What's a Control State?

In this episode we discuss the term 'control state' and learn why the Michigan Liquor Control Commission (MLCC) is a control state.  Spoiler alert: it's not because we have the word 'control' in our name!

Hosts: Sara Weber and David Marvin

The MLCC On The Road podcast is brought to you by the Michigan Liquor Control Commission (MLCC). For more information on the MLCC, please visit our website at www.michigan.gov/lcc. To submit a question or idea for a podcast topic, please email mlccinfo2@michigan.gov.

The mission of the Michigan Liquor Control Commission is to make alcoholic beverages available for consumption while protecting the consumer and the general public through regulation of those involved in the sale and distribution of these alcohol beverage products.

Transcript

Speaker 01: 0:00

You're listening to the MLCC On The Road Podcast, brought to you by the Michigan Liquor Control Commission. Welcome back Sara and this is our next edition of the MLCC on the road podcast and today we're actually going to talk about something you mentioned in our last or our very first podcast. You use the term control state. There's probably a lot of people out there that don't know what a control state is especially when you hear in many states their alcohol agency a lot of times has the word control in it. So it's liquor control commission or alcohol beverage control agency. But that control is a little bit different than what control state means. And so we're going to talk a little bit about that today so that people that don't know what a control state is and why Michigan is a control state, they'll have a better understanding of that. Sara, what is a

Speaker 00: 0:57

control state? The state of Michigan is the wholesaler of spirits. What that means is that the state of Michigan is responsible for working with those various suppliers that sell spirits, which is your whiskeys, your bourbons, your vodkas, you know, just to kind of clarify a little bit. We are responsible for working with those vendors to order that product. And Then those products are shipped to the state of Michigan. They are actually sent to an authorized distribution agent, which we call an ADA, for those of you who have heard that acronym around. And those distribution agents are big warehouses that are located all around the state of Michigan, and they are actually responsible for receiving all of that Spirit product, working with all the licensees in the state, which are retailing tailors for ordering and delivery which is completely different from other states where they may actually have own their own warehouses or if it's an open state they may you know those suppliers may ship directly to whoever however it's you know laid out legally so it's a little bit different than other states in the fact that you know we we are the wholesaler but we are aren't at the same time you know but we are ultimately the ones who purchase make the initial purchase of alcoholic spirits spirits yes

Speaker 01: 2:29

yeah so we're we're distributing um but are just those those adas are doing it on behalf of them so it's not you and me out there carrying the boxes

Speaker 00: 2:38

no no and that's when we're talking about the liquor ordering program the state has the program that they have to build so we can track all the alcohol that does come into the state, where it's going, how often it's being ordered and paid for and whatnot. So there's the relationship between the Liquor Control Commission and the authorized distribution agents is very close and closely monitored so we know and can keep track of all of our products.

Speaker 01: 3:10

Yeah, and actually up until it was the late 90s, 90s. The Liquor Control Commission actually had the warehouses and we had employees that were delivering. So those orders would come in and our people that worked for the MLCC would be on the MLCC trucks delivering from MLCC warehouses to the retailers. And so that is something that's changed obviously in the last 30 years with what people refer to as privatization. It was more privatization of the distribution, not of the overall wholesaling part of it. sale from the commission to the retailers. And so other states, like you mentioned, you can go to, I believe, the one that I always think of is Pennsylvania. Pennsylvania has specific liquor stores where you go in and you buy, I believe it's wine and spirits. I'm trying to think of another state that also has beer. I know in... Ontario, which is obviously not a state, but has a very similar setup. It's a controlled province, I guess. I think beer, wine, and spirits are all sold at a given location, and that's all controlled. So Michigan doesn't have that. Private entities... So SDD licenses, Specially Designated Distributors, they're the ones who can sell packaged liquor, so spirits in their original unopened bottle. And then you have your Class C licenses and B hotel licenses that can sell spirits to drink on the premises. Which brings in the question of where does the beer and the wine get delivered? And I say beer and wine, and then there's also this other thing in our law called mixed spirit drink, not to be mistaken with a mixed drink, which is a cocktail. Most people call these canned cocktails today or ready-to-drink cocktails. They're a low alcohol content pre-made in the original package drink that has spirits as the base. So beer, wine, and mixed beer drink, the state does not wholesale. We actually, that's something in the law that licensed wholesalers, private companies, they are the ones that distribute those products. They take the orders from the retailers and they deliver those products to the retailers.

