On this episode of the “VinePair Podcast,” hosts Adam Teeter and Zach Geballe discuss the scandal involving agents of the Oregon Liquor and Cannabis Commission using their positions to secure prized bottles of Pappy Van Winkle at standard retail prices. The two discuss why this sort of chicanery is inevitable with the outrageous secondary market for these whiskies, and how lobbyists are using stories like this to chip away at public support for state control of liquor sales in the states where it persists. Tune in for more.
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Adam Teeter: From VinePair’s New York City headquarters, I’m Adam Teeter.
Zach Geballe: In Seattle, Washington, I’m Zach Geballe.
A: This is the VinePair Friday podcast. Guys, great news. Before we jump into this, Joanna had a very healthy baby boy this last week. Congratulations to her.
Z: Mac attack.
A: Yes, his name is Mac, which I love, and she and Evan are doing well and — short for Maclain — they are doing really well. She’s adjusting to parenthood. We’ll see how well in a few weeks.
Z: You laugh now, Adam, but we’re going to be laughing at you in a couple months.
A: I know. I know. Not even a couple of months, now a couple of weeks.
Z: Oh, really? Wow.
A: Yes, it’s going to come fast. She’s doing great. If you want to wish her a congrats, feel free. Hit her up in her DMs on Instagram. Say, “Hey,” or send us a message to her here. Podcast@vinepair.com. But hopefully, we’ll have her back in the next few months.
Z: Yes, absolutely.
A: Congrats, Joanna and Evan. So, under the category of “No one is f*cking surprised about this,” turns out the Oregon Liquor Control Commission have been very bad people. They have been squirreling away bottles of Pappy and Elmer T. Lee, et cetera, for themselves, instead of them releasing them to the state lottery system, which they are supposed to do under the Oregon ethics laws. Oregon is one of those states where the government still runs all the liquor stores, like Pennsylvania, like Alabama, New Hampshire is a very famous one. Turns out that high-level members of the Commission had been instructing people in the warehouse to hold bottles for them, pulling them out of the general inventory that was supposed to be available to Oregon residents that could enter a lottery system in order for the right to buy these bottles at the actual fair market price, not at these crazy — Anyone can buy a bottle of Pappy’s as long as you have thousands of dollars, but this was being able to buy a Pappy actually what it was listed at, which is for the highest-end Pappy’s, I think only $229 a bottle, is what it’s supposed to retail for. They’ve been holding them for themselves and then taking them, which is a big no no. Besides the fact that we covered and everyone else covered it, because it’s just like, “God, this is just so ridiculous,” are we f*cking surprised at all, Zach? I feel like this probably happens in the states that aren’t controlled states, either, where the distributor tells a buddy to hold a few bottles for them. This is what happens in this three-tier system. It just is what it is, and when these whiskeys are so in demand.
Z: Yes. I would be curious to know if, in light of this story coming out, if there has been some investigation done in some of the other control states. Because I agree with you that I am sure that lots of shenanigans are going on everywhere involving these very desirable bottles. I think it’s a little different when it’s state employees holding, privileged themselves, and taking advantage of the state inventory for their own benefit as opposed to, not that it’s great if a manager at a distributor in California or Washington or whatever is doing the same thing with this stock. They’re not defrauding the public in a meaningful way, exactly. It’s maybe if you’re a liquor store operator in one of those states, you might be a little grumpy if you’re getting one less bottle of Pappy than you thought you might be able to, but you can’t really — It’s a little bit of a different beast. No, the problem here is that there’s just too much secondary value for these bottles to expect that people are going to behave honorably, unfortunately. The story, when it broke, was funny to me because Oregon is one of these weird states where it’s an even more complicated, or at least stranger, I think, control state than many because Oregon, the OLCC, buys all the spirits that come into the state and then sells them to stores that have their own inventory. It’s like the state doesn’t even operate the liquor stores, which like when I was growing up, Washington was a control state until probably a decade ago now, or something like that. Even as an adult, I have lived in Washington State when it was both a control state where, to buy a liquor, you went to a store that the Washington State government ran, and the sign on the store just said “Liquor.” It was pretty wild. Now we live in a world where the liquor sales are privatized. You can buy liquor at your grocery stores. You can buy liquor at specialty liquor stores, et cetera. Oregon has always had this weird — The state government has the buyer of note for the state but then sells or releases to privately run stores. There’s that element of — It doesn’t come off as a control state in the same way that some of the ones you mentioned, Pennsylvania, New Hampshire, et cetera do, but it is. It creates even, I think, weirdly more potential for this kind of mischief because what these people at the OLCC did was basically they were– It was weirdly not as straightforward as a system where they were like, “Oh, yes, that bottle of Pappy just disappeared. Huh. I wonder what happened to it.” It was like, “No, we’re going to route it to liquor stores near our homes, and we’re going to know exactly when it shows up. We probably even have a relationship with the store operator, and they’re