Even as the drinkers of Washington State chug Grey Goose in celebration of the voter-approved Initiative 1183—which closes all state-run liquor stores on May 31, 2012, and allows grocery stores to begin selling hard alcohol—many small-business owners are wary. Sure, the Costco-funded initiative will benefit retailers with more than 10,000 square feet of floor space (you know, retailers like Costco). But industry insiders fear that new, untested regulations for distillers, distributors, and bar owners may spill a bloodbath of red ink. And for the first few years, at least, customer selection could be reduced to the biggest brands.

On November 13, more than a dozen of these small-business owners from around the state met at a Capitol Hill bar to discuss the shifting landscape. They allowed me to attend on the condition that none of their quotes be attributed (because even as the state gets out of the business of selling liquor, they fear reprisal from the liquor board's enforcement arm). Here's what they're afraid of:

Less Selection for Customers: One local wine and liquor distributor had dire predictions for what you'll find on the shelf. "Retail stores will devote roughly 5 percent of their floor space to liquor and will only carry the top 50 brands," he speculated. "I'll be selling to bars, but you won't be able to buy my cognacs or specialty whiskeys from Trader Joe's or Safeway. There's no way customers will have the breadth of availability that bars will have for a few years, at least."

Bars and Restaurants Left in the Lurch: Starting June 1, you'll be able to buy a bottle of Jim Beam at large grocery stores from 6 a.m. to 2 a.m. But it's not clear where the stores will buy their wholesale liquor. That will be left to a yet-unseen distribution market. On March 1, liquor distributors will begin knocking on the doors of bars and grocery stores for the first time since the onset of prohibition. While major distributors will carry popular liquor—Maker's Mark, Stoli, and other big brands—craft spirits may be left off the menu.

Bar owners also fear liquor shortages between now and March, as the state divests its liquor stock. Brian Smith, a spokesman for the Washington State Liquor Control Board (WSLCB), says the state will only be "filling special orders by the case [instead of by the bottle] through March 1." Unfortunately, many bars can't afford a case. Even if they could, the WSLCB is preparing to lay off up to 1,000 of its 1,400 employees. Bar owners believe that, with a sellout of stock and fewer employees around to fill orders, some liquors simply won't be available.

Mom-and-Pop Stores Could Be Forced to Close: I-1183 includes a special provision that allows the state's 166 contract liquor stores—which are mostly operated by families in rural areas—to stay open for business. Ideally, they could act as small specialty stores. But there's a catch: The owners must purchase the $75,000 worth of inventory already on their shelves. "A lot of them don't have the money to purchase their stock," explains Smith, who adds that liquor board officials are scheduling emergency meetings with these panicked business owners. What could happen? "Those stores will just close," he says.

Craft Distillers in Washington Get the Shaft: In 2008, a state law gave craft distilleries using at least 50 percent raw ingredients from Washington State the right to sell their products directly to customers. Since then, our craft distillery industry has blossomed to become, according to industry watchers, one of the most diverse and healthiest craft distillery scenes in the nation.

"The timing is horrible for us," says Steven Stone, owner of Sound Spirits and president of the Washington Distillers Guild. For one thing, the state has always been their distributor. Now: "We have no idea when the LCB is going to stop ordering product," meaning that distillers are struggling to find distributors to represent their small boutique brands. "We could be without orders for months." In addition, the initiative recalled uniform pricing laws—which prohibited large manufacturers like Maker's from giving bulk discounts to large retailers like Costco. "We're not in a position to offer volume discounts like the big guys," says Stone. "That's going to squeeze us. When you think about it, it's anti-­entrepreneurial. It discourages specialty stores, which is what we need to survive. Worst-case scenario, you're looking at a future where it's hard for small distilleries to exist." recommended