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The Pennsylvania Liquor Control Board’s executive director put Philadelphia-based Stateside Vodka on notice in June with a sharply worded letter.
It read, in part: “Let me be clear that the PLCB wants to buy all [ready-to-drink cocktail] varieties sold by your company in all configurations, unless we expressly state otherwise.”
The board has authority to dictate terms to distillers. But never in its 92 years had the agency wielded its dual power as regulator and retailer of spirits quite this way.
Then again, the PLCB had never encountered anything quite like Super Lyte, Stateside’s vodka-based, sports-drink-style canned cocktail that became the hit of summer and recorded the fastest launch in American history.
“They never had a system in place to deal with this amount of product,” said Shauna Boscaccy, a Harrisburg-based attorney specializing in liquor law and executive director of the Pennsylvania Beer and Beverage Wholesalers Association.
“For its whole history, the PLCB has been in the business of wine and spirits,” she said. “They weren’t in the business of cans. They weren’t ready for the quantity.”
The PLCB disputes that characterization, with an agency spokesman noting that canned cocktails have been gaining popularity for more than five years and that the agency began adapting its operations to canned beverages with the rise of canned wine in 2016.
What’s beyond dispute is the PLCB’s extraordinary grip on Pennsylvania’s liquor market. It runs roughly 560 state liquor stores,13 licensee fulfillment centers, and two massive distribution centers in Pittsburgh and Philadelphia. It also wholesales wine and spirits, regulates alcohol licenses and funds state police liquor control enforcement, among other powers.
By listing a product such as Super Lyte, the state also sets the minimum price for all other retailers. No other American liquor retailer combines that much commercial muscle with that much regulatory power.
State lawmakers cleared the way in 2024 for distributors of beer and malt beverages to sell popular ready-to-drink cocktails, but the change exposed a longstanding tension in Pennsylvania’s alcohol market: the PLCB’s Fine Wine and Good Spirits stores compete directly with retailers they also license.
That inherent conflict dates to 2016, when expanded wine permits were introduced. The PLCB has maintained that it works with these retailers as business partners, supplying them with products even as its own stores compete with them.
For Pennsylvania-based Stateside, that dynamic creates an additional layer of pressure, a company representative said.
“They are our regulator, they are our customer and they are our competitor,” a Stateside representative told NewsWorks Lab. “It’s a very weird Bermuda Triangle we live in with the PLCB.”
Board spokesman Shawn Kelly defended the agency as a “reinvestment engine,” generating roughly $750 million a year in taxes and profits for the state’s general fund. The agency also awards $3 million a year in grants to support Pennsylvania’s wine, spirits, and beer industries, he said.
“Canned cocktails have been a growing category for years,” Kelly said. “We have adjusted our wholesale and resale operations accordingly, as we always do when a new trend emerges – think flavored vodkas a few years ago and flavored whiskeys more recently.”
The Legislature intended the PLCB to remain Pennsylvania’s primary wholesaler of ready-to-drink cocktails, Kelly said. Allowing Pennsylvania manufacturers to sell directly to licensed retailers was intended to provide an additional option, he said, “but not the primary system.”
A NewsWorks Lab investigation found that the PLCB’s actions have left Pennsylvanians paying more for Stateside’s popular drinks, including Super Lyte, than they did before the Board sent its letter in June.
The agency not only asserted control over the minimum price for Stateside’s products but also raced to meet demand, renting a shrink-wrap machine after sending the company its letter. The arrangement also squeezed distributors, which must buy Stateside beverages from the PLCB at wholesale prices just 10% below the state’s retail prices.
The dispute also exposed a collision at the heart of the state’s liquor system: The PLCB operates as regulator and retailer, wielding its authority in a private market reshaped by state law.
“When your regulator is also your competitor, it puts you in a very tough position,” said Shawn David, co-owner of Beaver County Beverage in Monaca, about 25 miles northwest of Pittsburgh.
Stateside
On June 3, PLCB Executive Director Rodrigo Diaz sent his peremptory letter to Clement Pappas, an entrepreneur and beverage-industry executive who co-founded Stateside. It arrived at the company’s old address just as its business was outgrowing its original home.
Stateside’s original headquarters, a 6,000-square-foot distillery, sits in Philadelphia’s Olde Kensington neighborhood. By this summer, the founders – Pappas, his brother Zach, and a set of two other brothers, Matt and Bryan Quigley – were in the process of moving their corporate operations to a new, 34,200-square-foot headquarters in Center City.
Stateside launched in 2015 by distilling vodka, but the company’s meteoric rise took hold in late 2021 when it launched Surfside, its signature vodka iced tea. The name came from a shore house Pappas was building in Avalon, N.J. His architect had dubbed the project Surfside. Pappas floated the name to Quigley, who gave it the green light.
The first 10,000 cases vanished almost overnight. Stateside scrambled to keep up, doubling, then tripling production as demand surged. Soon came lemonade, peach iced tea, and a blend of half-tea and half-lemonade.
