The Brewers Association (BA) is prioritizing legislative efforts that widen craft brewers’ market access as the segment faces a challenging sales environment and narrowing distribution routes, BA general counsel Marc Sorini said during a presentation at the Craft Brewers Conference (CBC) last month in Las Vegas.
“Even with the slowdown in craft growth, [there’s] still a growing number of breweries, so there’s obviously a bottleneck there,” he said. “So being able to get to the consumer, whether that’s directly to the consumer or through retailers to get to consumers, is becoming an increasing challenge, and state law is oftentimes going to be at the frontline of that.”
Sorini and senior director of federal affairs Katie Marisic discussed the trade organization’s legislative efforts at the national and state levels. At the state level, the BA is focusing on franchise law reform, expansion of self-distribution and direct-to-consumer (DTC) interstate shipping privileges, Sorini said.
Franchise Law Reform Success in Wyoming, Pushes in Connecticut and Ohio
Franchise law – the legal convention that binds brewers to wholesalers – has outlived its original purpose, which was “to equalize the bargaining power” between very large brewers, who comprised nearly the entire beer industry, and wholesalers, which were more numerous than they are today, Sorini said.
“Small brewers, if they were on the scene at all, weren’t really recognized, and wholesalers were much more fragmented,” he said. “There were over 3,000 mainline beer wholesalers back in 1990. The current count is down to 1,200.”
Franchise law gained widespread adoption in the 1970s to prevent large brewers from terminating wholesalers without cause, taking with them almost all a distributor’s volume in some cases. However, the landscape has changed considerably since then, with nearly 10,000 craft breweries in operation now.
“Having those unwaivable protections when there isn’t a disparity of bargaining power just makes no sense anymore,” Sorini said.
The issue has the potential for broad appeal to consumers of all political backgrounds.
“Put on your liberal hat and it’s corporate welfare; put on your conservative hat and it’s tampering with the free market for the benefit of a large corporation,” Sorini said. “I think it really works in blue and red states.”
Franchise reform was achieved in Wyoming in March, when Gov. Mark Gordon signed a law allowing breweries producing fewer than 25,000 barrels annually to terminate wholesaler contracts without cause. The law took shape through a process that Sorini called “a model of how we like to see things.”
“We negotiated for almost a year and came to something that both sides can accept,” he said. “And at that point with both the wholesalers and the brewers in the state in support – the big brewers stayed out of it – and we had consensus among the craft brewers and the wholesalers.”
Other franchise reform pushes are underway in Connecticut and Ohio. If those are successful, they would tip the balance of states with franchise carve outs for small brewers into the majority, as 26 states currently have strong laws with little wiggle room. Only Alaska and Hawaii have no franchise law. The other 22 states have exceptions for small brewers, according to a map Sorini displayed.
Self-Distribution Likely to Expand in 2 States
Self-distribution is prohibited in at least 11 states, with efforts underway to extend privileges to small breweries in Delaware. Expanding the practice is imperative to the BA because self-distribution is most beneficial to smaller and newer breweries, Sorini said.
“Our priority is to try to make sure there’s some self-distribution because this is going to most impact our smallest members,” he said. “We think that the economics of self-distribution is such that larger breweries are going to naturally want to go through an independent beer wholesaler, and we absolutely like having independent beer wholesalers. We do not want to see big brewer vertical integration.”
Delaware is working on rulemaking that would allow limited self-distribution up to 1,500 barrels, which is “at least progress” to the BA, Sorini said. Kansas recently enacted up to 1,000 barrels of self-distribution.
“We think we’re gonna have two wins in this fight in 2024, which will be, again, a nice feather in our cap, particularly for the smallest breweries in those two states,” he said.
In Oregon, self-distribution was expanded to out-of-state breweries – “a significant win if you’re on the border,” Sorini said – due to a recent lawsuit that alleged violation of the dormant commerce clause, which requires states to equalize both intrastate and interstate commerce practices.
Self-distribution is currently prohibited in Alabama, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nevada and South Carolina.
Interstate DTC Shipping Could Be ‘Difficult Legislative Change’
In a poll at the beginning of the session, a slight majority (52%) of seminar attendees selected DTC shipping as the biggest state-level legislative opportunity, followed by franchise reform (23%), self-distribution (19%) and increased retail rights (6%).
Few states permit interstate DTC shipments. They include Alaska, Kentucky, Nebraska, New Hampshire, North Dakota, Ohio, Oregon, Pennsylvania, Vermont and Virginia.
Sorini conceded that DTC shipments may not deliver necessary return on investment for some BA members, but they have been instrumental in developing the American wine industry.
“We hear sometimes for some of our members that this is probably not something that they want to do and that’s fine,” he said. “If your model is mostly own-premise sales, you probably don’t get into the direct-to-consumer business route through shipping, but we would like to see it as an option because in some ways, this is how the wineries have been very, very successful at being able to have 12,000 wineries in the United States.”
The BA’s push to expand DTC shipping consists of only shipments via certified carriers such as UPS and FedEx and does not apply to on-demand delivery.
Sorini pointed out that DTC shipping, which the wine industry has used for decades, has allowed small wineries to reach consumers without further burdening the wine distribution network, which has “an even more extreme bottleneck” than the beer distribution system.
Expanding DTC privileges for breweries has historically been unpopular with distributors and Sorini said he expects it “to be a difficult legislative change.”
“We would love to join hands across the aisle with our friends in the middle tier and get consensus on direct-to-consumer shipping,” he said. “If that happens – wow, lions will lie down with lambs and snowballs will not melt in hell. But it would be nice, because we think this is not going to undermine the three-tier system, and we think it’s a good safety valve for small brewers.”
Stay tuned for a Brewbound Podcast conversation with Marisic about the BA’s federal legislative priorities, which include the USPS Shipping Equity Act to allow the USPS to carry DTC alcohol shipments in states where legal, and the CHEERS Act, which would offer tax deductions for bars and restaurants as incentives to install or remodel draft systems.