Alcohol Control in Colorado: The Slow Creak of an Opening Market

Alcohol is one of those classic products where policy is often deeply influenced by morals and potential safety risks over pure economic reasoning. The map depicted below shows the states as of 2015 that had state monopoly control over wholesaling or retailing of at least some kinds of alcoholic beverages. The obvious argument for this is something along the lines of responsible distribution to restrict use that would have deleterious effects for the individual or negative externalities for society as a whole. The estimated $230 million Virginia made from ABC stores in 2010 is also a nice consolation. However, my home state of Colorado isn't state controlled, so the free market should be fully functioning right?



Unsurprisingly, this is not the case (yet!). As of now, grocery and drugstore chains can only sell liquor, wine, and beer at one location in the state. At every location they do have the luxury of selling "near-beer," which contains 3.2% alcohol, but this is little consolation in a state known for its craft brews (that are almost always above this alcohol content level). This setup necessitates the creation of a multitude of privately owned liquor stores, which can't be chains either.

So when I went to the Trader Joe's last summer to purchase some 2016 vintage three buck chuck, I was sadly told that only one store in Denver was able to sell it. That perplexed me, until I read Stigler. The Colorado Licensed Beverage Administration (CLBA), established in 1954 and representing 1600 stores/owners, is a lobbying organization that estimated that it saved members $10 million in 2016 through "proactive legislation." Because the stores represent owners dispersed around the state, it would be hard for them to effectively lobby on their own, but with this organization, the liquor stores have been able to maintain a high degree of market control. However, in June, Governor Hickenlooper signed "the biggest rewrite of liquor code since Prohibition" in Colorado. Still, even in this decision to allow grocery and drugstore chains to sell liquor, wine, and "full strength" beer, the evidence of liquor store lobbying is obvious as it will take 20(!!!) years to be fully implemented. Overall, Colorado is tending towards a more open market approach to the alcohol sales industry, likely in part due to those who would benefit from it most such as large grocery chains, but the power of the well-organized and focused CLBA, similar to what Stigler would expect, has delayed this substantially.