An Exchange on Central Warehousing

A reader reports a recent email from the Oregon Liquor Control Commission (OLCC) that begins, “[Y]our statement that [central warehousing] is not directly prohibited by law is not correct. There are several statutes that provide the basis for this prohibition.” That assertion could as well have been directed to me, as in a previous posting I classified Oregon as a state where the prohibition is based on policy, not statutory necessity.

The basis of the prohibition matters, because the time and resources required for a change differ greatly. Regulatory policies can change at the stroke of a pen (although it usually requires lobbying and a bit of luck to move agencies off their initial positions). Statutory rules, especially those favoring wholesalers, are likely to change only after an expensive and protracted lawsuit.

Listed below are the OLCC emailer’s justifications for prohibiting central warehousing, coupled with commentary. The dialog is important, because we can expect similar arguments in other states, varying in detail because of textual differences among statutes.

1. OLCC: “A retail off-premises licensee may not conduct the activities relating to central wholesaling . . . because that license does not include the necessary privileges of importing, storing, transporting or distributing of alcoholic beverages; it only allows the sale of alcohol.” That interpretation is required because other license statutes specifically allow manufacturers and wholesalers to “store” wine. COMMENT: Interestingly, the agency recasts warehousing as “wholesaling,” though of course no sale takes place. The argument seems to be that because a central retail warehouse involves “transporting” or, in a broad sense, “distributing,” it represents a license privilege that exists only if explicitly stated. However, numerous things done by retail licensees without regulatory objection are not listed in the retail license statute, including storing wine and other items in the back room. (The retail license statute does not authorize use of computers, or even electricity, but agencies typically do not object to unauthorized conduct of that type because it does not resemble an activity for which a non-retail license exists.) The argument that everything not expressly permitted is forbidden derives from the early Repeal days, when governments began relaxing total Prohibition bit by bit. More recent cases may narrow the distinction between liquor and other goods, making more room for the counter-theory that governmental permission to engage in a business includes all the ancillary activities needed to conduct it efficiently, if they are not expressly prohibited. In any event, basing a prohibition on absence of express permission looks very much like a statutory interpretation that the agency could, without fear of violating the law, reverse if it chose to.

2. OLCC: “[T]he tied house provisions in ORS 471.394 preclude a retail licensee from owning or having an interest in a wholesale licensee.” COMMENT: No one is talking about a wholesale license. There is no tied house prohibition against a retailer’s having an interest in itself. The agency seems to say that moving inventory around among stores is so much like distributing that they would require the company doing it to have a wholesaling license, which of course could not be issued because of the tied house laws. Again, an interpretation that is not compelled by statute.

3. OLCC: “[A] retailer may not receive deliveries of wine or beer at a central warehouse because ORS 471.305 prohibits a wholesale malt beverage and wine licensee or a brewery licensee from delivering to other than a licensed premises.” COMMENT: A central warehouse is not necessarily unlicensed. A leading model for legal central warehousing is to combine the facility with a retail store, in effect just another retail outlet, but with a large “back room” from which goods can be moved to sister stores as need be.

4. OLCC: “ORS 471.404 provides that only a wholesale licensee may import alcoholic beverages into Oregon. Therefore a retailer’s warehouse may not import alcohol directly from out of state manufacturers.” COMMENT: Importation is not directly at issue in the central warehousing debate, because the state opposes internal distribution by retailers even if the importation is handled by a wholesale licensee. However, importation is on the table in Granholm-based litigation. Oregon wineries can sell directly to retail licensees. If the recently announced suit against the OLCC follows Costco’s application of Granholm, Oregon will be put to a choice of ending direct distribution by its own wineries or allowing retailers to import directly, because of a Commerce Clause prohibition against discriminating against interstate commerce relative to in-state sales by the same class of supplier. Whether or not that happens, central warehousing remains a separate issue, because large chain retailers and consumers would benefit from it even without direct distribution from out of state.

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