When it comes to alcohol regulation in the U.S. every state has its own unique rules and regulations. However, there are two common types of regulatory systems in beverage alcohol–Open and Control states–and each requires different strategies for building a brand.
We’ve put together everything you need to know about how to enter and gain traction in Control States.
The Difference Between Control and Open States
In these two regulatory systems, a bottle takes a different path before it gets into the hands of a consumer. In Open States private businesses are allowed to buy and sell alcohol in accordance with state laws, while other states own the distribution and/or sale of alcohol (wines, spirits as well as beer). These are known as Control States.
In Control States, a government agency often handles the wholesale aspect of the system, then it either delivers products to privately held off-premise retailers or in most control state systems, the state also owns the off-premise retail aspect of the system.
This typically occurs in the form of state-run Alcohol Beverage Control Board (ABC) stores.
In all Control States, the minimum price for each product is set by the state, which dictates the price for the consumer. The commonly held benefits of a controlled state system include state revenue, support and education for alcohol programs, and promoting moderate consumption as some of the potential benefits of the Control State system.
In Open States, the sale and distribution of alcoholic beverages is handled by private entities but still regulated by state legislators. Regulation is primarily achieved through a licensing system, in which licenses are granted to private enterprises allowing the buying and selling of alcohol at the state’s discretion. If private companies comply with state regulations, they’re free to engage with a range of retailers as opposed to government-mandated locations.
The commonly held benefits of operating in Open States are greater access to off-premise retailers (liquor stores) and increase beverage selection for consumers. Additionally, the increased access to more products means that prices tend to be lower in Open States than in Control States.
Which States are Control States?
There are currently 17 Control States in the U.S. including:
- Iowa
- Maine
- Michigan
- Mississippi
- Montana
- Ohio
- Oregon
- Vermont
- Wyoming
- West Virginia
- Alabama
- Idaho
- New Hampshire
- North Carolina
- Pennsylvania
- Utah
- Virginia
Additionally, Montgomery County, Maryland operates under a Control State system but the entirety of the state does not. Click here to find more information on each state control board.
How to Get Listed in a Control State
For a product to be available for purchase in a control state, the state must list the product. Each state has different requirements that must be met before listing a product.
Registration
Some states require a brand to obtain a Control State Code for each product before it can be listed for sale, while others issue their own state code once the product is active. The Control State Code is a unique six-digit code assigned by the National Alcohol Beverage Control Association (NABCA) that can be used across states that utilize the control state coding system. For states that require NABCA codes, Park Street Companies can file for these codes on behalf of clients via its Control State Regulatory Compliance department.
Establish Demand Through Trial
In most control states a product should be able to establish interest in the market it is looking to enter. One way that can be accomplished is through special orders.
A “special order” most often refers to when a single retail account is interested in a single purchase to test whether the product will sell well. This process allows the sale of the product on a per-order basis. These orders are typically smaller and, depending on the state, can be as little as a single bottle or case. When a product enters through special order, it is not held in bailment inventory nor does it get any off-premise shelf presence.
Attain A Listing
If the product does well enough through special orders, and other retail customers in the state request the product, the next step is to try to get fully listed. A full listing will typically gain the product an allotment in the bailment warehouse or shelf presence in off-premise locations. In many cases, full listings require a broker to make a formal presentation for the state board to approve the product.
Emily Pennington 0:00
Hi, I’m Emily Pennington, Senior Manager of Marketing and Education with Park Street, and today I’m going to explain the concept of control states. If you’re entering the U.S. market for the first time with your brand or you have a newly established brand based in the U.S., one of the first things you need to do is understand the basics of how the U.S. regulates the sale of alcohol. While there are certain overarching federal laws like the three-tier system, many of the laws governing the sale of alcohol in the U.S. are established on a state-by-state basis. If you’re not familiar with the three-tier system, I recommend going back and watching that video on Park Street University first.
Emily Pennington 0:48
If you are familiar with the three-tier system, the next thing you’ll need to do is understand the two types of regulatory systems for beverage alcohol in the U.S.: open states and control states. Each requires different strategies for building a brand. In open states, private businesses handle the distribution of alcoholic beverages, where suppliers can choose the distribution partners of their choice. That system is overseen by state agencies and legislators through a licensing system. If private companies comply with all state regulations, they are free to engage with a range of retailers, as opposed to any government-mandated retailers and locations.
Emily Pennington 1:34
Now, in control states, a government entity or a government-appointed entity often oversees the distribution aspect of the three-tier system, delivering products to privately held off-premise retailers. In many control states, the state also owns the off-premise retail aspect of the system. In theory, control state systems generate money for the state that is reinvested in infrastructure or other programs.
Emily Pennington 2:03
So, which states are control states? There are a total of 17 control states and one control jurisdiction in Montgomery County, Maryland. The control states that own the liquor stores and retail aspect of the system include Alabama, Idaho, New Hampshire, North Carolina, Pennsylvania, Utah, and Virginia.
Emily Pennington 2:24
The control states that own the distribution aspect of the system include Iowa, Maine, Michigan, Mississippi, Montana, Ohio, Oregon, Vermont, Wyoming, and West Virginia.
Emily Pennington 2:34
That covers the basics of what control states are in the U.S. If you found this content helpful, you can click the subscribe button below. Thanks!
Free Guide to Getting Started in The US Market
Before launching your brand in the US, make this download your first stop for understanding how the US alcohol system is set up and the initial steps required to begin selling your alcohol product here.