just going to sell it to us at retail price.” In a way, that petty government corruption is always, to me, a little funny. It is funny. It’s certainly not great, but it’s funny in a way because it’s just not very creative, and relatively — It obviously took very little investigation for the government to realize what was going on once they got a tip that they were doing this. It’s like, “Oh, look, we saw that all of these bottles are going to this one liquor store. Huh. I wonder why that is.” It did not take long for them to basically find any evidence. All of the people involved have either resigned or been fired or whatever. Yes, but the bigger thing for me, and I think the thing that we wanted to talk about a little bit, is, is there any way at all to reign in this secondary market for these spirits? Because I think that’s really where the problem lies. The problem here is not just that people are getting these desirable bottles without them necessarily being available to the general public, although that is obviously a problem. The other problem is that these things are not — There’s nothing that we know of stopping someone from taking one of these bottles that they directed to themselves. They paid a fair, fair retail price for it. It’s not like they stole it, but they are, in essence, stealing whatever the value is between what they paid for at retail and what they could immediately turn around and sell it for on the secondary market. That’s the problem. It’s that these bottles go for 10 times their retail value if you find the right outlet.
A: I think that’s what’s so crazy. Here’s what’s really interesting to me is — I think Sazerac‘s actually part of the problem here.
Z: Interesting. Why?
A: Because I get that they’re saying that they’re pricing this at the price they think is fair, but at some point, guys, maybe just price it higher, and then people wouldn’t go crazy for it. Maybe it would then sit on these shelves. Maybe price it for actually what people are willing to pay in these crazy secondary markets. I guess I think a lot about WhistlePig, and that’s what they do with Boss Hog, is they say like, “We price this at this high-end price that people are actually willing to pay.”
Z: Interesting.
A: We do. Maybe that would solve some of this. I don’t know. Then I’m sure Sazerac really is terrified of looking like they’re taking the price here, but I don’t know what another solution is at some point. A $225 — You sent me the — In the actual Willamette Valley news article about this, I think they showed what the prices are supposed to be. What were the prices? They’re very normal.
Z: You have the bottle price for Pappy Van Winkle 23, which is the highest-end bottling, is $329.95. Not cheap, but I’m sure that if you look for that online, you’re talking about five times that, probably at a minimum. What’s wild to me is — It’s interesting that you say this because I hadn’t really thought about it until you brought it up. It would seem to me in most industries that if there is clear evidence that consumers will pay a much higher price for your product than you’re charging for it, you’re being derelict in your responsibility as a company to not up prices.
Maybe the issue is that they are concerned that yes, some number of people on the secondary market will pay huge dollar figures for Pappy van Winkle 23 or whatever, but maybe the overall consumer base won’t support if they charged $1,000 for it instead of $330 or whatever their price to the distributor is that gets it on store shelves at $330. Obviously, there’s margins and stuff there, but if they were to raise a price 3 times or 5 times or whatever to get to that point where the secondary market shows it. Maybe the issue is that the secondary market is accounting for a relatively small number of bottles that are being sold and that the majority of people who are, or businesses or whatever, that are buying Pappy are themselves — Someone’s buying it and drinking it and they — but again, I don’t think that holds that super well under a lot of scrutiny, and certainly, Sazerac could choose to raise prices some amount that is meaningful, but not all the way to the established secondary market price. It’s weird because a thing that this reminds me of is one of the conversations that’s been had in wine about the secondary market price for really desirable bottles of *wine, Bronco Burgundy, in particular, sometimes Col, Napa cab, et cetera, is producers bemoaning the fact, especially, again, in the case of Burgundy, that the amount of money they make per bottle that they sell to the importer or whomever is a tiny fraction of what they then eventually see these wines selling for at an auction house, not even many years down the road, but like current vintage stuff or relatively current vintage stuff. They bemoan the fact that the majority of that money is going to some other person or other businesses, not them, even though they’re the ones who actually made the thing, but they’re a little bit caught between a rock and a hard place because they’re in Europe and it’s hard for them to get their wines into the American market without going through these established channels, and many of them have long-term relationships with their importer, et cetera, and it’s hard to say like, “Hey, we got to raise the price so that that bottle of Burgundy is coming in as a retail price or wholesale price even more in line with what we’re seeing the secondary market wanting to charge. Sazerac has a few more steps to go through and obviously a very strong relationship with its national distribution partner and could raise pricing. I don’t know why they don’t. It does seem like they are uniquely well positioned. Maybe it’s part of a large negotiated set of — The deal with the distributor is like, “Hey, we have to be able to get Pappy to our accounts at this price.” I don’t know, but it does seem weird.
