Michigan’s Three-Tiered System – Friend or Foe?
Howard & Howard Attorneys PLLC
In Michigan, the month of May is Wine Month – and this May is a special one with the launch of
the Taste Michigan brand and the “Cool is Hot” marketing campaign promoting Michigan wine.
(Special shout out to Mark Lantz and his team at Factory Detroit who’ve done an outstanding job
working with the Michigan Wine Collaborative on the brand and campaign.) I thought for Wine
Month’s Wine Law article, I would briefly discuss the legal framework in which wineries,
growers, vintners, distributors, retailers, restaurants, etc. must operate.
Of course, I am referring to Michigan’s three-tier system – which is, depending on who’s in
attendance, a topic that should be widely avoided at dinner parties along with politics and
religion. For the unaware, the production, distribution, and sale of alcohol in Michigan is
divided into three defined tiers – producers, wholesalers, and retailers.
While there are some limited exceptions, the general rule of thumb is that an entity may not
operate in more than one of the three tiers and producers may only sell their product to a
distributor and not directly to a retailer (there are exceptions for wine makers to self-distribute to
retailers and ship to customers with a few additional requirements). Depending on who you ask,
you can expect widely differing and impassioned arguments about the fairness and effectiveness
of the three-tiered system.
This Wine Month, Michigan should celebrate its thriving wine industry, with over 150 wineries
producing a diverse array of high-quality wines. The State’s wine industry has come a long way
since its inception, and one of the most significant aspects to the industry has been the three-tier
system in which it functions.
The three-tier system was put into place in Michigan after the repeal of Prohibition in 1933.
Actually, Michigan was the first state in the U.S. to vote in support of ratifying the 21 st
Amendment ending Prohibition. The Michigan Liquor Control Commission was created with
legislation signed into law on April 27, 1933, and wheels were in motion to create the three-tier
system that would regulate the production, distribution, and sale of alcoholic beverages in
Michigan, including wine, to this day.
Proponents of the three-tier system argue that it promotes fairness and prevents monopolies,
allowing small producers to compete with large ones by requiring all wine to be distributed
through wholesalers. In other words, the system helps to prevent national mega-producers from
blocking out the State’s micro-producers.
Supporters also argue that the three-tier system delivers access to a broader market by allowing
wineries to reach retailers and consumers who might not otherwise have access to their products.
Advocates for the system say it ensures responsible distribution in that it helps to prevent
underage individuals from purchasing alcohol and helps limit drunk driving and binge drinking.
Opponents of the three-tier system argue that it benefits a small number of distributors and
actually limits choices for the customer by making it more difficult for producers to get their
product to market. Critics of the system also say that it prevents creative entrepreneurship
because those operating businesses, particularly in the producer and retailer tiers, are unable to
expand their operations in a way that infringes on the separation inherent in the three-tier system.
Michigan is one of about 34 states that implements some form of the three-tier system. A few
states are pushing legislation to change that, and the topic comes up from time to time in
Michigan, but no real changes to it are on the horizon. Whether you consider it a friend of
Michigan’s wine industry or a foe, the system is here to stay for the indefinite future, even
though new regulations enacted over the last decade or so have created some exceptions.