Locked out of Missouri: Licensed sellers blocked from willing buyers

Sharing a tale of two businesses that currently face a broken Missouri liquor regulatory system.

For those that follow me, you will know that I am a true advocate of the following principle: licensed sellers should be able to sell to eligible buyers and all eligible buyers should be able to purchase from licensed sellers. However, Missouri doesn't quite believe in this principle. I'll give credit where credit is due - Missouri is, more or less, a good state for beverage alcohol sales. Adult beverages can be purchased in all types of shops, wineries can sell DTC (direct-to-consumer), both in-state and out-of-state, and retail-to-consumer delivery is allowed in-state.  

The one dark spot in Missouri came with the Sarasota Wine Mkt. v. Schmitt case, when instead of expanding shipping rights, the state chose to level down and completely prohibit all retail shipping. Prior to 2017, they had allowed direct-to-consumer shipping from retailers. 

What really concerns me is that with Missouri being a somewhat laissez-faire state for alcohol regulation, the only explanation for the examples below not being facilitated is that the state regulators and legislators are under the influence of the wholesale channel. They're being fed misinformation that the existing system is functioning correctly for Missouri residents, as there is no other logical answer for the maintenance of this broken section of the state's industry. Wholesalers make fake promises to legislators under the guise of health and safety of state residents. I have to add for clarity: there is not a single regulatory process wholesalers have in place related to protecting the health and safety of the adult beverage drinker, that is not already in place outside of the three-tier system. It is managed by the Alcohol and Tobacco Tax and Trade Bureau and their trade enforcement group. 

Here are two real-life stories from the last two weeks that epitomize such a common issue around the country. I am not picking on Missouri because, as I say, other states have this issue, but Missouri can be used as a simple example to demonstrate the issue that many small brands suffer. 

Case 1: A licensed California winery wishes to sell to a licensed Missouri restaurant

“My sister has a restaurant in Kansas City, MO and, while I can sell retail DTC [Direct-to-consumer] in MO, I’m finding that I must work through a distributor to sell wine to retailers and restaurants in MO. There is a distributor in MO that I could potentially work through, and the distributor has storage and transportation in N CA [Northern California], but I would have to ship the wine from either MI [Michigan] or SOCAL [Southern California] from their distribution facility. I probably can’t price the wine low enough due to the extra cost of shipping. Are you aware of any other ways that I could sell wine to a retailer or restaurant in MO from either MI or CA?” 

A federally licensed California wine producer has a relationship with a restaurant in Missouri and in making this sale, the winery could expand its national footprint, bring the winery extra revenue, generate additional tax dollars for the state, and provide the people of Missouri with a new, well-priced product. However, all of this is being blocked because of the current regulatory system in MO. 

Wholesale Distributors, the Missouri mandatory middlemen, are not mandated to carry any products - they can purely carry what they deem profitable to their business, and that would be okay if there was an alternative way to market for producers. Unfortunately, in Missouri, there isn’t an alternative way. A company has to work with a distributor to access Missouri retailers (restaurants, bars, hotels). Do you see the problem here? A California winery can create a relationship, market the product, generate demand, and have a standing purchase order from a Missouri retailer, but they can't make the sale if a wholesale distributor does not see profit in the transaction for themselves. 

Wholesale Distributors are state protected legal gatekeepers and not for safety reasons, nor accurate tax collection, nor fraudulent products. They are the legal gatekeepers for profit, and legislators keep propping up this model, and the regulators, who do have a choice in regulation interpretation, always fall to the wholesale side when given a choice. 

A case like this could be make-or-break for the California winery, and we are leaving that fate down to a few distributors, the latest that we've seen cutting thousands of jobs, thus reducing the support for smaller producers. 

Case 2: A licensed distillery wants to sell its unique spirit product to a specific community within Missouri

“We are now in 11 states - and having a far too common problem (all of our distributors under perform - so there is that) in Missouri, where there is a large Balkan population (our product is a Serbian Rakija), our distributor is not even trying to sell our product and have essentially decided to treat their purchase of an entire pallet as a (illegal) consignment - they aren’t going to pay us unless and until they product sells (apparently on its own). 

We need to stay in this market - but we are niche and are having a hard time finding a distributor to take us on. 

We can self pitch (but not self distro) there - so If I can find a company like LibDib or Park St (we work with Park St now) where I can leverage a distributor permit - no frills - we can then afford to self pitch.” 

Looking past the illegal consignment being forced upon the producer in Missouri, the solution for this distillery would be self-distribution. This puts the success of the business in the hands of the business, not in the hands of a third-party wholesale distributor that, on consignment, does not care if your products sell or not. 

While wholesale distributors often craft long lists of reasons why DTC sales should not exist, there is nothing on their list that applies to direct-to-trade or business-to-business sales. 

No one can argue minors buying for direct purchase via a trade sale process. 

There is a path forward 

The 21st Amendment gave the rights to regulate alcohol to the states, and in crafting regulations following that passing some 90 years ago, the wholesale channel set themselves up as a mandatory layer. Beginning in the 1990s, this “mandatory” nature of the wholesale layer started to become redundant with the advancement of technology. Now, approaching 2025, regulators could work with legislators to make life easier for their adult residents, yet they choose not to. States are making a conscious choice to deny adults access to the products they want and to throttle the American liquor industry. The regulatory bodies will say they are just following the legislation – but that is a bit of a cop out. They can choose how to interpret regulations. 

What's equally disappointing is the absence of a national association that represents producers while advocating for consumers and educating state legislators. There is no coordinated single voice bringing attention to the broken system. 

The US beverage alcohol system is crying out for change. The 90-year experiment with mandatory wholesale distributors has run its course. To be clear, as I always state, I'm not asking for the wholesale channel to go away. It's the mandatory nature of their role that's destructive. Let the free market determine where they are useful in the distribution system to the industry. Large producers may still choose to use them as it is helpful for their business, and everyone wins. However, excluding thousands of craft products and licensed businesses just because their 100 cases wouldn't generate enough revenue for a wholesale distributor is the most protectionist and anti-American practice existing in our modern economy today. 

A key part of this regulatory challenge stems from legislators' limited understanding of the industry. Adult beverage producers should share their stories with state legislators and advocate for change, either directly or through industry associations working at the national level. The legislators otherwise won't know the problems exist. Americans are asking for access to both domestic and international products and right now those needs aren't being met because a few large companies have their grasp on a 90-year-old market and will do everything to ensure they don't lose control. 

This is not just about Missouri - it's about modernizing an antiquated system that's holding back American businesses and limiting consumer choice and the above two common occurrences are great examples of what is wrong. For those nay sayers that proclaim deregulation will not save the craft producers, change will not harm them that is for sure. And the time for change is now.