When Prohibition ended in 1933, the United States adopted the three-tier alcohol distribution system as a safeguard against the abuses of tied-house monopolies. Producers would sell to wholesalers, who would then sell to retailers. The idea was simple: prevent vertical integration, curb excessive consumption, and keep organized crime out of alcohol. For nearly a century, this structure has governed the flow of spirits, beer, and wine in America.
But today, the three-tier system no longer serves its original intent—it inhibits competition, stifles innovation, and distorts the very notion of a fair market. Nowhere is this more visible than in the growing list of craft distilleries struggling—or shuttering—under the weight of outdated laws and distribution bottlenecks.
A Legacy System Serving Legacy Interests
In theory, the three-tier system promotes fairness by separating interests and preventing monopolistic abuse. In practice, it benefits the entrenched players: large distributors and conglomerate producers. For small and mid-sized distilleries—particularly craft bourbon brands—it often amounts to an economic gatekeeping mechanism. Getting shelf space or a placement at a popular bar typically requires alignment with a major distributor, and those distributors prioritize high-volume national brands that offer them better margins and predictability.
This leads to a closed loop. Distributors won’t carry you unless you’re moving volume, and you can’t move volume unless distributors carry you. In a market increasingly driven by consumer curiosity and niche craft preferences, the gatekeeping nature of this model directly contradicts the dynamics of demand.
Craft Distillers Are Squeezed From All Sides
The consequences are not theoretical—they are real, and increasingly dire. Take Devils River Whiskey in San Antonio, Texas. Founded in 2017, the brand rapidly grew its footprint across 30 states. But an unfavorable distribution deal with Sazerac Company proved catastrophic. The distillery became locked into a system that failed to support its growth and left it burdened with inventory and logistical challenges. In May 2025, Devils River filed for Chapter 11 bankruptcy protection, directly citing the terms of its distribution agreement as a major contributor to its financial distress.
Or consider House Spirits Distillery, the original producer of Aviation American Gin, once a poster child for Portland’s craft spirits boom. After a significant expansion in 2015, the company struggled post-pandemic to navigate the complexities of a national distribution landscape. Overcapacity, high operating costs, and limited access to profitable markets pushed the distillery to file for bankruptcy in early 2025, even as demand for boutique spirits remained strong.
Then there’s Corsair Artisan Distillery, once hailed as one of the most innovative craft distilleries in the country. It closed its Bowling Green location in 2018 to consolidate operations in Nashville. Behind the scenes, Corsair was battling restrictive distribution partnerships and inconsistent market access. Despite its reputation and cult following, Corsair’s ability to scale was ultimately hindered not by demand—but by an outdated system unwilling to make room for modern craft producers.
These aren’t stories of poor quality or bad business plans—they’re cautionary tales of how systemic barriers can crush innovation.
Distributors Are Now the De Facto Market Makers
The original spirit of the three-tier system was to prevent monopolies. Ironically, the current version often replicates monopoly conditions, just under the guise of compliance and middlemen.
The Consumer Gets Less, and Pays More
Even more absurd: in the era of seamless e-commerce, many consumers still can’t legally buy a bottle online from a small distillery in another state. Attempts to modernize this through temporary pandemic-era shipping laws were mostly rolled back, protecting distributor control under the guise of public safety.
Consumers, too, are collateral damage. In tightly controlled markets, prices are inflated by stacked margins from producers to wholesalers to retailers. A bottle that costs $40 in one state might run $60 or more in another due to the compounding markups and fees. And while consumers are more educated than ever—seeking out farm-to-glass bourbons and unique, limited-edition ryes—many will never encounter these brands because they never made it past the distributor’s vetting process.
What Needs to Change
Reforming the three-tier system doesn’t mean dismantling oversight. It means making the system work for the modern marketplace. Here’s what reform must look like:
A Market Worth Liberating
The biggest distributors—Southern Glazer’s and Republic National Distributing Company (RNDC)—wield disproportionate power. Retailers and restaurants in many states are legally required to buy from them, granting these distributors enormous leverage. Their priorities lie in pushing products with national scalability and established marketing budgets. Small brands often find themselves overlooked, sidelined, or saddled with draconian terms that make sustainable growth nearly impossible.
- Nationally legalize DTC (direct-to-consumer) shipping for all spirits, as currently allowed in wine.
- Create carve-outs for small and independent producers that exempt them from some distribution mandates.
- Increase price and access transparency in distributor agreements and retail markups.
- Incentivize state-level reforms that reflect 21st-century consumer expectations and interstate commerce norms.
Alcohol remains one of the last legacy industries to resist full digital transformation. In a world where a consumer can get farm-raised beef or small-batch coffee delivered to their doorstep in 48 hours, the idea that a bourbon lover can’t legally order from a craft distillery two states over is indefensible.
Devils River. House Spirits. Corsair. These aren’t isolated failures. They are systemic casualties of a market structure tilted toward scale over substance.
The three-tier system was designed to protect the public and promote fairness. Today, it does the opposite. If we want the American spirits market to thrive—truly thrive—we must give craft producers the freedom to grow, compete, and reach their customers without institutional chokeholds.
Our palates, our pocketbooks, and the next generation of distillers depend on it.
