Costco will not Lend a Hand in Neighboring States' Efforts to End State Monopolies on Liquor Sales

Last fall, Costco (COST) contributed almost all of the $22 million spent in a campaign to end the state monopoly on liquor sales in Washington. Voters passed Initiative 1183 on November 8^th, dissolving the state-owned liquor stores and replacing them with licensed, private-party distributors and sellers. Despite their success, Costco has announced that it will not contribute financially to liquor initiatives in other states. If similar efforts come to Idaho and Oregon, a lawyer for Costco Wholesale Corporation says, “We’re going to be cheering on the sidelines.”

Costco’s victory inspired supporters in neighboring states with similar liquor controls and caused lawmakers to take notice as well. Referring to liquor regulations that date back to Prohibition, Oregon Republican Representative Bill Kennemer said, “Things have changed since 1930, and it would be good to have another review about what we’re doing.” Oregon’s liquor laws only allow the sale of hard alcohol in stores run by state-licensed agents. Idaho has similar liquor laws. However, with Costco out of the picture following their victory in Washington, one article speculates that ballot initiatives are unlikely this year.

In the meantime, state officials have been working to preempt such efforts. In Oregon, the Oregon Liquor Control Commission proposed to allow grocery stores to open “store within a store” liquor operations and allowing some liquor stores to sell beer and wine. Grocery chains, however, think that the proposal is insufficient to satisfy their desire to break into the liquor business. Additionally, an Oregon House committee will spend the summer and fall dissecting the issue and potentially drafting legislation to open the liquor system to private parties. However, the article previously mentioned also speculates that the Legislature will want to ensure that the broadening of the liquor market won’t cause social consequences like an increase in drunk driving and alcoholism, or reduce the state’s revenue from liquor sales.

Where do these state monopolies on liquor come from?

Following the repeal of Prohibition and the ratification of the 21^st Amendment, states were given the freedom to craft their own alcohol regulations. Some states chose the “license” model, in which manufacturers and sellers obtain licenses from the state in order to carry on their business, while others chose the “control” model, in which the state maintains a monopoly (to varying degrees) over the alcohol market.

The theory behind the “control” model was that it enabled the state to prevent the evils Prohibition was aimed at extinguishing (“intemperance,” crime, adultery, spousal abuse, prostitution, gambling, etc.) by controlling the location, operating hours, and even advertising of liquor stores.

Washington, Oregon, and Idaho are all examples of states that chose the “control” model. They each opted to keep hard liquor under the complete control of the state and allow for its sale at state-owned liquor stores only (beer and wine, however, is sold at grocery stores). The passage of 1183 in Washington eradicates the State’s exclusive control over hard liquor and instead passes it on to distributors and sellers that possess the proper licenses.

The push (and push-back) to end state monopolies: 

There are several parties that are interested in the eradication of the state monopoly on liquor. First, consumers are interested in ending monopolies like those that still exist in Oregon and Idaho, because it gives them the option to buy hard alcohol from retail giants like Costco, that provide large quantities at a lower cost. Second, there are private parties, including grocery stores, that wish to capitalize on the liquor market by selling or distributing hard liquor. 

Opposed to the eradication of state monopolies on liquor have traditionally been the states themselves, that fear that relinquishing control on hard alcohol will mean an increase in alcoholism and drunk driving and a decrease in the state revenue generated from state-owned liquor stores. 

Apathetic parties don't see the difference- if consumers want alcohol, they are going to get their hands on it. This begs the question...are "control" states more concerned with revenue, or public health?