Iowa: Adapting to a changing industry

Stephen Larson, Administrator of the Iowa Alcoholic Beverages Division

Debi Durham, Director of the Iowa Economic Development Authority

Source: Iowa ABD

March 24, 2017

Across the nation – and certainly in Iowa – the beverage alcohol industry is changing. The local movement in our state is robust, with a steady increase of new breweries, distilleries and native wineries in virtually every corner. Such growth is driven, in part, by customers seeking unique products and experiences as well as by a Midwestern spirit of entrepreneurship. With the growth of new quality products and unique destinations, this industry is clearly adding to Iowa’s appeal to tourists. Unfortunately for most of these entrepreneurs, our state’s liquor laws can be a hindrance.

At the request of the Governor Branstad and Lt. Governor Reynolds, we convened a 15-member working group of stakeholders in September, 2016, to study Iowa’s alcohol laws to determine what changes could be suggested for legislative consideration. The study group consisted of representatives from every sector of the alcohol beverage industry, each providing meaningful insight and testimony to the challenges we faced. While change can be uncomfortable, we entered into this process with a commitment to not disrupt Iowa’s three-tier structure of alcohol regulation. This system, part of every state’s regulatory DNA, establishes three distinct industry sectors: manufacturing, wholesaling and retailing. By design, no individual can dwell in multiple tiers. A manufacturer cannot be a retailer. A retailer cannot be a wholesaler. And so on.

Over time, however, Iowa policy makers have carved exceptions to this system. Such patchwork solutions have created confusion and inequity in the alcoholic beverages industry that we felt needed to be addressed.

House File 521, which has just passed out of the House Ways and Means Committee and is headed toward a House of Representatives vote, corrects many inequities while opening opportunities for growth and success.

But there is much more to do. For us, the next phase is addressing licensing reform and working to strengthen ties between local authorities and the state. We will be working with another group of stakeholders, this time representing local governments, law enforcement, public health experts, retailers and representatives from the prevention community to take an in-depth look at Iowa’s policies and existing barriers.

One barrier to modernizing Iowa’s alcohol beverages industry is known by some as the Tied House rule  (§ 123.45).

A tied house is a situation where the manufacturer of alcohol is also the direct seller of its products to consumers. Before prohibition, tied houses were a scourge on society and were a major factor in the movement to ban alcohol. Our current three tier system of regulation is designed to prevent this vertical integration from reappearing.

But Iowa’s tied house law is out of sync with today’s marketplace. It prevents an individual from having simultaneous ownership interest in a brewpub and a brewery (one is a retailer and the other a manufacturer). It prevents an owner of a winery in California from selling any type of alcohol in a convenience store he owns in Iowa, even though the store would not be selling the California wine.

We understand the danger of vertical integration. But today’s alcohol industry is vastly different and, rather than being driven by nefarious manufacturers of alcohol, it’s being driven by consumers. The purchasing public has shown that it wants greater choice and convenience. One walk through the liquor department of any grocery store should confirm that the diversity and selection of products practically rules out the possibility of any product or manufacturer dominating a market. We need policies that are a more accurate reflection of the industry today, not 1934.

We are not promoting increased consumption of alcohol. Nor are we claiming that the industry does not need regulation or enforcement. Rather, we are stating that, in order to have laws that can be understood and enforced, policy makers must roll up their sleeves to make these laws practical and effective.

The alcohol industry in Iowa has changed and we believe these changes are for the better.  Our hope is that our laws can allow for progressive and positive change that promotes opportunity for business while ensuring that our communities continue to be safe and healthy.