A: It’s very strange, and it’s just like, at some point, it’s just — When you look at the prices, and you’re like, Pappy 10 Year for $79. In what world?
Z: Yes.
A: That’s part of why people are willing to do all these insane things is because of what the fair market price is. They’re willing to f*cking break the law. They’re willing to say, “Hold these for me so that I can buy these cheap and then flip them.” It’s a guaranteed flip if you get access. Maybe Sazerac needs to do something about that, and you know what? Make your margins on the way, guys. At some point, the reality that this is actually an $80 bourbon is just not true. It’s not an $80 bourbon because no one is paying $80 for it. No one’s paying. I think the tenure I’ve seen on most lists if anyone even has it at a bar, the one-ounce pore is like $50 plus. Guys, come on. You’re telling me that a one-ounce pore at a bar at $50 is fair when you are saying that the actual bottle cost should be $79?
Z: Yes.
A: Raise your prices. Raise your prices, and maybe a lot of this stops, but the corruption inside of beverage alcohol is always going to be there. I feel like in the three-tier system, let’s be honest, that middle tier, it’s the mob.
Z: Yes, kind of.
A: Yes. They’re going to figure out ways to hold things for friends and people that do favors for them and all that kind of stuff. I think, again, if this was happening like at a shop, if Sazerac was selling directly to a shop — I don’t want to pick on them, but let’s say it’s Total Wine. They found out that the executives of Total Wine were holding bottles of Pappy and Elmer T. Lee for themselves, what Sazerac could say is, “Well, then, you guys don’t get it anymore,” unless they felt that Total Wine was a big enough and important enough client that they should keep giving it to them and just give them a slap on the wrist. The problem here is that Sazerac wants their bottles in Oregon, and the only way to get your alcohol into Oregon is going through the state control board, so it is what it is. The people who need to be disciplined are the state government. I think what’s also interesting is that the things you’re reading about it is that this is going to be the excuse that all the grocers think they need to get public support behind a public vote to abolish the state control board and just move to public sales of alcohol in grocery stores, et cetera, which is, again, what we’re seeing. That comes up every other year or so in New York with the wine companies trying to push to go into grocery stores and the grocers trying to push because they say it’s something that helps foot traffic. That could be true because everyone knows that these state control boards limit access for consumers. They limit the amount of bottles sold on the market because there’s a very small selection of wines that come in through control states or spirits, et cetera. They are only at these state-controlled stores. There’s not as many of them in most markets. There’s usually only a few, which is annoying for consumers. Consumers have less ability to get to these stores. Getting them to the grocery store, allowing for private openings of stores, is a lot better. It helps everybody. It’s not going to happen unless you have more scandals like this.
Z: It’s interesting. I did want to talk a little bit about that whole piece of it because I think it is an interesting conversation as our country’s patchwork alcohol laws continue to evolve, both at a state-by-state level and, in some ways, at a federal level. It’s certainly true that this is a golden opportunity or a golden example for those who would push for privatization of liquor sales in Oregon to be like, “You can’t trust the state government to do this without being deeply corrupt, so why are you even doing this?” I am of a mixed mind on the question of control states versus private sales. I didn’t love when it was privatized here in Washington in certain ways because it was very clearly done in a way that was beneficial to large retailers. Costco, in particular, spent a truly astronomical amount of money lobbying and running ads in support of the referendum that was eventually passed. I do think that there is a point which bears mentioning, which is that there’s no doubt that the diversity of spirits available in Washington State has grown dramatically since sales were privatized. Because one of the really frustrating things as a bartender, especially when everything went through the state liquor board, was that if you were interested in getting a spirit into Washington State in the control state days, you had to beg, basically. You had to know someone at the liquor control board. You had to be like, “Hey, I really want to be able to stock.” We’re not even talking about some incredibly obscure amaro here. We’re talking about at times, you had to have yellow Chartreuse. I remember it being a huge deal for the state to bring it in. You didn’t have what you would in the idyllic version of it have, like a panel of spirits experts and bartenders and stuff consulting with the legislative board or the legislative body being like, “Okay, here’s what we think the state should be focusing on bringing in.” Yes, all that. On the flip side, the one positive that I could say about the state-run liquor stores here in Washington, at least, was they did a really good job of keeping — they were not as profit-driven. They had to show that they weren’t losing money, but they were not operating quite as much in a for-profit space as a private enterprise obviously would, which did mean that prices have, contrary to what the law being said, prices have gone up dramatically in Washington since privatization took place. Now, some of that is because of the way the legislation or the referendum was written, where it locked in place a lot of the revenue that the state had derived from alcohol sales via taxes. Washington has the highest liquor taxes in the country, which is not ideal in some ways. I think, all in all, the ease of access and the improved selection is, to me, made it a net positive overall. Certainly, it’s possible for a state like Oregon, should it move in that direction, to do a better job of writing laws that are not quite so punitive towards consumers in certain ways. I do think that we’re just in a different space now a decade later. People want more access to more different kinds of spirits and everything else that they drink. These control states feel more and more antiquated. I don’t know. Adam, are you hearing — Is there drum beats for like in Pennsylvania, in New Hampshire, states near you for them to abolish these systems or are they more entrenched in those states than perhaps they are in Oregon?
