In a recent article, the New York Times featured the role craft brewery expansion is having on reviving formerly downtrodden commercial districts and bringing a new wave of tourism into states through locally focused trails and tours. The popularity and positive impact craft breweries, distilleries and wineries bring to local economies has not gone unnoticed by state legislatures who have relaxed traditional alcohol beverage laws to both support these important local businesses and to meet the demands of modern alcohol consumers. While each state has shifted toward opening up their regulatory structure to support the craft alcohol movement, over the past several years Pennsylvania has positioned itself a highly desirable location to both strike out as a craft producer as well as a favorable destination for out-of-state manufactures to expand their footprint.

Destruction of the Three-Tiered System

When Prohibition ended in the mid-1930s and states were faced with deciding on how to regulate the manufacture, distribution and sale of alcohol, each state and the federal government enhanced regulations to prohibit the intermingling of the three tiers of alcohol manufacturers, wholesalers and retailers. Known as “tied house” laws, these laws seek to maintain strict separation between each tier to lessen concerns regarding undue influence and control. By way of example, Sections 4-411 and 4-443 of the Pennsylvania Liquor Code makes it unlawful for any alcohol entity, including its individuals owners and employees, from having an interest, direct or indirect in another alcohol entity of a different tier. Aside from strict ownership considerations, these laws together with related provisions also extend to other areas such as the supplier’s inability to set or control the price of its product through the route to market or to influence the on-site advertising or marketing of its products. In short, these restrictions have been particularly onerous on alcohol manufacturers given the philosophical belief underlying these legal restrictions that strict separation is necessary and that wholesalers and retailers need to be protected from negative influences by a more powerful manufacturing class. These laws, however, have been significantly relaxed throughout Pennsylvania when it comes to in-state craft alcohol producers.

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