Why Is It So Expensive to Drink Cocktails in North Carolina?

Imagine you’ve driven down from New Jersey to spend a week at the Outer Banks, or maybe you’ve flown in to Durham to drop your daughter off at Duke, or perhaps you’re in Charlotte on business. Wherever you are, you head out to a nice restaurant or cocktail bar, take a look at the drink menu, and freeze. “$15 for a Manhattan?! But this is North Carolina, not New York City!”

The Old North State gets tens of millions of visitors every year, and has seen more than 100,000 new residents making a permanent move annually since 2015. One of the attractions of visiting or residing in North Carolina is, on its face, the relative low cost of living compared to the Northeast or West Coast. Real estate, taxes, schooling: everything, it seems, is indeed finer in Carolina, except for the cost of booze.

To truly understand the state’s intricate and, many would say, outdated liquor laws would require nothing short of a master’s degree in public policy and thousands of hours of research, but for Eater’s Drinking in America feature, we’ll attempt to explain why North Carolina’s booze regulations can be so confusing and, ultimately, so expensive for the consumer. It’s Alice through the looking glass, where everything on the other side is topsy-turvy and 80 proof.

All Booze Is Not Treated Equally

In 2005, an effort known as “Pop the Cap” resulted in a change to Prohibition-era legislation that had capped beer brewed in North Carolina at 6 percent alcohol by volume. Since the limit was raised, the state has seen record growth in new craft breweries; in 2019 North Carolina was eighth in the nation in number of craft breweries and No. 1 in the South. Similar legislative and public relations efforts led to the creation of official American Viticultural Areas and wine trails to promote North Carolina wine.

The state’s craft distilleries have been less fortunate.

North Carolina operates under what is colloquially known as a “control state” system when it comes to liquor. That means that not only does the state regulate, inspect, and control who gets to make spirits, it is also the sole importer of outside spirits into North Carolina and the main retail outlet for purchasing liquor regardless of whether you are a restaurant, bar, or private citizen.

The statewide Alcoholic Beverage Control commission (ABC) oversees more than 140 local ABC jurisdictions across North Carolina’s 100 counties. Not all counties allow alcohol sales, and some counties have more than one ABC board within their borders. All local ABC boards control the sale of liquor within their jurisdictions and make independent decisions about which liquors to stock in their stores. Confused yet?

“The model is very disjointed, but it is built and rooted in post-Prohibition [policies],” says Melissa Katrincic, president and CEO of Durham Distillery in Durham, North Carolina.

A craft distillery, like the one Katrincic operates with her husband, Lee, is both regulated by and a supplier to the ABC store; the same entity that grants them the legal permission to distill their award-winning gin is also the one to whom they pay excise taxes and then to whom they sell their product.

And speaking of taxes, the excise tax on spirituous liquor in North Carolina is 30 percent, calculated on a price that includes not only the wholesale price from the distiller but also the state warehousing freight and bailment charges and an extra markup for local ABC boards.

That warehouse? Well, all of the liquor distributed to local ABC retail stores must pass through a single warehouse in the state’s capital, Raleigh, regardless of where it ends up on a retail shelf. That means a bottle of liquor produced four hours west in Asheville must be shipped to Raleigh, registered at the warehouse, and then shipped back to Asheville to a local ABC store. Distillers not only must pay and arrange for those shipments, they are also charged a bailment fee (sort of like rent) for the space their products take up in the warehouse.

From Bottle to Glass

From that warehouse in Raleigh, there are a number of ways for the liquor to get into a consumer’s glass.

First and foremost would be a visit to one of the ABC retail stores, as long as you live in a jurisdiction that allows for liquor sales. And it’s not a Sunday.

If you visit a retail store outside of your local jurisdiction, however, you might be confused when the bourbon you usually buy is nowhere to be found. That’s because each of the hundreds of local ABC boards have full control over which bottles end up on their shelves. What you can find in Charlotte might not be available just up the road in Davidson. And how do distillers get their products in as many ABC retail stores as possible?

“I have to personally appeal to every single ABC jurisdiction to carry our products,” explains Katrincic. ABC employees are not allowed to taste the products outside of two statewide exhibitions each year. One distiller, who wished to remain anonymous, said that in their experience the stores tend to make decisions based on price point and how the bottle looks.

A bar owner, who also requested anonymity to speak freely, put it more bluntly. “I have to buy spirituous alcohol through the ABC, and by and large, they know nothing about alcohol.”

