Pennsylvania lawmakers convened a joint public hearing of the Senate law and justice committee and House liquor control committee on the sales of ready-to-drink beverages on April 30.
At present, malt- and sugar-based RTDs, such as Mark Anthony Brands’ White Claw and Boston Beer Company’s Truly Hard Seltzer, can be sold at beer distributors, which offer retail beer sales. Wine-based RTDs are available at Pennsylvania Liquor Control Board-run (PLCB) stores and off-premise retailers licensed to sell wine. However, spirits-based RTDs are only available via the PLCB’s stores.
House Bill 772, which was referred to the House liquor control committee on March 4, would change that and establish “limited spirits expanded” permits that would grant the ability to sell spirits-based RTDs to off-premise retailers already licensed to sell beer and wine.
Year-to-date, the PLCB has recorded $31.7 million in sales of wine- and spirits-based RTDs at its stores, up from $23.8 million in its 2019-20 fiscal year, according to its written testimony submitted before the April 30 joint hearing. PLCB stores currently offer 327 different RTDs.
Pennsylvania Food Merchants Association president and CEO Alex Baloga supported the expansion of RTD sales, asserting they would be “a moneymaker for the state” through sales taxes and permit applications and license fees, according to his written testimony.
“Authorizing the sale of RTD beverages in convenience and grocery stores, among other licensees, would benefit all parties involved – namely customers, retail businesses, and the commonwealth,” Baloga wrote.
Baloga pointed out that consumers likely see little difference between malt- and sugar-based hard seltzers and spirits-based canned cocktails, as they have similar ABVs.
“Yet in Pennsylvania hard seltzers can be purchased at the same locations as beer and wine, while RTD beverages cannot,” Baloga wrote. “This seems like a distinction without any real difference, at least in practical terms, and certainly in the eyes of consumers.”
John DiMario III, president of Erie-based beer distributor Allegheny Beverage Company, noted in his written testimony that several national breweries have introduced spirits-based RTDs, such as Molson Coors’ Proof Point and Dogfish Head’s canned cocktails, but are opting not to offer them in Pennsylvania because the state’s alcohol complexities preclude their existing wholesaler network from carrying them.
“If our current suppliers are producing these products, it would be ideal for our network to distribute the products,” DiMario wrote. “As stated previously, I am confident that the beer wholesalers of Pennsylvania would be the best possible option for distribution of RTD beverages through our three-tier system.”
In his written testimony, Anheuser-Busch InBev state government affairs director Reid Teschner admitted that RTDs are a “significant component” of the beyond beer space that many alcohol manufacturers are wading into. However, he urged Pennsylvania lawmakers keep the differences between beer and spirits in mind.
“Beer has long been recognized as the beverage of moderation, and policymakers and the public understand that beer and spirits are very different products, Teschner wrote. “In the U.S., these differences have been reflected in the way the two products have been taxed and regulated since Prohibition was repealed in 1933.
“Since most ready-to-drink cocktails contain a much higher alcohol by volume (ABV) than beer, they are appropriately taxed at a rate higher than beer,” he continued. “As a manufacturer of both types of products, we recognize that a difference in the tax rate between the two is indeed appropriate.”
Although it is the world’s largest beer manufacturer, A-B also dabbles in spirits and RTDs. Its portfolio includes Cutwater Spirits, the RTD canned cocktail brand the company acquired in early 2019, and several craft breweries in its Brewers Collective division operate distilleries. A-B-owned Devils Backbone offers the Smash line of RTD cocktails, Teschner noted in his statement. Last quarter, Cutwater “delivered triple-digit growth,” according to A-B’s most recent earnings statement.
Nevertheless, A-B still advocates for different tax rates for spirits and beer — and it isn’t alone.
Spirits groups’ efforts to achieve tax equivalency for lower-ABV, spirits-based offerings at the state level have rankled other beer industry leaders, including Boston Beer founder Jim Koch.
In a letter to the Beer Institute, Brewers Association and National Beer Wholesalers Association, Koch urged the organizations’ leaders to work together to beat back efforts by spirits groups to bring taxes on spirits-based, lower-alcohol, ready-to-drink offerings in line with beer, hard seltzers and FMBs.
“They have publicly stated that they can reduce beer volume by 45 million barrels if they succeed,” he wrote. “If they succeed in changing state regulations, instead of a future of growth, the beer industry, brewers and wholesalers alike, would face virtually permanent declines in volume, revenue, and profits while liquor volume and profits would soar.”
The beer industry has lost share of the total beverage alcohol market to spirits in recent years. According to the NBWA, beer has lost share of total ethanol consumed per capita over the last two decades. After holding a 58% share of the total alcohol market in 2000, beer’s share was whittled down to 46% in 2020. Meanwhile, spirits’ share has increased from 29% in 2000, to 38% in 2020.
Expanded Spirits Sales Proposed
A proposed expansion to Pennsylvania’s Act 39, which extended alcohol sales in the state in 2016, would expand off-premise sales of spirits beyond Pennsylvania Liquor Control Board-run (PLCB) stores.
Rep. Timothy J. O’Neal introduced House Bill 1084, which was referred to the Pennsylvania House of Representatives liquor control committee on April 5. O’Neal told KDKA, the Pittsburgh CBS affiliate, that residents traveled to Ohio and West Virginia to purchase liquor when Pennsylvania shuttered its wine and spirits stores during the pandemic. The bill would “expand the market, creating more convenience for customers,” O’Neal said.
Holders of the proposed “spirit expanded permit” would be required to store spirits in a “noncontiguous area that is not accessible to the public” and “is locked at all times when not being accessed by the licensee’s employees” and not accessible to employees younger than 18. Licensees would also be required to use an ID scanner to determine the age of any shoppers who appear younger than 35. Spirits transactions would not be permitted to occur “at a point of sale where the customer scans the customer’s own purchases,” according to the bill.