R Street Institute Letter to NY Governor Hochul in Support of SB 2852 – Direct to Consumer Alcohol Shipping
June 21, 2024
The Honorable Kathleen C. Hochul
Governor of New York
New York State Capitol Building
Albany, NY 12224
RE: R Street Institute Support for Senate Bill 2852
Governor Hochul:
My name is Robert Melvin, and I am the senior manager of state government affairs for the Northeast region for the R Street Institute (RSI). RSI 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. For this reason, I want to share my organization’s support for Senate Bill 2852.
S 2852 would authorize statewide and interstate direct-to-consumer (DtC) shipping from distilleries, cideries and meaderies by common carriers like United Parcel Service (UPS) or Fedex. During the COVID-19 pandemic, these practices were permitted temporarily, and this legislation would make them permanent.[i]
Prior to COVID-19, many states—43 in total—allowed for DtC sales from wineries; however, only a small number of states permitted such sales from distilleries.[ii] New York has allowed DtC sales from wineries since 2005.[iii] During the Coronavirus pandemic, New York granted temporary authorization for DtC shipping from liquor manufacturers.[iv] Since that time, many states—including New York—have adjusted their laws to expand DtC shipping from distilleries and other producers.[v]
By making these pandemic-era rules into permanent law, consumers, small and medium sized businesses, and the state stand to benefit, and it can be done without causing negative externalities such as increasing underage consumption of alcohol. This legislation will strengthen economic competition by allowing more businesses to increase market share, boost the number of smaller alcohol producers, amplify consumer choices, and grow tax revenues for New York.[vi]
When the U.S. Supreme Court ruled in Granholm v. Heald found that states can’t engage in favoritism of alcohol producers regards to permitting direct-to-consumer shipping of wine, research was conducted on the market impacts of the decision.[vii] The data revealed that removing these impediments led to six percent growth in the number of wineries, with the lion’s share of benefits obtained by small and medium sized wineries.[viii] In essence, requiring wineries to ship through a distributor acts as a barrier to entry, particularly for smaller wineries.[ix] That is because these smaller alcohol producers normally lack distributor representation, and rely more on direct sales for a larger portion of their revenue.[x]
Other reports have reached similar conclusions noting that large wineries tend to disproportionately benefit from regulations that restrict winery sales to only distributor channels.[xi] While the lessons are focused on wineries, they are applicable to distilleries, cideries and meaderies, with DtC shipping reforms conferring many benefits to small and medium firms. Small producers lack the economic resources to participate in the current distributor led system, and many of these small distillers, cideries and other alcohol manufacturers don’t produce the volume necessary to sign with a distributor compared to major producers.[xii] Moreover, existing regulations are stifling growth of the craft alcohol industry, which could be easily fixed by DtC shipping laws.[xiii]
In addition, public sentiment supports such adjustments to alcohol laws. Consumer data shows there is overwhelmingly support for increasing access to liquor through DtC delivery, with such surveys revealing 82 percent of regular craft spirits drinkers approve of updating alcohol laws to authorize DtC sales.[xiv]
When considering reforming laws for controlled substances like alcohol, one shouldn’t limit the factors reviewed to simply economic outcomes, consumer sentiments, and revenue forecasts. Public safety is a vital issue that should not be overlooked. Thankfully, at the R Street Institute, we review laws governing alcohol policy, including scrutinizing potential spillover effects like youth alcohol consumption. We found that states in which DtC was legalized between 2003 and 2019 saw an average decrease of 44.3 percent in underage alcohol consumption.[xv] Conversely, states that forbid DtC wine shipments in 2003 and still prohibited the practice in 2019 experienced a slightly smaller average reduction in underage drinking of 43 percent.[xvi] This study doesn’t signify causation, but it does help underscore that DtC shipping of alcohol doesn’t correspond with a proliferation of underage drinking.
As you consider S 2852, I ask that you consider its many benefits. This legislation will boost marketplace competition by authorizing a larger number of businesses to reach more consumers, increase the number of smaller distilleries, cideries, and meaderies, and grow the choices available to consumers, without undermining public safety. For these reasons, I strongly encourage you to sign S 2852 into law.
Sincerely,
Robert Melvin
Senior Manager, Government Affairs for the Northeast Region
R Street Institute
[email protected]
CC: Elizabeth Fine, Counsel, Office of Governor Kathleen Hochul
Bella Satra, Assistant Counsel, Office of Governor Kathleen Hochul
[i] New York State Liquor Authority, “SLA COVID-19 Guidance on Restrictions, To-Go & Delivery, and Q & A,” March 16, 2020: https://web.archive.org/web/20200602195556/https://sla.ny.gov/Restrictions-in-Response-to-COVID-19
[ii] 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
[iii] New York State Senate, 2005 Legislative Session, Senate Bill 5731, Last Accessed June 17th, 2024: https://nyassembly.gov/leg/?term=2005&bn=S05731
[iv] Ibid.
[v] Ibid.
[vi] New York State Senate, “Senate Bill 2852 Sponsor Meno,” Last Accessed June 17th, 2024: https://www.nysenate.gov/legislation/bills/2023/S2852/amendment/A
[vii] Granholm v. Heald, 544 U.S. 460 (2005) https://supreme.justia.com/cases/federal/us/544/460/
[viii] Ibid.
[ix] Ibid.
[x] Ibid.
[xi] 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
[xii] Kate Dingwall, Forbes, “The Three-Tier System Is Crippling The Craft Spirits Industry. This Company Is Trying To Help,” November, 17, 2020: https://www.forbes.com/sites/katedingwall/2020/11/17/the-three-tier-system-is-crippling-the-craft-spirits-industry-this-company-is-trying-to-help/
[xiii] C. Jarrett Dieterle, R Street Institute, “Craft Distilleries Fight For Survival Amid Crushing Regulations,” Reason Magazine, May 25, 2024: https://www.rstreet.org/commentary/craft-distilleries-fight-for-survival-amid-crushing-regulations/
[xiv] 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/
[xv] 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
[xvi] Ibid.