A: The states got in at least that wine would start to be sold in grocery stores, wine, and beer. That changed in Pennsylvania a few years ago. They still also sold at their own state wine shops, where they claim the selection’s better. That was weird. I don’t know if that’ll ever happen with liquor. When we talked about this on the last episode, we talked about liquor overtaking beer and wine. There still isn’t a lot of these state governments this belief, like liquor is the juice of the demons. You can’t have easy access to liquor. In some of these states, I think there’s just not enough public momentum to really push for, like, “Hey, I should be able to buy my whiskey while I pick up my bread and milk.” In the same way that people think, “Well, look, if wine goes with food, then I should be able to buy my bottle of wine when I pick up all my ingredients for dinner.” That’s a really easy case for the grocers to make. I think you’re starting to see that happen. I don’t know if you’ll get rid of the state’s control in Pennsylvania, what comes into the state. They still want to be the ones that oversee what wines are allowed to be distributed and sold in Pennsylvania. There’s just too much of a tax revenue there, but in New York, you’re seeing again — and the governor’s pushing for this, this move for wine to be in grocery stores again, and the grocers are really pushing hard. I think it’s gaining momentum. Again, the laws are silly. We have Trader Joe’s all over New York City. Consumers hear all the time because they follow all the people on TikTok who have Trader Joe’s accounts, et cetera, how amazing the Trader Joe’s wines are, and you can’t buy them in any Trader Joe’s store except one in the entire state.
Z: Didn’t the one close?
A: Yes, closed, so now you can’t buy it in any of them. It closed because since you’re only allowed to have one license as a grocery store in the state. The Trader Joe’s now need to pick what’s the best location, and they’ve decided that 14th Street in Manhattan was not the best location. They want to go to something that has probably even higher food traffic, and that they cannot have an even bigger store, and all this stuff, so they’re going to move it to somewhere else. Total Wine decided in New York that in the entire state, the best place for them to be located was Long Island out of everywhere, so they’re on Long Island. That’s where the only Total Wine in all of New York State is. I think everyone thinks it’s ridiculous. All of this stuff is going to get, I think, challenged. The state makes a good argument for the one liquor license that they’re saying, “Well, we’re protecting small businesses.” If we allowed for 30 Total Wines in the state, what happens to all the wine shops? What if there’s a Total Wine that opens a block away from the Mom and Pop Wine Shop? I see the arguments in some regard, but then there is this argument of like, “Yes, but access is just nice. Let’s have more access.” I think the biggest thing, though, is that corruption’s going to be there no matter what, even if it was the grocery store. As long as you have these bottles of alcohol that are worth a lot more than their actual listed price, this is going to continue to happen.
Z: Undeniably.
A: It’s just going to keep happening, and there’s nothing you can really do about it. Sazerac could do a better job of trying to stop it. I’m sure that they are in some ways. I’m sure that they’re trying, but the hype is so good for them.
Z: I was going to say, don’t you think maybe they look at a story like this, and deep down they’re like, “Hell, yes.”
A: Yes, the free marketing is amazing.
Z: People are committing crimes to get our bourbons, even if they would never obviously say that.
A: No, they would never say it, but you’re right. Everyone’s written about this story. It’s gone everywhere, and what are people willing to literally lose their careers and potentially commit ethical crimes as state government officials for? Pappy. That’s really good for Pappy. That’s real good for Sazerac. This is fascinating.
Z: As always, they win.
A: It’s fascinating. Zach, I’m excited to chat again on Monday. I hope everyone has an amazing weekend, and I’ll see you next week.
Z: Sounds great.
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