The Three-Tier System

At the turn of the 20th Century, the beer industry was booming. Local brewers often had ownership ties to the taverns—selling to them on extended credit terms, furnishing them with equipment and supplies, charging low or no interest and paying rebates for pushing their brand or carrying it exclusively. The relationship became known as “tied-houses.” These abusive practices led to a campaign for laws prohibiting all drinking. In 1920, the 18th Amendment to the United States Constitution was passed and made alcohol consumption in the U.S. illegal. This was the beginning of what is known as Prohibition.

In 1933, the 21st Amendment to the United States Constitution repealed Prohibition and gave states the authority to regulate the production, importation, distribution, sale and consumption of alcohol beverages within their own borders. A new regulatory system known as the Three-Tier System was created.

The Three-Tier System inserts an independent distributor between the brewers and the retailers. The three tiers (brewer, distributor, and retailer) are also further separated by other laws and regulations prohibiting suppliers and distributors from having any financial interest or influence with retailers. This system was established to eliminate tied-house abuse. Tied-houses would no longer exist—instead, beer would be sold through independent distributors

The Three-Tier System has four primary goals:

  • To avoid overly aggressive marketing and sales practices of the pre-Prohibition era
  • To generate tax revenues that can be collected efficiently from the beer distribution industry
  • To facilitate state and local control of alcoholic beverages
  • To encourage moderate consumption