A Massachusetts state task force dealing with examining the state’s decades-old liquor laws met on Thursday — and beer distribution was on the agenda.
Most prominent for brewers was the issue of franchise law reform, which has been fought in the Massachusetts Legislature for years. Brewers have lobbied behind several pieces of legislation in the past, and they are pursuing two reform bills this session that would alter the strict franchise laws that govern relationships between beer manufacturers and wholesalers.
Those laws have been increasingly under a microscope in the state, particularly as regulators have taken action over instances of abuse, the most recent of which involved a case in which one wholly-owned Anheuser-Busch distributor in the state was accused of participating in illegal “pay-to-play” activities designed to increase their sales and limit competition.
It’s made the tensions clear, noted members of the the Massachusetts Brewers Guild, a non-profit organization that works to promote and protect the interests of the state’s craft brewers. For the guild, reform needs to focus on three areas: franchise laws, licensing and pay-to-play.
“Honestly, I’d really love to work with a distributor,” Lamplighter Brewing co-founder AC Jones told the task force. “It’d make my life much, much easier. … But I can’t do that because I just don’t trust that I’m not going to be damaged by that relationship over the long term.”
For his company to continue to grow, Jones said he would eventually have to sign with a wholesaler, which he refuses to do because he contends he’ll lose power and control of the brewery’s operations.
Brewers are pushing for a ramped-up set of sanctions to help rein in wholesaler abuses.
Although laws aimed at curtailing illegal inducement already exist, Lord Hobo Brewing owner Daniel Lanigan claimed that lax enforcement and vague definitions of what constitutes a gift of “substantial value” have led to continued instances of pay-to-play.
“It’s also not clear what is not allowed,” guild president and Night Shift Brewing co-founder Rob Burns added. “It [the law] says ‘of substantial value.’ To a small brewer, giving away glasses might be substantial value. Or, to a big brewer like Budweiser, … they’re giving away a $7,000 refrigerator. I couldn’t give away a $7,000 refrigerator. To them, they say that’s not substantial value.”
Also discussed at the meeting was the state of three bills aimed at changing how relationships between distributors and brewers are regulated.
On Wednesday, members of the Beer Distributors of Massachusetts lobbied state lawmakers trying to curry favor for House Bill 2823, which wholesalers say would allow beer companies making less than 30,000 barrels annually to terminate relationships with wholesalers for no cause.
But Daniel Cence, senior vice president of Solomon McCown & Company and a lobbyist for the guild, told Brewbound after the task force meeting that language in HB 2823’s definition of “emerging brewery” is a “poison pill” that allows only breweries that are owner-operated to be eligible for the bill.
“If you have someone who works for you that has the title of manager, you’re not eligible,” said Michelle Sullivan, the head of marketing for Boston Beer Company’s flavored malt beverage division and a guild board member. “Anyone who has a brewpub manager, a packaging manager, an operations manager is not eligible.”
“I’m tiny, and I have five managers, so I’m not capable of fitting in that,” Jones added.
Guild members also said that HB 2823 would exclude more breweries than the wholesalers are letting on with breweries such as Jack’s Abby, Lord Hobo, Night Shift, Ipswich Ale Brewery, among others, bumping up against the 30,000 barrel cap.
“The state’s interest shouldn’t be in giving one side of a business relationship an unfair advantage,” Sullivan told Brewbound. “It should be in how can we best grow manufacturing jobs, craft breweries in this state.”
The guild has offered two alternatives:
House Bill 183, which would allow breweries whose brands accounted for less than 20 percent of a wholesaler’s total annual sales would have been allowed to terminate contracts, without cause, as long as distributors were also compensated “fair market value” for the loss of business.
Senate Bill 136, which would allow craft breweries to more easily break ties with their wholesaler.
Sullivan also called for changes to the state’s brewery licensing process to offer menu-style options to brewers; currently, there are multiple licenses available to breweries.
“Right now because you have to get different licenses for different rights, we can’t exercise all of the rights that we’d like to to grow our businesses,” she said. “The licensing structure is antiquated. So it’s very difficult for the members of the guild to exercise all of the rights that they would like to in the Commonwealth to run their business and to grow their business.”
Sullivan added that Massachusetts has half the number of brewpubs as the state of Florida, despite the commonwealth having a “much more significant” market share.
“We believe that’s because it’s so difficult for our members to actually pour beer at their brewpubs based on the licensing structure,” Sullivan said.
More task force meetings are on the way. Last year, State Treasurer Deborah Goldberg pledged to assemble a the group to review Chapter 138 (Alcoholic Liquors) of the Massachusetts General Laws. The Alcohol Task Force will hold five more public meetings throughout May and June. The next meeting is slated for May 30 in Foxborough.
After gathering input from industry members during the six public hearings, the task force will form subcommittees to address particular areas of concern in order to gather a cross-section of perspectives, said Macey Russell, the task force chairman.
“We’re not here to preach,” Russell said. “We’re not here to tell you what you should accept. We’re here to listen to you.”