States Stubbornly Slow To Fix Antiquated Alcohol Laws

Last week's election results contained many surprises, including the failure of the much-ballyhooed "red wave." Another surprising result was the unexpected difficulty that alcohol-related ballot initiatives ran into in Colorado. 

Coloradans had three different alcohol ballot initiatives to choose from on their ballots this year. The topics they covered ran the gamut from increasing the number of liquor stores a single owner could operate, to allowing wine to be sold in grocery stores, to authorizing third-party on-demand delivery services to deliver alcohol in the state, to making permanent the state's pandemic-era to-go cocktail rules. Although polls on these issues had not been previously conducted in Colorado specifically, such reforms enjoy widespread popularity among voters nationwide.

None of the results have been officially certified yet, but with more than 95 percent of votes reported, only one of the three initiatives seems to have passed—the wine-in-grocery-stores initiative—and only by less than a percentage point. Expanding liquor licenses went down 62 percent to 38 percent, while third-party alcohol delivery and making to-go drinks permanent suffered a closer defeat with 51.3 percent opposed. 

Given Colorado's relatively open attitude toward cannabis—consumers can order it directly to their homes via third-party delivery services—the resistance these reforms faced raised eyebrows. In an ironic twist, state voters even approved decriminalizing psychedelic mushrooms in a separate ballot measure this year.

Furthermore, all three initiatives had substantial financial backing. All told, the campaigns supporting these initiatives raised $13 million each, placing them in the top 10 most expensive ballot fights this election. What, then, accounted for the mixed results?

One part of the explanation surely lies in the fact that Coloradans likely suffered from a bit of ballot fatigue. When they went into the voting booth, their ballots included two federal elections, several state-level elections, and 11 ballot initiatives, plus other various elections.

But primarily, the difficulty these initiatives faced have to do with the way alcohol laws have evolved in America over the last 100 years. After Prohibition was repealed in 1933, pro-temperance sentiment did not simply die away overnight. Instead, anti-alcohol forces focused their efforts on implementing restrictive alcohol laws at the state and local levels. 

States either had the government take control of all alcohol sales or implemented a three-tier system that required producers of alcohol to be legally separate entities from wholesalers and retailers of alcohol. A century after the end of Prohibition, nearly every state in America still labors under one of these antiquated systems. 

When the government mandates what roles certain players have in the marketplace, these players become reliant on these mandated roles and create opposition toward any efforts to upend the system. In modern-day America, both alcohol wholesalers and some alcohol retailers are determined to protect the status quo and prevent any reforms that could modernize and free the marketplace.

Right on cue, the key opposition force against the Colorado ballot initiatives was incumbent alcohol retailers in the state. They launched a sustained opposition campaign, arguing that passing the initiatives would be tantamount to putting small mom-and-pop alcohol stores out of business across the state.

As a policy matter, these arguments are largely unconvincing. Colorado expanded the ability of grocery stores to sell more types of beer in 2016, and there is no evidence that doing so led to any independent alcohol sellers going out of business. Further, 40 states currently allow wine to be sold in grocery stores, and there is likewise no reported evidence of those states having fewer mom-and-pop outlets. 

Lost in the shuffle is that expanding alcohol retailing and delivery options is actually supported by many small businesses. Craft wineries, for instance, would benefit from more types of stores being able to sell their products. Numerous independent restaurant owners supported the initiative to expand third-party alcohol delivery in the state since many of them have utilized delivery and to-go cocktails as a key part of their businesses since the advent of COVID-19. 

As one Colorado restaurant manager put it in bemoaning the failure of the third-party delivery initiative: "I think it's on us though to start educating people and let people know that…. [Third-party alcohol delivery] is very helpful."

It remains to be seen where alcohol reform goes from here in Colorado. Gov. Jared Polis, who has developed a somewhat unique brand as a Democrat with libertarian stripes, recently helped put together a panel of industry stakeholders to take a comprehensive look at the state's liquor laws and make recommendations. Perhaps newly reelected and emboldened, he can use this as a vehicle to pursue more extensive alcohol modernization efforts in the state. 

In the meantime, those in favor of deregulating America's sclerotic alcohol markets can take heart that the fight is likely far from over.