Control States vs. Open States: A Founder's Guide to State-by-State Complexity

LIQUID OPPORTUNITIES

Industry Education

Control States vs. Open States: A Founder's Guide to State-by-State Complexity

A founder's guide to the two types of alcohol markets in the United States, how they differ, what each one requires from you as a brand, and how to navigate state-by-state complexity without losing time or money.

SECTION 01 — THE BASICS

Not every state lets the market decide who sells alcohol. Understanding the difference will save you from costly mistakes.

One of the most common surprises for new beverage founders is discovering that the United States does not have a single unified alcohol market. It has fifty separate markets, each governed by its own set of laws, regulations, and distribution requirements. And within those fifty markets, there is a fundamental divide that shapes everything about how you enter and operate in a given state.

That divide is the distinction between control states and open states. It affects who you can sell to, who controls the distribution, how your product is priced, and how much flexibility you have in building your go-to-market strategy. Getting this wrong costs time, money, and in some cases your entire launch timeline in a given market.

Open states, sometimes called license states, operate under a private distribution model. Producers and importers sell to licensed private distributors, who sell to licensed retailers. The three-tier system we covered in the first resource applies directly here. You negotiate your own distribution agreements, set your own pricing within the market, and manage your own relationships with both distributors and retail accounts.

Control states are fundamentally different. In these states the government itself controls the sale and distribution of some or all alcohol categories, most commonly spirits. Instead of selling to a private distributor, you sell to the state. The state warehouses the product, controls pricing, determines which stores carry it, and decides how much of it gets ordered. You are not managing a distributor relationship. You are managing a relationship with a government bureaucracy.

THE CORE DISTINCTION

In an open state you negotiate with a private distributor. In a control state you negotiate with the government. Same product, completely different process, completely different timelines, and completely different levers for driving sales.

SECTION 02 — CONTROL STATES

Control states require patience, paperwork, and a completely different playbook than anything you know from open markets.

There are currently seventeen control states in the United States, including Pennsylvania, Virginia, Ohio, Michigan, Utah, and several others. Together they represent a significant portion of the US population and a substantial share of spirits volume. You cannot ignore them, but you also cannot approach them the way you approach an open market.

In a control state, the process of getting your product listed begins with a product submission to the state's liquor control board. You submit your product, your pricing, and your supporting materials. The board reviews submissions on a set schedule, often quarterly. If your product is approved it gets assigned a listing number and appears in the state's catalog. If it is not approved, or if it does not meet the board's criteria, you wait for the next submission cycle.

Once listed, your product is available to state-run stores. But listed does not mean stocked. In most control states, individual stores order based on their own sales data and consumer demand. A new product with no brand awareness in the market will often sit in the catalog without being ordered. Your job is to create demand at the consumer level that pulls product off the shelf and triggers reorders.

Pricing in control states is largely fixed. The state sets the retail price based on a markup formula applied to your submitted cost. You have very limited ability to run promotions or adjust pricing in response to market conditions. What you can do is invest in brand building, education, and consumer-facing marketing that drives people into the stores to ask for your product by name.

WHAT I TELL EVERY FOUNDER

Control states are not where you start. They are where you expand once you have built brand awareness and proven velocity in open markets. Trying to launch in Pennsylvania or Virginia as your first market is one of the hardest things you can do. Build your proof of concept elsewhere first.

•    Pennsylvania is the largest control state by population and one of the most important spirits markets in the country. The PLCB submission process is rigorous and the timeline from submission to shelf can exceed six months.

•    Virginia has modernized its control system significantly in recent years and is more accessible than some other control states, but still requires a formal listing process and government approval.

•    Utah operates one of the most restrictive control systems in the country. Listings are limited, markups are high, and the consumer base has unique characteristics that not every brand is suited for.

•    Quarterly submissions are the norm in most control states. Missing a submission window means waiting three months to try again. Plan your timelines accordingly.

SECTION 03 — OPEN STATES

Open states give you more freedom, more competition, and more responsibility for making your own market.

Open states are where most new brands start and where the majority of beverage industry volume is sold. California, Texas, Florida, New York, Illinois, and most other major population centers are open markets. In these states you work directly with private licensed distributors, negotiate your own terms, and manage your own relationships up and down the three-tier system.

The freedom of open states comes with a catch. Because anyone can compete, everyone does. The number of brands vying for distributor attention and retail shelf space in an open market like California is enormous. Getting a distributor to take you on seriously and getting retailers to give you good placement requires a compelling brand, strong financial support, and an owner who shows up and works the market.

In open states you control your own pricing within the limits of state law. You can build promotional programs, fund distributor incentives, run price promotions at retail, and negotiate your way into placements that a control state would never allow. This flexibility is one of the most powerful tools you have as a brand builder, but only if you use it strategically.

Choosing your first open market is one of the most important decisions you will make. The right first market has a distributor who is the right size for your brand, a retail environment that is receptive to new products, a consumer base that fits your brand positioning, and enough volume potential to generate meaningful proof of concept data for your next market entry.

MY RECOMMENDATION

Start in one open market and build it right before you move to the next one. I have seen more brands fail from spreading too thin across too many open markets at once than from almost any other mistake. Depth first, breadth second.

SECTION 04 — NAVIGATING STATE-BY-STATE COMPLEXITY

Every state is its own market. The brands that win treat it that way.

Beyond the control versus open divide, every state has its own licensing requirements, label approval processes, tax structures, and regulatory nuances. Some states require you to obtain a supplier license before you can sell there. Others require label registration that can take weeks or months. A few states have franchise laws that make it extremely difficult to change distributors once you have signed an agreement.

Before you enter any new state, do your homework. Understand the license requirements, the label registration timeline, the distributor landscape, and whether there are any franchise law provisions that could affect your flexibility. A beverage attorney with multistate experience is worth every dollar you spend on them before you sign your first distributor agreement in a new market.

The practical approach to state-by-state expansion is to think in phases. Phase one is your home market or your best initial open market. Build proof of concept there. Get velocity data, retail placements, and distributor relationships that you can point to when you enter phase two. Phase two is your second and third markets, chosen based on geographic proximity, distributor relationships, or brand fit. Phase three is your broader regional or national expansion, which only makes sense once you have the infrastructure to support it.

The brands that try to be everywhere at once almost always end up being nowhere in particular. The brands that go deep in one market, build a real business there, and then systematically expand are the ones that last.

THE BOTTOM LINE

State-by-state complexity is real, but it is manageable if you plan for it. Know the difference between control and open markets. Do your legal and regulatory homework before you enter each new state. Build depth before you build breadth. That discipline is what separates brands that scale from brands that stall.