wineries; however, only a small handful permitted such sales from breweries and distilleries.^[1] Maryland is one of the states that permitted DtC sales from wineries since 2011.^[2] During the COVID-19 pandemic Maryland authorized on a temporary basis DtC shipping from breweries and liquor producers, and extended it several times.^[3] Since the start of the pandemic, numerous other states—including Maryland—have expanded DtC sales to breweries and distilleries, a trend that appears poised to continue.^[4]

Making these pandemic era provisions permanent state law will confer numerous benefits for small and medium sized businesses, consumers, and the state without increasing underage consumption or causing other negative externalities. This bill will improve economic competition by allowing more businesses to reach a larger number of consumers, increase employment growth at small and medium sized alcohol producers, expand choices for consumers, and increase revenues without increasing enforcement costs for the state.^[5]

In fact, research has found that after the U.S. Supreme Court ruled in Granholm v. Heald that states can’t discriminate against others when permitting direct-to-consumer shipping of wine, this lifting of restrictions led to eight percent growth in employment at wineries, with small and medium sized wineries experiencing most of the benefits.^[6] Studies have also found that regulations limiting winery sales through a distributor rather allowing DtC shipping tends to disproportionately benefit large wineries who tend to have distributor representation, whereas only a minority of small wineries sell through a distributor.^[7] The lessons learned from this research can be applied to breweries and distilleries, with small and medium firms benefitting from reforming the laws to permit DtC delivery.

Moreover, consumers overwhelmingly support increasing access to beer and liquor through DtC delivery. Reports have found a whopping 86 percent of regular craft beer drinkers support efforts to update alcohol laws to allow DtC sales, and 82 percent of craft spirits drinkers holding the same opinion.^[8]

Economic considerations, consumer support, and budgetary factors aren’t the only facets one should contemplate when adjusting laws for regulated products like alcohol. Public safety must also be weighed. At the R Street Institute, we have studied alcohol laws and adjustments made to them, which includes investigating possible associations with negative externalities like underage consumption of alcohol. Our research has found in states that permitted DtC wine delivery in 2003 and 2019 had an average decline of 44.3 percent in the underage alcohol consumption, whereas states that prohibited DtC wine shipments in 2003 and still precluded the practice in 2019 experienced a slightly smaller average decrease in underage drinking of 43 percent.^[9] While these trends do not demonstrate causation, they do emphasize that DtC shipping of alcohol doesn’t correlate with increased underage drinking.

As you consider SB 1041, we ask that you consider all these important facts. This legislation will enhance competition in the marketplace by allowing a greater number of businesses to reach more consumers, grow employment for smaller alcohol manufacturers, and expand choices for consumers. For these reasons, I strongly urge your favorable review of SB 1041, and sign the measure into law.

Sincerely,

Robert Melvin

Senior Manager, Government Affairs for the Northeast Region

R Street Institute

[email protected]

CC: Eric Luedtke, Chief Legislative Officer, Office of Governor Westley Moore

[1] C. Jarrett Dieterle, R Street Institute, “Capturing the COVID Booze Wave, Part 2-It’s Tsunami Time,” September 16, 2023: https://www.rstreet.org/commentary/capturing-the-covid-booze-wave-part-2-its-tsunami-time/

Matthew T. Pesavento, “The Impact of Direct to Consumer Shipping Laws on the Number and Size Distribution of U.S. Wineries,” Journal of Wine Economics, 2022: https://wine-economics.org/wp-content/uploads/2023/02/02-Vol-17-Issue-04-The-impact-of-direct-to-consumer-shipping-laws-on-the-number-and-size-distribution-of-U.S.-wineries-by-Matthew-T.-Pesavento.pdf

[2] Maryland General Assembly, 2011 Legislative Session, House Bill 1175, Last Accessed April 19th, 2024: https://mgaleg.maryland.gov/2011rs/chapters_noln/Ch_205_hb1175T.pdf

[3] Maryland General Assembly, 2021 Legislative Session, House Bill 1232, Last Accessed April 19th, 2024: https://mgaleg.maryland.gov/2021RS/chapters_noln/Ch_360_hb1232T.pdf

Maryland General Assembly, 2022 Legislative Session, Senate Bill 476, Last Accessed April 19th, 2024: https://mgaleg.maryland.gov/2022RS/chapters_noln/Ch_477_sb0476T.pdf

Maryland General Assembly, 2023 Legislative Session, Senate Bill 448, Last Accessed April 19th, 2024: https://mgaleg.maryland.gov/2023RS/chapters_noln/Ch_594_sb0448E.pdf

[4] Ibid.

[5] Donovan A. Ham, Maryland Department of Legislative Services, “Senate Bill 1041 Alcoholic Beverages – Breweries, Wineries, and Distilleries – Direct Delivery,” Fiscal and Policy Note, Third Reader Revised, March 27, 2024: https://mgaleg.maryland.gov/2024RS/fnotes/bil_0001/sb1041.pdf

[6] Granholm v. Heald, 544 U.S. 460 (2005) https://supreme.justia.com/cases/federal/us/544/460/

[7] Michelle Lee Mullins, University of Missouri-Columbia, “Regulation and Distribution of Wine in the United States,” May 2009: https://mospace.umsystem.edu/xmlui/bitstream/handle/10355/6132/research.pdf?sequence=3&isAllowed=y

[8] SOVOS Ship Compliant, “2024 Direct to Consumer Beer Shipping Report,” https://sovos.com/shipcompliant/content-library/dtc-beer-report/

Lizzy Connolly, SOVOS Ship Compliant, “2nd Annual DtC Spirits Shipping Report Sees Rise in Consumer Demand,” October 24, 2023: https://sovos.com/shipcompliant/blog/2nd-annual-dtc-spirits-shipping-report-sees-rise-in-consumer-demand/

[9] C. Jarrett Dieterle, R Street Institute, “Alcohol Delivery and Underage Drinking: Data Driven Lessons from Direct-to-Consumer Wine Shipping,” April 2022: https://www.rstreet.org/wp-content/uploads/2022/04/Updated-Final-Short-No.-113-1.pdf