The effects of Prohibition – Part 02 – Three-tier System
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The Twenty-first Amendment to the United States Constitution repealed Prohibition and gave the states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders, changing market balance forever.

One of the arguments used to the repeal was that the government could replace the tax revenues foregone under Prohibition, thereby allowing the country to provide relief to suffering families in such a hard time.

But we’ve detailed this aspect in Part 01.

Another key aspect of the repeal was a strong regulatory environment. First and foremost, lawmakers were eager to legislate against the historically tight relationship between brewers and saloons.

The ‘tied house’ system, according to these politicians, gave rise to the poor moral condition that was considered the main fuel that drove the Prohibition movement.

Local brewers often had ownership ties to the taverns - selling to them on extended credit terms, furnishing them with equipment and supplies, charging low or no interest, and paying rebates for pushing their brand or carrying it exclusively.

The old system was replaced later by what is known today as the Three-tier System. The idea is simple: this system requires all alcohol to pass through a middleman before reaching bars and stores.

While each state has its own set of laws governing the three-tier system, the separation of the three-tiers by inserting an independent distributor between the brewers and the retailers is a common thread.

The three tiers are also further separated by other laws and regulations prohibiting suppliers and distributors from having any financial interest or influence with retailers - for example, beer sales on credit are not allowed and consignment sales are banned.

The goal of this change was to limit the ability of the producers (in our case, brewers) to own the primary two aspects of the industry: production and retail, avoiding monopoly and fomenting competition. And of course, to facilitate state and local control on alcoholic beverages.

But those companies became very strong in their states and this system created the circumstances that allow a small cartel of middleman to take over and control the alcohol distribution around the country.

This situation prevents smaller breweries from supplying a select few restaurants and retailers their unique products unless they agree to the wholesaler structure of the distributor.

Nowadays breweries and other alcohol producers are capable of collecting taxes and controlling underage drinking, two of the main worries the government had when they created the Three-tier system.

So it seems that it is time for a new repeal, but this time it will happen in the distribution system!

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