Speaker 00: 5:27

And they work out supplier relationships with the companies that make or produce those products as well.

Speaker 01: 5:35

And so the state is not delivering all those products. We deliver just spirits products. And I actually had a question the other day, and I don't have the most recent numbers for the end of 2024 fiscal year, but in fiscal year 2023, the state of Michigan, the number of bottles that went through our process. was over 174 million bottles. I mean, that is just, I can't even wrap my head around that many bottles that are out there. Probably with beer and wine, and that number is even a much larger number. But just that much that the commission is the wholesaler of, that is a lot of product out there. And we have to be able to serve every licensee in every corner of the state of Michigan that they are guaranteed under the law, one to One free delivery. of a full case at least, it has to be a full case, each week if they want to order that. And that's a pretty amazing thing that we've been able to do that for now almost, well, we're on to our 91st year of the Liquor Control Commission being a control state and handling things like that.

Speaker 00: 6:48

It's really interesting. And the other thing to know is all these products that are coming into our state have to be registered. They have to be properly registered with the commission, spirits specifically They have specific, very stringent requirements in order to be accepted and put into the system. There's a process for that. And then as far as beer, wine, and the mixed spirit drink products, those also have to be separately registered for anyone that is making or delivering or legally shipping product into the state of Michigan. So there's a lot of different nuances involved with getting product into our state and then how it's regulated. All of it is heavily regulated. though, and we do monitor what is coming in and whether or not people are bringing it in legally, and then we have work to address that as well.

Speaker 01: 7:39

Well, and I think the one question I get asked a lot of times is, what is the benefit for having a control stadium? There's a variety of things that you could answer that question depending on how it's asked and who's asking it. The one thing that I like to point out to people as one of the biggest benefits, not only just the benefit to the taxpayers of Michigan, that money flows through at different route and we collect it in the hundreds of millions of dollars that go into roads and schools and and in local communities each year because of the the commission being the the wholesaler of spirits but the one thing that i like to tell people is the variety that it allows in open states where there it's not a there is no control system there wholesalers can make the decision whether or not they want to take your product. They may say, hey, I only want to have a portfolio of so many products and you're not going to sell enough, so I don't really want to do that. With the commission, if you're able to sell a minimum amount each year, and in some cases it's a fairly small amount depending on the price point of your product, We're going to list that product. And that means we've got 14,000 plus available options out there for spirits. That in some states, we carry stuff that some states don't have. And even bigger states than Michigan. And it allows people to get into the market. Vendors here in Michigan are small distillers that are... an amazing group of people that are out there in everybody's community around the state that have their local tasting rooms and they're making a product and those products are going through this system and they may only sell several hundred or several thousand bottles a year compared to we have big international distributors or vendors that have millions, if not billions of bottles that they sell around the world every year. And we're able to have people that are on the smaller scale all the way up to the huge people all playing in that same arena where they may not have the option, especially the hometown type operations may not have that option in other states where we have that here in Michigan. And it sort of levels the playing field where you wouldn't necessarily necessarily have that if you had to go to every wholesaler in every jurisdiction to ask for your product to be sold. And so it's a way to get a lot more people involved with it. And the customer benefits from that because there's a lot more product that they have selection out there that they wouldn't have necessarily in other states.

Speaker 00: 10:13

Well, thank you for that. I think it gives a basic overview on what the state of Michigan does specifically and kind of gives everyone a little bit of an idea of some of that language and jargon that we toss around a lot that we take for granted on any given day that people should understand or we think that they should understand. So thanks for that, David.

Speaker 01: 10:35

And thank you, Sara. And we'll look forward to talking to you again soon on another MLCC On The Road podcast. The MLCC On The Road podcast was brought to you by the Michigan Liquor Control Commission. For more information on the Michigan Liquor Control Commission, please visit our website at michigan.gov slash lcc. Thank you for listening.