It’s funny to catch the reaction of a North Carolina newcomer the first time they head out for a fifth of Jack Daniel’s.

Out-of-staters can’t seem to understand our state’s system of alcohol sales. No wonder: North Carolina’s alcohol laws are unlike any other in the nation.

Why? It’s a long story. We’ll do our best to explain it here.

North Carolina’s alcohol laws are under fire once again after revelations that some $13 million had been wasted over the past decade. That led to the man responsible for the system to resign in anger.

Still, it’s unlikely that anything will change. One key reason why: Money. Alcohol in North Carolina is a $1 billion business.

How does North Carolina regulate alcohol sales?

North Carolina is one of 17 “control states,” meaning that the government sets all the rules for alcohol sales and tightly regulates all aspects of production, distribution and consumption.

That’s done by the N.C. Alcoholic Beverage Control Commission, an agency that sits within the Department of Public Safety and reports up to the governor.

Chart of “control states” by the National Alcohol Beverage Control Association.

For liquor, this means that state-run facilities called ABC Stores are the only entities legally allowed to sell spirits. Booze runs through a big warehouse in Raleigh and gets sent out to different parts of the state. Most counties and some towns have a local ABC Board that runs its liquor stores.

For beer and wine, retailers must get permits from the N.C. Alcoholic Beverage Control Commission to sell.

The system is inherently political.

The governor appoints a chairman1 and two commissioners to the ABC Commission that runs the entire system.

Town councils or county commissioners appoint a chairman and between two to six more people to local ABC Boards. North Carolina is the only state in the country to use this method.

Here’s Zander Guy (left), the current ABC Commission chairman, being sworn in. Photo from the 2017 ABC annual report.

Voters also have a lot of control over what alcohol sales are permitted in their towns. Individual municipalities can restrict certain aspects of alcohol sales. Here are some categories voters can say yes or no to.

  • Malt beverage sales (beer)
  • Fortified wine sales (port, sherry, etc.)
  • Unfortified wine sales
  • Mixed-beverages (cocktails in restaurants and bars)
  • ABC stores

On top of that, the malt beverage and wine sales permissions are divided into on-premises and off-premises, referring to where the alcohol is consumed.

So for example, a town can allow on-premises fortified wine sales only, meaning that a wine bar could serve it inside their business but could not sell a bottle for somebody to take home. The town of Haw River in Alamance County takes just this approach.

You can see a full spreadsheet of where N.C. towns and counties come down on these here.

Where did this system come from?

The laws creating this bizarre system trace directly back to the era immediately after Prohibition in the United States.

In the mid-1930s, the anti-alcohol temperance movement still held considerable political power. So state lawmakers tread carefully when alcohol sales became legal again with the passage of the 21st amendment in 1933.

The North Carolina General Assembly began studying how to handle alcohol sales in 1935, and two years later passed the system of laws that generally stands intact today. It created the state ABC Commission and allowed individual towns and counties to determine how they’d handle alcohol sales, creating local ABC Boards to do so.

The Legislative Building in Raleigh. Photo by the state of N.C.

Over the ensuing 80 years, towns and counties increased the allowed alcohol sales by referendum, slowly but surely. Not a whole lot else has changed.

There are now a total of 168 local ABC Systems, which operate 430 liquor stores throughout the state. Some counties have as many as 9 separate ABC Boards.

And some don’t have any. As you might see from the map: Yes, North Carolina still has a dry county.

Graham County in the mountains does not permit alcohol sales, at ABC stores or by the drink. However, one little town inside it — Fontana Dam — does allow booze.

There are also a number of dry towns within North Carolina.

  • Longview, Burke County
  • Stedman, Cumberland County
  • Virgilina, Granville County

Has North Carolina ever tried to deregulate alcohol sales?

It’s been talked about periodically, but not seriously considered.

Twice in the last decade, the state’s Program Evaluation Division has put out a report criticizing North Carolina’s alcohol sales system. The 2008 report had the title: “North Carolina’s Alcohol Beverage Control System Is Outdated and Needs Modernization.”

Most recently, former Gov. Pat McCrory made the issue part of his 2012 campaign, but never moved on it.

In today’s General Assembly, Rep. Chuck McGrady of Henderson County has been the most outspoken about the need for a modernized alcohol system. The veteran Republican lawmaker has said he will file a bill to create a new method of governing booze sales.

Rep. Chuck McGrady

One of the main reasons the system is so intractable: Alcohol is big business. In the 2016 fiscal year, the system brought in more than $1 billion in revenue.

Where does all the money go?

Most of the money goes straight into the state’s general fund, pumping $300 million or more every year. Most of the rest gets distributed to county and city governments.

Has North Carolina’s alcohol system had any scandals?

Oh Lord, yes. With the sheer volume of political appointees, there’s bound to be lapses in oversight.

The biggest in recent memory came in 2012, when reporters uncovered wasteful spending in Wilmington and Charlotte.

Wilmington’s ABC board was found to be paying themselves massive salaries to oversee the liquor stores. In Charlotte, details emerged of liquor company reps spending lavish amounts of money on ABC commissioners in hopes of getting more sales.

That led to Gov. Bev Perdue signing into law a new ethics policy.

This month, State Auditor Beth Wood published a report finding that the state had wasted some $13 million by failing to monitor a contract to warehouse alcohol in Raleigh.

Soon after, Alcoholic Beverage Control Commission Chairman Michael Herring resigned, blasting Gov. Roy Cooper for accepting the report and not standing up for the ABC commissioners.

Then if you’re a business person, you’ll be scandalized by how wildly inefficient this system is. Rural counties with declining populations aren’t able to make a profit, while urban ABC systems tend to make healthy margins.

ABC Board profit margins in 2006-07.

What happens next?

The state’s Program Evaluation Division is due to publish another report on the state’s alcohol sales laws later this year. Don’t expect it to be glowing.

That would pave the way for the General Assembly to make changes. Chances are, nothing will happen. After all, this latest scandal isn’t nearly as bad as some from the past.

But there are all sorts of different models North Carolina could take a look at.

If the state wants to remain a control state, it could tweak its laws to either bring retail AB stores under a central body at the state level, instead of having local boards. The state could also contract with a company to operate ABC stores.

Then there’s the bigger change: Deregulation. Many states will license retail stores to sell liquor, much like North Carolina currently does with beer and wine. North Carolina would likely choose to tax these sales more heavily or charge a hefty fee for licenses to make up some of the lost revenue.

Cover photo of a Wilson ABC store via the Wilson County ABC board.

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