(It should be noted that in 2019, the North Carolina Legislature loosened restrictions on local distillers selling their product directly to the consumer from their distillery. Originally capped at two liters per consumer per year, it was later raised to five liters, and the 2019 legislation removed that cap as well as allowing distilleries to operate bars, whereas previously they could only offer quarter-ounce tastes and could not serve mixed drinks or any other type of alcohol.)

But What About Bars and Restaurants?

If visiting the notoriously sterile and intimidating ABC retail stores doesn’t appeal to you, a much more pleasant way of imbibing would be to pull up a seat at a local bar or restaurant. North Carolina is home to dozens of high-end cocktail bars that have garnered widespread acclaim, including Alley Twenty Six in Durham and Little Jumbo in Asheville.

But just because your bourbon now comes in an expertly crafted Manhattan doesn’t mean you’ve escaped the expensive reach of the ABC.

Alley Twenty Six founder Shannon Healy puts it succinctly. “The state is my only source of spirits.”

All bars and restaurants that wish to serve liquor are required to purchase their bottles from their local ABC retail store and only their local ABC retail store, at a markup that is higher than actual retail cost. A bottle of vodka that costs the consumer $20 costs a bar owner like Healy more than $23, and this is after that bottle has been subject to those warehousing fees, retail markup, and the 30 percent excise tax.

Those bar and restaurant owners are also subject to the same product availability whims as you, the consumer.

“It’s hard to obtain a number of things that are pretty easy to get in other states,” explains Little Jumbo’s Chall Gray. “There’s a pretty restrictive system that involves boutique listings and case minimums.”

Gray also reiterated the fact that he is required to buy only from his local ABC board, noting that colleagues just a few minutes away in Weaverville, North Carolina, cannot get the same products available to him in Asheville because they reside in a different jurisdiction.

But, Why?

At this point you might be wondering just why North Carolina treats liquor so differently from beer and wine, and in such a confusing way.

“A lot of things, when it comes to alcohol in our state, are a product of ... entrenched mindsets,” offers Gray. “There are rules and laws that have literally not changed since the repeal of Prohibition.”

“If there is anything that divides the South, it’s alcohol,” says Sean Lilly Wilson, founder of Fullsteam Brewery in Durham. Lilly Wilson helped lead that Pop the Cap initiative that jump-started North Carolina’s craft beer industry, and understands what distillers are up against today. He points to both big beverage companies and the religious right as obstacles. “It was a crazy alliance between the Christian right and the beer wholesalers. It was wacky,” he explains while recalling his fight to modernize beer laws.

And as much as there is an eagerness for change both within the distilling industry and the restaurant and bar sector, the fact remains that many are fearful of going up against the ABC.

“If I don’t like how badly they [the ABC] do their job and I complain about them, they are also the enforcement arm. It keeps the complaints quieter because people are afraid of retribution,” says Healy.

For his part, Healy, one of the few willing to be outspoken on the issue, would prefer to see the entire ABC system privatized. He praises the efforts of Nigel Sullivan, the head of Healy’s local ABC board in Durham, for the strides Sullivan has made in connecting with local bar and restaurant owners, but also sees the entire system as flawed.

“I don’t know that the system fundamentally makes a lot of sense,” Healy says. “I can buy a keg of beer [at a private retail store], but I can’t buy a bottle of Aperol. We could have better selection and raise more tax dollars with far lower overhead if the system was privatized.”

Katrincic, of Durham Distillery, also praises the local Durham ABC board. “They recognize that we’re well loved in this community and they want to support us by giving us shelf space,” she says. “We’re really honored to have that kind of relationship with our home board, especially during a pandemic.”

Still, she too isn’t sold on the ABC system as the ideal way to sell liquor in the state.

“There are definitely nuances to North Carolina’s treatment of North Carolina distilleries that we wonder why we can’t get changed. We wonder why there is resistance from the ABC to change.”

Gray, of Asheville’s Little Jumbo, is pessimistic about a change happening. “As someone who has been an owner for a decade now, I have given up hope of seeing much change when it comes to our alcohol laws.”

The Final Cost

Remember that $15 Manhattan that you ordered way back at the beginning of this journey? By the time it reaches your lips, it will have been taxed at least four times. The distiller who made it will have had to factor in the cost of not only producing it but also delivering it themselves to the state warehouse. The bar owner will have had to consider not only her profit margin but also the cost of having to personally drive herself to her local ABC store to purchase the liquor (no deliveries!), if they even had what she wanted available.

All of that goes into making drinking liquor in North Carolina not one of its many budget-friendly attractions.

“We live in an amazing state with beautiful scenery and a lovely climate,” says Gray. “It just so happens that these are some of the costs of being a part of it.”