Don’t discount alcohol and make sure you have an attorney. That was the core advice from legal experts during the Massachusetts Brewers Guild’s (MBG) Mass Brewers Conference Monday.
The MBG held their annual business and technical conference at Jack’s Abby Craft Lagers’ taproom in Framingham, Massachusetts. The day featured several panels and workshops, including a discussion on alcohol laws in the state, featuring Mark Borenstein, associate at Bowditch and Dewey; John Connell, partner at UCD Law; and Tara Heath, chief legal officer and general counsel at Boston Beer Company.
The panel discussed the various legal battles breweries producing and/or selling in the state should look out for, including franchise law, cross-category production and happy hour laws. The discussion was moderated by Adam Romanow, founder and president of Castle Island Brewing and MBG VP and treasurer.
Disclaimer: Panelists’ comments are not official legal advice, but their own personal opinions on legal interpretation.
As Category Lines Blur, Interests in Pub Brewery Licenses Have Increased
With the rise of the beyond beer category and products such as ready-to-drink canned cocktails (RTDs), more breweries have been exploring selling wine and spirits products. In Massachusetts, there is no one license that allows the manufacturing and selling of a combination of beer, wine and/or spirits. As a result, companies must receive separate beer, wine and spirits manufacturing licenses from the Alcohol and Tobacco Tax and Trade Bureau (TTB), Alcohol Beverages Control Commission (ABCC), and the facility’s municipality.
Space is also an issue, as Massachusetts law prohibits the physically overlapped manufacturing of beer, wine and spirits.
“The trick is finding the space in the building to put a winery, distillery and brewery, because it cannot overlap,” Connell said. “And they have to be contiguous to the taproom.”
However, state law does allow a facility to pour any brand “made by you or for you,” which gives the “argument that you don’t have to produce anything at all in these manufacturing areas,” Connell said. As long as a brand is made (and branded) for the licensed company – and is still made within Massachusetts – it can be sold at the taproom under the manufacturing license.
“As long as it’s made by another Massachusetts manufacturer for you – like contract brewing – they can provide you with the beer, wine or spirits and you can pour it; provided it’s under your brand name,” Connell said.
A pub brewery license is also an option, although there “aren’t that many,” Connell said. The license allows a holder to operate a brewery and sell its own brand of beer, but also allows the facility to “run essentially a restaurant license” where it can pour other companies’ beer offerings. The caveat is the pub brewery license prohibits the license holder from “having an interest in a manufacturing license in Massachusetts like a farmer winery or farmer distillery,” Connell said.
While theoretically a pub brewery-license holder could obtain an “all alcohol license” and serve across categories, the “challenge” is that a larger percentage of sales at the facility must be food-based versus alcohol-based, Heath said. Additionally, pub brewery licenses do not allow for self distribution.
With those limitations, a pub brewery license is still “definitely not something to completely discredit,” Borenstein said.
“We actually have heard a lot of folks, especially given the pandemic – people are drinking more distilled spirits than they might be drinking beer in some instances – people want to expand their offerings,” Borenstein said. “So it might be adding distilled spirits or it might be applying for a pub brewery [license]. So there is some interest in that, especially if you already work through a wholesaler and you’re not self distributing.
“There are certain limitations with respect to [a] pub brewery, but having a Section 12 [license], being able to sling cocktails, can be really attractive to some businesses that are looking for additional streams of income,” he continued.
Boston BeerWorks, the state’s largest chain of pub breweries, permanently closed its locations last year.
If a brewery is already registered as a farmer brewer, it cannot expand with a pub brewery location. However, “the ABCC will work with you to convert your license,” Borenstein said.
Don’t Discount Beer, Don’t Discount Beer, Don’t Discount Beer
All panelists repeatedly advised breweries not to discount alcohol, no matter what.
Massachusetts’ “happy hour law” – part of state’s Liquor Control Act – includes the prohibition of reduced bev-alc prices “at a price less than the price regularly charged for such drinks during the same calendar week,” with the exception of private events. The rule means breweries cannot reduce the price of beer as an hourly or one-day special, or as a reward for frequent visits or special memberships.
While there may be ways to work around the rule – such as discounting a food-and-beer combination special – Monday’s panelists agreed breweries should play it safe and avoid discounting any alcoholic beverages no matter the circumstance.
“When it comes to pricing of alcoholic beverages in beer, wine and spirits, the ABCC is very strict,” Connell said. “You can’t come up with any combination where somebody gets a benefit or discount. It’s always better to stay away from the alcohol.”
“If you’re going to discount food… What I would do is I would show the price for the beer and the hot dogs but on the bottom in small print: ‘There is no discount on the beer, there’s a discount on the food,’” Borenstein added. “So if someone down the street calls in to the ABCC you’ve got this advertisement… Cover your bases that way so that way you can defend yourself later.”
An amendment to bring happy hour pricing back to Massachusetts passed through the state senate over the summer, but failed to make any further progress after Gov. Charlie Baker said he would veto any such legislation. Baker is not seeking re-election, so the issue could return next year, depending on who wins today’s gubernatorial election.
In a similar vein, when it comes to loyalty programs, “you cannot reward somebody for drinking alcohol,” Heath said.
“The more you drink, sorry, you’re not going to get more benefits from it,” she said.