“Surfside hadn’t just skated to the puck and scored a goal,” Philadelphia Magazine wrote in a profile last year. “In terms of success in the canned cocktail market, they’d basically won the Stanley Cup.”
It was a long way from the beginning, when the Quigley brothers, then in their late twenties, Googled how to distill liquor, bought a still on eBay and began making spirits on the sly in their parents’ basement north of Philadelphia. The Pappas brothers supplied the money to turn that basement operation into a business.
This spring, Stateside was striking gold again. Hard tea and hard lemonade were crowded fields. But a hard sports drink? That was something else.
‘Super Lyte Summer’
When Stateside launched Super Lyte, it was the newest evolution in the ready-to-drink cocktail arms race: a pre-mixed alcoholic drink with zero sugar, 90 calories and 4.5% alcohol by volume. Like Surfside, it was not carbonated.
It became like Cabbage Patch Kids at Christmas in 1983: shelves stripped bare, customers scrambling for stock and every new shipment gone almost as soon as it arrived.
On April 29, before an audience of beverage-industry executives in Manhattan Beach, Calif., Clement Pappas predicted Super Lyte would become “the biggest RTD launch in history.”
Super Lyte didn’t just break the record. It blew it away.
The previous record belonged to Lucky One, a line of vodka-based hard lemonade and sweet teas from Spirit of Gallo, the maker of High Noon, which sold a million cases in its first year.
Super Lyte sold that many in 142 days.
Stateside President Matt Quigley projected last month that Super Lyte will sell 4 million cases by year’s end.
David, co-owner of Beaver County Beverage, watched Super Lyte take off like a rocket in the spring. The retail beer distributor operating out of a former Golden Dawn supermarket couldn’t get enough of it. He was buying hundreds of cases at a time from Stateside.
“One day the spigots opened, and it started selling like crazy,” David said.
Then, in the middle of “Super Lyte Summer,” as the beverage trade press dubbed it, the PLCB sent its letter to Stateside.
In Pennsylvania’s liquor trade, the PLCB serves as a powerful gatekeeper, licensing businesses, deciding which wines and spirits earn space on state-store shelves, and setting prices in combination with suppliers. Once set, those prices are mandatory for everyone.
“While a licensed Pennsylvania manufacturer such as yourself may sell [ready-to-drink cocktails] directly to the public and to licensees,” the agency’s executive director wrote to Stateside, “such sales may not be at a price below the PLCB price for the same item.”
The letter’s effects reached some 2,400 grocery stores, convenience stores, beer distributors, restaurants and hotels, as well as 480 bars and nightclubs in Pittsburgh and nearly 3,500 statewide.
Ultimately, the board’s demand hit the pocket of anyone looking to buy America’s hottest-selling alcoholic beverage.
“By statute they have the right to make the request they did,” a Stateside representative told NewsWorks Lab. “It’s just not done in a manner they had ever done before. We’ve never had a letter like that, and they’ve never asked for everything.”
Stateside and the retailers declined to speak on the record, fearing they might run afoul of the PLCB.
NewsWorks Lab also spoke with several major retailers and trade association leaders who voiced similar concerns.
“If there’s a dispute between Stateside and the PLCB, beer distributors are caught in the crossfire,” said Charlie Caputo, a Pittsburgh attorney and general counsel for the Malt Beverage Distributors Association of Pennsylvania.
Loosening laws
For decades, the state has loosened its liquor laws one notch at a time, allowing private businesses to sell more kinds of alcohol in more places without dismantling the system built after Prohibition.
Wegmans, in 2008, and Giant Eagle, in 2016, helped expose some cracks. By licensing part of its grocery stores as restaurants, the chains found a way to sell beer by the six-pack, and then wine. Other retailers followed. The courts upheld the practice, and the state’s grip loosened another notch. But the old system survived.
In July 2024, Pennsylvania lawmakers enacted Act 86, opening the sale of spirits-based canned cocktails to beer distributors, grocery and convenience stores, and hotels. Manufacturers like Stateside could now sell directly to these retailers.
Yet, even as it loosened the state’s grip on distribution, the law preserved the PLCB’s right to also purchase and sell ready-to-drink cocktails.
Now more than ever, the PLCB competes directly with distributors, retailers, and suppliers across the Commonwealth.
The catch: The board also issues licenses to each of its new competitors. It regulates them all.
“Our role is retailer, wholesaler, regulator, promoter of social responsibility and alcohol education, and maximizer of financial returns for all Pennsylvanians,” said PLCB spokesman Shawn Kelly.
Asked whether these overlapping responsibilities create a conflict of interest, Kelly said the issue is for lawmakers to address, not one the PLCB can resolve on its own.
“Our role is outlined in legislation,” he said.
‘RTD Law’
Pennsylvania created its Liquor Control Board on November 29, 1933, days before the federal Prohibition on alcohol ended. Pennsylvania was ready for repeal but determined to keep a tight rein on the liquor trade, said Char Miller, a historian and the W. M. Keck Professor of Environmental Analysis and History at Pomona College in Claremont, Calif.
