States had a big decision to make in 1933 when the U.S. ended Prohibition: How would liquor be sold?
North Carolina was a traditionally conservative state. Many areas were dry even before prohibition was put in place, said Michael Crowley, a retired lawyer who worked with lawmakers on liquor legislation and with private distributors in North Carolina. The state decided to sell liquor through local government-controlled retail stores, creating a control system unlike any other state. Decades later, Crowley said the system has morphed into a complicated, legally unstable mess.
“(It’s) a house of cards,” he said. “Someday I suspect somebody is going to challenge all that, and they’ll win in court, and there will be a sufficient upheaval that it will necessitate the legislature going back and rethinking the whole legislation. And maybe at that point, there would be some significant change.”
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After liquor sales were legalized again with the 21st amendment to the U.S. Constitution in 1933, states decided how liquor would be controlled. Most chose to administer licenses to private retail establishments and distributors that would sell the liquor to the public and to bars and restaurants. Eighteen states in all corners of the country — from Oregon to Maine to Alabama — chose to control liquor sales themselves, North Carolina among those. Seventeen of those states remain liquor control states.
North Carolina was the only state to choose to let individual counties and cities create alcohol beverage control boards, which would run retail stores, buying their supply of liquor from the state distribution center.
The foundation of that system guides how liquor is sold in North Carolina today, but the way liquor sales came to be widespread across the state — with over 170 boards now running retail stores — is legally complicated. Crowell said the system looks nothing like it was intended to.
“It’s an unholy mess, is what it is. And there are a lot of ABC boards that ought not to exist,” Crowell said.
A system based on local control
North Carolina’s alcohol control system is based on a study commissioned by the state in the 1930s, said Brantley Uzzell, vice president of the North Carolina Association of ABC Boards and vice president of a state advisory committee for the North Carolina Alcoholic Beverage Control Commission.
The study found control would be in the public interest by not promoting alcohol consumption and thus improving public health, Uzzell said. The state also chose to limit alcohol interest lobbying in the legislature and keep prices low to compete with bootleggers, Crowell said.
North Carolina was the only state in the nation to give local governments the power to regulate booze. Instead of allowing liquor sales across the state, it was up to counties and cities to vote and decide whether to create an alcohol beverage control board and retail store.
Local control meant big bucks from liquor sales for local government. In 2021, statewide ABC boards reported a profit of $198 million.
“It has turned out to be enormously profitable for the state and particularly for local governments,” Crowell said.
Crowell, who worked for the University of North Carolina School of Government for about 20 years, said he believes the intention of the legislation was for ABC systems to be countywide, meaning a maximum of 100 ABC boards. That's one for each county. Over time, that changed. Municipalities in more conservative counties chose to create their own ABC boards when the county did not, meaning liquor was sold in the city but not the surrounding county. Profits went directly to that city or town.
“Cities of a certain size were allowed to have their own votes if the county had not set up their ABC stores,” Crowell said.
Early on, it made sense for large cities to operate their own ABC boards, Crowell said. As time went on, more small cities and towns created their own ABC boards, resulting in far more boards than counties. Many of the boards struggled to be profitable.
In the past 30 years, the idea that there needed to be a local vote to allow for liquor sales deteriorated, Crowell said. Workarounds to constitutional law allowed for liquor sales without local votes, leading to more and more ABC boards.
Local provisions put system on shaky ground
In 1978, North Carolina allowed liquor-by-the-drink sales in areas with ABC boards.
The legislation still left the decision up to localities. In order to allow bars and restaurants to sell liquor by the drink, a city or county had to hold an election to pass liquor by the drink, and beer and wine sales, as well.
Over time that idea deteriorated, Crowell said. Legislators started taking the decision out of local hands with small changes to the alcohol regulation laws. The changes allowed for liquor drinks to be sold in designated areas without holding an election.
Liquor drinks could not be approved in areas through local bills, which apply only to specified towns and counties. The state constitution does not allow trade to be regulated through local bills. Instead, lawmakers wrote additions to the law that specified an area without naming it, Crowell said.
For instance, one portion of North Carolina’s general statutes specifies that drink sales are allowed in an area of a county that borders the Atlantic Ocean, has a seaport, has a population over 52,000, has more than 3,000 tourism-related jobs, tourism spending over $200 million annually and has six or more cities with ABC stores. Only one county qualifies, Crowell said.
“What’s happened in the last 30 years, in particular, is a bit of convenient hypocrisy and sleight of hand,” Crowell said. “The notion that there should be a local vote before there can be liquor or sales has largely faded away.”
The many special provisions and exceptions are a maze. The exceptions allowed for alcohol sales in small areas that might not have voted to allow alcohol sales or create an ABC board otherwise.
The alcohol sales opened the door for ABC boards in even the smallest areas. There were 30 more ABC boards in 2021 than in 2000.
“That's how the result is a proliferation of local boards which just economically don't have the base to be profitable and sometimes take business from other ABC boards,” Crowell said.
He believes the provisions that allowed for alcohol sales in these areas wouldn’t stand up to legal scrutiny. A challenge in court could change alcohol sales across the state.
Asheboro ABC General Manager Rodney Johnson agrees. The special provisions and other changes the state has made, like allowing distilleries to sell bottles of liquor, supplies fodder for a potential lawsuit.
“What’s to prevent people from filing suit and saying the whole law is unconstitutional?” he said. “The legislature in this state will never privatize ABC. There's too much revenue. But they can't keep writing laws and creating these exceptions to where the courts would privatize the ABC system. I think that, eventually, the way North Carolina is going to be privatized is through the courts.”
Johnson doesn’t want to see that happen.
With so much revenue coming in through ABC sales, Crowell thinks it’s unlikely.
“The streams of money that come to local governments and the vested interest they have in keeping it that way,” Crowell said. “There's also this residual fear that if it’s all private, it will be less controlled; there will be more incentive to sell more (alcohol); they'll be less careful about who it’s sold to. … As in so many things, when the idea of change comes up in the legislature, someone is going to say, ‘If it ain't broke, don't fix it.’ So there’s that inertia.”
