The Brewers Association (BA) has asked the U.S. Department of Justice (DOJ) to examine state-level regulations governing franchise law, three-tier mandates and territory exclusivity.
In a letter to the DOJ on Monday, BA VP of government relations Marc Sorini explained how existing laws affect small brewers. The letter was part of the public comments filed to the Federal Register as part of DOJ’s request for information about state laws that are “significantly and adversely affecting the national economy or interstate commerce.”
“Today a series of state laws raise costs and harm markets in the beer industry,” Sorini wrote. “Often justified as methods to control over consumption and prevent underage drinking, today many state alcohol control laws are thinly-veiled mechanisms for favoring large, entrenched economic actors at the expense of consumers and healthy competition.”
The laws governing beverage-alcohol commerce today were written in a much different landscape, and may now have unintended consequences for smaller producers, such as the roughly 5,000 craft breweries that belong to the BA.
“Many state regulations that were originally designed to prevent alcohol abuse now serve to protect wholesalers at the expense of small breweries,” BA special projects coordinator Marc Preo wrote in a post about Sorini’s letter on the organization’s website. “These laws limit consumer choice, restrict market access and make it nearly impossible for small brewers to compete fairly.”
In his letter to the DOJ, Sorini highlighted several regulatory areas as “the most egregious”:
- Franchise laws, which “make it all-but-impossible for a brewery to terminate a wholesaler;”
- Three-tier mandates that “severely limit the ability of small brewers to respond to a constricted and consolidating wholesaler tier by finding their own route to market;”
- And mandated exclusivity, which helps state governments “enforce a strict non-compete regime between wholesalers, ensuring that no retailer can put one wholesaler against another when seeking to obtain better pricing or services with respect to a given brand.”
Existing legal norms could address and remedy the situation if applied appropriately, Sorini wrote.
“With the limited exception of laws imposing warnings on alcohol beverage labels, few state laws are subject to an express federal preemption provision,” he wrote. “Nevertheless, many actions under federal law potentially preempt state activities, even the absence of an express congressional preemption provision.
“Notably on the subject of competition, the Supreme Court has held that state alcohol beverage laws remain subject to federal antitrust statutes,” Sorini continued. “We accordingly see a role for federal law in restoring competitive balance to the current distribution system.”
Sorini called for the DOJ, not the Alcohol and Tobacco Tax and Trade Bureau (TTB), to “continue to play a primary role in addressing competition in the alcohol beverage industry,” including by “addressing state laws that have an adverse effect on the national economy and on interstate commerce.”
Public comments in response to the DOJ’s request opened August 13, the same day President Donald Trump issued an executive order (EO) revoking the Biden administration’s 2021 EO calling for an examination of competition across the U.S. economy, including the alcohol industry.
The Biden EO resulted in a report from the Treasury Department that drew mixed responses from the trade groups representing the industry.