Press Release:
(Springfield, IL) – In a 4-2, decision, the Illinois Liquor Control Commission (Commission) ruled today that Anheuser-Busch Inbev (ABI) may continue to hold an interest in four Illinois distributorships. Despite a law enacted in June 2011, which prohibits brewers from owning beer distributorships (brewery branches) in Illinois, the Commission ruled in favor of the large international conglomerate brewer.
Today’s decision by the Commission allows ABI to maintain an interest in City Beverage distributorships through an Anheuser-Busch Inbev affiliate, WEDCO. “The large brewer could play a substantial role in the day-to-day operations of the four beer distributorships,” said Bill Olson, president of the Associated Beer Distributors of Illinois (ABDI). “Only independent distributors create competition, are easy to regulate, and are a vital part of the local communities they service,” he continued.
“This ruling impairs Illinois’ authority to regulate alcohol beverages. Without independent distributors in the State’s three-tier regulatory system, a brewer could influence every aspect of the sale of beer in the State,” said Bill Olson.
By issuing the order, the Commission has taken upon itself to create public policy despite the Legislature’s intent. Judge Dow stated in his decision in Anheuser-Busch v. Schnorf, “… the regulation of the distribution of liquor is a matter of public policy and a quintessential legislative function.” (Decision p. 35). This public policy was determined in the Legislature and was clarified in a statement of legislative intent (a statement read into the record during legislative debate) when the sponsor stated “…all brewers, in-state and out-of-state…may not self-distribute or own a distributorship in Illinois.”
The Liquor Control Commission’s ruling to allow Anheuser-Busch InBev (ABI) to have an ownership interest in a distributorship is an example of the regulatory process run amok. The Commission has demonstrated, through its actions, that it wanted to maintain control of this issue so it could create public policy. A regulatory action, which could have been addressed in a few months, has taken one year and five months since the Governor signed SB 754 into law. Because of the slow, drawn-out process, concerns are raised regarding the Commission’s ability to effectively regulate alcoholic beverages in a timely manner.
“Now that ABI is allowed to own distributorships, craft brewers, new imported brands, and new domestic brands will have reduced access to market. Independent distributors provide an avenue for those products to reach consumers that brewery-owned distributors won’t provide,” continued Bill Olson.
In most other countries where ABI operates, it controls the distribution of its products. Passage of the 21st Amendment to the U.S. Constitution gave the right to regulate alcohol beverages to the states. Every state created a regulatory system which prohibits vertical integration. The U.S. Supreme Court has stated that the three-tier regulatory system is “unquestionably legitimate.”
“Today’s decision weakens Illinois’ regulatory authority as granted by the 21st Amendment to the U.S. Constitution.
Alcohol distribution outside the U.S. is handled differently. When InBev bought Anheuser-Busch, they also bought into the system of alcohol regulation in the U.S.,” said Olson. “If they were unaware of how beer distribution is regulated in the U.S., they didn’t do their due diligence. It is not the Liquor Control Commission’s purpose to accommodate ABI’s global business plan and ignore the intent of SB 754 as passed by the Illinois General Assembly,” continued Olson.
In February 2010, ABI requested the Commission permit the transfer of the licenses of four City Beverage distributorship locations to ABI as part of its purchase of City Beverage – Illinois. ABI (through an affiliate) had a 30% interest in the four locations and wanted to own 100% interest in the licenses.
On March 10, 2010, the Commission held that ABI did not qualify for a distributor license on the grounds that out-of-state manufacturers are prohibited from holding an Illinois distributor license.
Following the ruling, ABI immediately filed a complaint (AB v. Schnorf) in the US District Court Northern District of Illinois stating that the Commission’s ruling violates the Commerce Clause of the Constitution by permitting in-state brewers to obtain a distributor license while prohibiting out-of-state brewers to do the same. The complaint further stated that the Commission interfered with ABI’s contract to purchase City Beverages, and it did not interpret Illinois’ alcohol code correctly or fairly.
On September 3, 2010, Judge Dow rendered his decision that there was discrimination between in-state and out-of-state brewers because two in-state brewers were granted a distributorship license and ABI, an out-of-state brewer (Non-Resident Dealer) was denied that ability, the discrimination constituted a Commerce Clause violation.
Judge Dow denied ABI’s “request to remedy the unconstitutionality of Illinois’s system by extending the self-distribution privilege to out-of-state brewers.” He continued, “That remedy would be more disruptive to the existing statutory and regulatory scheme than the alternative remedy of withdrawing the self-distribution privilege from in-state brewers.”
Judge Dow stayed his opinion until March 31, 2011, “…in recognition of the General Assembly’s ultimate authority over Illinois public policy, including a remedy for the constitutional defect ….”
SB 754, a bill authorizing only small craft brewers, ones that manufacture less than 15,000 barrels of beer annually, self-distribution rights, passed and became law (P.A. 97-0005) on June 1, 2011. The craft brewer category was created to allow the two in-state brewers in the original action to self-distribute. In passing SB 754, the Illinois General Assembly clearly made it public policy in the state of Illinois that brewers cannot hold a distributor’s license.
The Liquor Control Commission held a public meeting on December 7, 2011, in response to complaints by multiple Illinois liquor license holders and organizations that represent license holders. The Commission heard testimony on the following questions:
“A. What effect does the enactment of P.A. 97-0005 have on the ability of a Brewer or Non-resident Dealer to hold an ownership interest in an Illinois distributor?
