SB 1288 could chip away at Illinois’ crony liquor laws

A bill in the Illinois Senate would provide certain alcohol producers some freedom within the state’s three-tier system – which has been maintained through measures limiting competition and benefiting the politically connected.

Illinois’ liquor laws have long benefited a few politically connected entities, but legislation with bipartisan support may soon change that and help small businesses.

Senate Bill 1288, introduced by state Sen. Dan McConchie, R-Hawthorn Woods, would allow craft distillers to sell their own products directly, as opposed to having to go through licensed distributors in the state.

The bill amends Illinois’ Liquor Control Act of 1934, which established a three-tier system of alcohol distribution in the state. Under that act, the Illinois liquor industry was set up into three distinct tiers: producers of alcohol – such as wineries, distilleries and breweries – retail outlets and distributors. Licensed distributors buy alcoholic beverages from breweries, distilleries and wineries and then sell them to retailers such as restaurants, bars and grocery stores. With certain exceptions for smaller wineries and breweries, it is illegal to operate under more than one tier.

SB 1288 would allow craft distillers to sell up to 25,000 gallons of spirits directly to retailers each year, circumventing the distributors and providing for more opportunities. This is similar to an opportunity created for breweries in 2011.

Illinois’ three-tiered system mirrors that of every other state in the country, with the exception of Washington. Seventeen states, though, have opted to have the government monopolize the distribution side, and in some cases the retail side, and become “alcohol beverage control states.” In these states, only state-controlled enterprises sell alcohol at the wholesale level, and in some cases at the retail level, often through “ABC stores.” While Illinois has allowed private distributors, market share is concentrated among a few companies, which are often politically connected. This explains efforts by lawmakers over the years to maintain the status quo.

If SB 1288 doesn’t pass, it would remain illegal for distillers to distribute their products directly to retailers.

Insiders know how to rig Illinois’ three-tier system

Nearly two decades ago, Wirtz Beverage Group, formerly called Judge & Dolph, was able to manipulate the three-tier system to its advantage. Judge & Dolph, which had been run by the late Bill Wirtz (who was also the principal owner and chairman of the Chicago Blackhawks), was a large funder of a political action committee – Wine & Spirits Distributors of Illinois PAC, Judge & Dolph, LTD, Southern Wine. This PAC donated to several lawmakers on both sides of the aisle, including House Speaker Mike Madigan and former Minority Leader Lee Daniels.

The Wine and Spirits Industry Fair Dealing Act, the so-called “Wirtz law,” passed in 1999 and prevented distillers and wineries from changing distributors without “good cause” – thereby discouraging any new distributors from entering the market. This extended to other alcohol producers the restrictions that applied to brewers under the 1982 Beer Industry Fair Dealing Act. The beer fair dealing law bound beer manufacturers to their distributors unless they could prove “good cause” – such as breach of contract – to change distributors.

A U.S. district court judge struck the Wirtz law down in 2002, ruling it violated the commerce clause of the Constitution. But Wirtz had already grabbed much of the market for distribution in the state. The limitation and frustration with distributor choice – dating back to the 1982 law – angered some, such as Bell’s Brewery, which pulled all its products out of Illinois (though it returned years later).

Other efforts to limit competition in Illinois

Though a court struck down the Wine and Spirits Industry Fair Dealing Act, several other concentrated efforts have been made since then to limit competition on the distribution side and keep the system intact.

In June 2013, then-Gov. Pat Quinn signed into law House Bill 2606, which amended the Liquor Control Act to prohibit brewers from owning any part of a beer distributor in the state of Illinois. HB 2606 was motivated by opposition to an October 2012 Illinois Liquor Control Commission decision that allowed Wholesaler Equity Development Corp., a subsidiary of Anheuser-Busch Cos., to retain a minority stake it had bought in distributor City Beverage Illinois LLC. The Associated Beer Distributors of Illinois, or ABDI protested the liquor commission’s decision almost immediately, arguing that the arrangement would threaten “Illinois’ ability to regulate alcohol beverages.”

ABDI gave thousands in campaign contributions to the sponsors of that 2013 bill, including plenty of cash to main sponsor state Rep. Frank Mautino, D-Spring Valley, who has recently come under federal investigation for possible campaign finance violations unrelated to these matters.

A few years later, in 2016, state Sen. James Clayborne Jr., D-Belleville, introduced legislation that made bypassing Illinois distributors for out-of-state purchases a criminal offense. The law that went into effect Jan. 1, 2017, made purchasing alcohol across state lines for resale in Illinois a Class 4 felony, as opposed to a lesser business offense. Advocates for the law cited $30 million per year in lost tax revenue from the alcohol sales made across borders. But that argument misses the point that consumers were demanding millions of dollars worth of products, and allowing more competition in Illinois could keep some of that revenue here.

While the legislation was under consideration in the House, ABDI made a $1,000 donation to Clayborne – totaling more than $60,000 donated to him over the years. ABDI also made a $20,000 donation to Madigan, and over the years has consistently made donations to legislators on both sides of the aisle.

SB 1288 offers a path toward more freedom and competition

It’s been clear over the years how Illinois’ outdated system for liquor sales stays intact. Politicians for decades have acted against producers to maintain a system that benefits a select few. SB 1288 would be a step in a different direction, away from the history of distributors currying favor with politicians and squashing competition.

McConchie is joined by three cosponsors: state Sens. Pam Althoff, R-McHenry, Jim Oberweis, R-Sugar Grove, and Heather Steans, D-Chicago. The bill has a deadline of April 7 to leave the Senate’s Executive Committee.