Gov. Gifford Pinchot helped establish the state liquor system to restrict access to alcohol through tight control over its sale, price and distribution. The system became a tool of social control and a major source of state revenue, said Miller, who has written extensively about Pinchot and Progressive Era regulation.
Rather than turn alcohol sales over to the open market, Pennsylvania put the state in charge. For the next 92 years, spirits-based products remained largely confined to the state-controlled system.
Nearly a century later, the board’s grip on the liquor trade remains firm, forcing ready-to-drink cocktail makers to navigate a state-controlled marketplace built on Pinchot’s decades-old philosophy, Miller said.
The board controls how alcohol enters Pennsylvania, how it is regulated, and, to a significant extent, what consumers pay. The system still generates substantial revenue.
“The Liquor Control Board has held so tightly to its authority over ready-to-drink cocktails because it doesn’t want to relinquish its effective monopoly,” Miller said. “RTD distillers are now confronting the realities of that monopoly: The state retains significant control over pricing, including the ability to drive up costs for producers and sellers.”
Higher prices
Pennsylvania’s alcohol-control system traditionally has kept its categories in separate lanes: wine and spirits in state stores, beer at distributors. Ready-to-drink cocktails scrambled the arrangement, appearing in state stores, grocery stores and beer distributors alike.
No product tested the liquor system quite like Super Lyte.
Before the product’s March launch, the Stateside official said, the company traded conversations, phone calls and feelers with the PLCB. Nothing concrete. No actual purchase agreement. Then, on March 10, the Board sent an email: The agency wanted to sell Super Lyte.
There was one problem. Stateside couldn’t fill the order.
The company had presold 300,000 cases before the product hit the market, and demand already was outrunning supply. Stateside told the PLCB it wouldn’t have additional production capacity until fall, when it expected to be able to supply the agency without difficulty.
Fulfilling the orders meant navigating a supply chain that couldn’t be sped up overnight. Stateside needed to order ingredients, print cans and secure production time at its facilities.
Then came the packaging.
The PLCB required each 24-can case of Super Lyte – containing three eight-packs – to be shrink-wrapped, a format Stateside didn’t typically use for Super Lyte and hadn’t built into its packaging plans. Meeting the requirement meant additional operational changes the company couldn’t make on the board’s timetable.
Stateside told the agency it couldn’t fill the order immediately but offered a timeline for when it could.
“Then it was like crickets,” the company official said.
That was, until PLCB’s Diaz sent his letter in June.
The board had acquired shrink-wrapping equipment through its contractors to repackage Super Lyte and Surfside. The sides negotiated the fee to $1 per case, which Stateside paid.
Kelly, the PLCB spokesman, said the agency maintains standard labeling, packaging and delivery requirements for all suppliers. The rules ensure products can be safely received, stored and transported while minimizing extra work at distribution centers, he said. Suppliers that fail to meet the standards pay fees to cover the cost of bringing their products into compliance.
The dispute exposed a larger tension over how Stateside attempted to serve two markets with different rules.
At first, Pennsylvania’s Fine Wine and Good Spirit stores carried four-packs of Surfside, Stateside’s vodka-infused teas and lemonades.
The company later introduced six-packs and 12-packs with different universal product codes, or UPCs, that weren’t listed in the state system. That allowed Stateside to sell those packages directly to private retailers at lower prices.
“Because the six-pack wasn’t in the state system, they could offer it to us at a lower price,” said David of Beaver County Beverage. “The state stores didn’t have that item to sell.”
The pattern repeated with the eight-packs and 12-packs. Stateside offered the eight-pack to the state and the 12-pack to private retailers.
Suddenly, PLCB wanted every variety of Stateside’s ready-to-drink cocktails in every package configuration, even those that didn’t meet its packaging requirements. The board would correct any deficiencies and bill Stateside for the work.
Kelly said the PLCB considered expanding its selection because customers wanted more products and package sizes, and Stateside was becoming more popular. He added that the PLCB’s contracted logistics companies rented equipment to shrink-wrap trays of canned cocktails so they could be handled more easily at state distribution centers.
Once the PLCB listed all Stateside products in every configuration in September, the company could no longer sell them to the beer distributors for less than a 10% wholesale discount below the state’s listed retail price.
Before the Board listed Super Lyte, distributors buying pallets directly from Stateside qualified for volume discounts, bringing the price of Super down to as little as $47.99 per case.
Now, whenever he needs to restock Super Lyte, David drives 30 miles to the board’s Licensee Service Center in Bridgeville, where he pays the state-mandated wholesale price of $53.99 per case.
“Now that we have to buy from the state, we’re competing with the state on almost no profit margin,” David said. “Consumers are paying more, and we’re making next to nothing. When the state controls the inventory and sets the prices, there’s only so much you can do.”
Jason McGahan is an enterprise journalist for NewsWorks Lab who can be reached at jmcgahan@newsworkslab.com.
NewsWorks Lab is a public-benefit company owned by Trib Total Media to produce high-impact, accountability journalism as a free, open-source resource. You may find more information at NewsWorksLab.com. Questions, tips and comments may be shared at Hello@NewsWorksLab.com.
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