“B. If the law prohibits a Brewer and/or Non-resident Dealer from holding a distributor license, does Illinois administrative law permit the Illinois Liquor Control Commission to grant equitable relief to City Beverage, Illinois, LLC, owner of four distributorships, to allow for the continued 30% ownership interest by a brewer/non-resident dealer affiliated entity (Wholesale Equity Development Corp – WEDCO)?”
On June 7, 2012, the Commission cited and notified the four City Beverage distributorships to appear before the Commission as to why each liquor license “should not be fined, suspended or revoked for a violation of the Illinois Liquor Control Act….” The citation further indicated that the Legal Division of the Illinois Liquor Control Commission recommended “that the City Beverage … licenses be revoked and that the revocation be stayed pending the divestiture of ownership interests of Anheuser Busch, LLC and its affiliates from City Beverage….”
The Commission held a hearing on October 1, 2012, to determine whether ABI may directly or indirectly own a beer distributorship or distribute beer. ABI claimed it can be both a brewer and a distributor but Commission lawyers argued this dual ownership violates the three-tier regulatory system of Illinois law.
Following the hearing, the Commission took the matter under advisement and indicated that the Commissioners would meet behind closed doors to discuss these issues and reach a decision before rendering a ruling. The Executive Session continued on October 2, and again in the morning session of today’s meeting.
The Associated Beer Distributors of Illinois, a not for profit business trade association, represents, maintains and improves the interests of its members who distribute beer of all brewers. ABDI advocates value in the state-based regulatory system by being the unified voice for beer distributors on legislation and regulation, by promoting responsible beer consumption, and by providing educational and other services to meet its members’ needs.
Distributors are licensed by the State of Illinois to import and distribute beer to licensed retailers. ABDI members directly employ more than 3,300 people across the state. They collect and pay $63 million each year in excise taxes to the state and pay more than $280 million in direct wages and health care benefits.
For more information about ABDI, visit www.abdi.org.
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Because of the many different aspects of the Illinois Liquor Control Commission’s actions, the following, in Q & A format, may be helpful.
Q. Why did the Commission take 17 months to make a ruling?
A. The Liquor Control Commission’s ruling to allow Anheuser-Busch InBev (ABI) to have an ownership interest in a distributorship is an example of the regulatory process run amok. The Commission has demonstrated, through its actions, that it wanted to maintain control of this issue so it could create public policy. A regulatory action, which could have been addressed in a few months, has taken one year and five months since the Governor signed SB 754 into law. Because of the slow, drawn-out process, concerns are raised regarding the Commission’s ability to effectively regulate alcoholic beverages in a timely manner.
Q. How could the Commission have acted in a timelier manner?
A. The Commission could have sped up its decision-making in several ways including appointing a hearing officer “…to conduct hearings involving complex issues or issues that will require a protracted time to resolve.” (5/3-12 (a) (8)). The Commission could have called upon the Attorney General to provide assistance but chose not to request their help. Instead, the Commission drew the process out for over a year and five months after the legislation became law.
Q. Did the Liquor Control Commission create public policy rather than enforce the law?
A. By issuing the order, the Commission has taken upon itself to create public policy despite the Legislature’s intent. As Judge Dow stated in his decision in Anheuser-Busch v. Schnorf, “… the regulation of the distribution of liquor is a matter of public policy and a quintessential legislative function.” (Decision p. 35). This public policy was determined in the Legislature and was clarified in a statement of legislative intent (a statement read into the record during legislative debate) when the sponsor stated “…all brewers, in-state and out-of-state…may not self-distribute or own a distributorship in Illinois.”
Q. What is the Commission’s purpose and did it achieve it?
A. The Commission failed to meet its fundamental responsibility as stated in the Liquor Control Act:
“This Act shall be liberally construed, to the end that the health, safety and welfare of the People of the State of Illinois shall be protected and temperance in the consumption of alcoholic liquors shall be fostered and promoted by sound and careful control and regulation of the manufacture, sale and distribution of alcoholic liquors.”
Their responsibility is to control and regulate alcohol through an independent three-tier regulatory structure, not loosen its regulation by allowing vertical integration.
Q. Why is the legislation referred to as the “Craft Brewer Act”?
A. ABI, and sometimes the Commission, has referred to SB 754 as the “Craft Brewer Act.” This is a fabrication to support ABI’s position that SB 754 only addressed craft brewer distribution, which is untrue. SB 754 responded to the remedy in Judge Dow’s decision on AB v. Schnorf. In Judge Dow’s decision to stay his opinion, he stated, “…the legislative process could address the constitutional deficiency while simultaneously enacting other measures (not preferences) that would protect Illinois’ small brewers.” SB 754 follows the Judge’s decision: 1) it removed the Constitutional deficiency, and 2) it created an exception to protect Illinois’ small brewers. In addition, the language of SB 754 makes no reference to it being called “The Craft Brewer Act.”
Q. Has ABI continued to hold its ownership and exercise management involvement?
A. By drawing out the decision process, the Commission allowed ABI to continue its ownership interest in CITY Beverage (a holding company holding four distributorship licenses). Documents obtained by the Commission show that ABI had the right to name three of the four City Beverage managers.
Q. What is the public policy argument against ABI owning distributorships?
A. Every state, following the repeal of Prohibition, adopted some form of a three-tier regulatory system (manufacturer, distributor, and retailer). Its intent was to prevent the reoccurrence of what was known as the tied house, which is a retailer being influenced or controlled by a brewer. Distributors are intended to be an independent licensee separating a brewer from a retailer. Brewer ownership of a distributorship is vertical integration of the three-tier system and puts a brewer in the position to influence retailers.
Also, independent distributors provide a means for new products to enter the market. A brewery-owned distributor has no incentive to distribute other beers.