However, “there are ways to reward your patrons without actually tying into the alcohol itself,” she said. That can include rewards programs with points for frequency of visits or food purchases, which can be redeemed for discounts on food or non-beer merchandise.
Wholesaler Changes Like Deciding to ‘Divorce Your Spouse: Go See A Lawyer’
In 2021, Gov. Baker signed ‘An Act Relative to Craft Brewers,’ a franchise reform bill allowing breweries producing fewer than 250,000 barrels to terminate wholesaler contracts at any time, given they give 30 days’ notice and pay ‘fair market value’ for their brand rights. While the bill gave some protections to breweries wanting to change their wholesaler relationships, it has resulted in multiple legal battles.
For companies that want to terminate a wholesaler relationship, Connell suggests they treat the decision “like deciding that you finally decided to divorce your spouse: go see a lawyer.”
“Before you declare war, you probably should know all your options and what it’s going to cost before you pull that trigger,” Connell said. “Reconciling with a very bad distributor in a bad relationship, it’s like reconciling in a marriage that’s gone bad — it’s very hard to do.
“Call your lawyer, get your checkbook out and prepare for the worst,” he continued.
Connell is himself representing Jack’s Abby in an “epic divorce” from Atlantic Beverage Distributors that has been in litigation for almost two years. While closing arguments were heard in April, there has yet to be a final decision from the Suffolk County Superior Court.
With franchise reform, fair market value must be determined through arbitration, which is a “big to-do,” Connell said.
“If you’re a big wholesaler and you have a lot of case equivalents that you sell every year, you’re gonna go through a very tumultuous process,” Connell said. “In that vein, if you’re a bigger brewery and you’re going to go down that road, the first thing you want to do is hire some expert witnesses to figure out what the fair market value is of your brands.
“The brewery obviously wants the price to be as low as possible, because they have to pay it – or their successor wholesaler – and the wholesaler wants the price to be as high as possible,” he continued. “So there’s a lot of economics in determining the distributorship of beer rights in the United States per state.”
Atlantic has argued that 25E ½ is unconstitutional because it dictates that an arbitrator, rather than a trial jury, determines fair market value.
While this kind of “divorce” is “the mother of all ways” to separate from a wholesaler, which are “very discreet” and particular to a company’s arrangement,” Connell said. For example, a company does not have to provide a wholesaler with a new brand it’s never distributed before (as long as the obligation is not stated in the contract). However, the definition of a “new brand” is up for debate.
Want to Explore CBD or THC Products? ‘Go to Canada!’
With cannabis laws changing across the country, some breweries have begun exploring the production of CBD- and THC-infused products, such as Minneapolis, Minnesota-based Indeed Brewing with its non-alcoholic THC-infused seltzer this summer.
The Food and Drug Administration (FDA) and the TTB have “not officially come out with an opinion or directive” that combining THC, CBD or “any derivative” with an alcoholic beverage is legal, Heath said. Additionally, a company cannot obtain a license to produce CBD or THC products “on the same premises” that alcohol is produced.
With these restrictions, Heath’s own company, Boston Beer, has decided to explore THC products with operations in Canada, launching Teapot, a THC-infused tea, in the country in July.
For those who don’t want to cross the border, the TTB does have guidelines for hemp production, which is the “easier place” for breweries to start dipping their toes in cannabis-adjacent offerings, Heath said.
Additionally, the TTB does not “have jurisdiction over things that don’t go into interstate commerce,” Heath said. As a result, dispensaries in Massachusetts only sell products grown and produced in Massachusetts facilities.
“The unfortunate part about these THC, CBD and hemp products is the money can’t go through the current banking system,” Heath said. “You’ve got to find a way to get your cash to a credit union.”
The SAFE Banking Act – which has passed through the House of Representatives several times, but never progressed further – would provide banking services to cannabis businesses. If that does eventually pass, it would “open the floodgates” for THC and CBD business capabilities, Heath said.
Remember Holiday Selling Rules and Renew Your Licenses
It wouldn’t be a Massachusetts legal talk without brushing up on some of the holiday or day-of-the-week specific rules of the commonwealth, which was founded by Puritans who fled England in part because their practices were reviled for being too strict.
- Thanksgiving: bev-alc cannot be sold for off-premise consumption;
- Christmas: bev-alc cannot be sold for off-premise consumption and cannot be sold on-premise before noon;
- Memorial Day: bev-alc cannot be sold before noon for on- or off-premise consumption;
- Sundays: bev-alc cannot be sold for on-premise consumption before noon, unless the town or city has a brunch law (in which the limit is changed to 10 a.m.).
Borenstein encouraged new breweries or distilleries looking to open in Massachusetts to reach out to their local municipalities and, if such a law is not in place, ask to consider adopting a brunch law. It should also be noted that if a town or city does implement such a law, businesses will have to amend existing pouring permits to reflect new hours, he added.
As a reminder, Borenstein encouraged breweries to renew their state licenses and permits ASAP, as applications for pouring permits must be submitted “before the end of November.”
“Please make sure you renew your state licenses and your pouring permits as soon as possible,” Borenstein said. “Because if you don’t follow your state license before the end of the year, you’re going to have to apply for a new license and you might have to cease operations temporarily.”