Massachusetts Beer Wholesalers Propose Franchise Law Reform

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Massachusetts beer wholesalers are going on the offensive.

After several years of fighting small craft brewers’ efforts to change state franchise laws, the Beer Distributors of Massachusetts today filed a bill that would enable beer companies making less than 30,000 barrels annually to sever relationships with wholesalers for no cause.

Sponsored by Rep. John J. Mahoney (D-Worcester), the “Act to Promote Economic Development and Market Access for Emerging Businesses” would amend chapter 138 section 25E of the Massachusetts General Laws to read:

“Notwithstanding the provisions of section 25E of this chapter, an Emerging Brewery may, without good cause shown, terminate the right to distribute any brands of malt beverages for any licensed wholesaler to whom such Emerging Brewery has made regular sales of such brands of malt beverages, subject to the provisions of this section.”

In a press release, Bill Kelley, president of the Beer Distributors of Massachusetts, a trade association that advocates for the state’s beer wholesalers, described prior attempts to alter the state’s franchise laws as “unreasonable.”

“For six years, special interests have advocated an unreasonable position that would allow breweries accounting for up to 20% of a distributor’s established business to walk out for no reason,” he said via the release. “That approach would devastate Massachusetts’s independent distributors, and place over 2,000 jobs — including many good-paying union jobs — at serious risk.”

In 2015, Massachusetts craft brewers pushed for the passing of House Bill 245 — introduced by Rep. Alice Peisch (D-Wellesley) — which would have enabled breweries whose brands account for less than 20 percent of a wholesaler’s total annual sales to terminate contracts, without cause, as long as wholesalers are also compensated “fair market value” for the loss of business.

Similar bills were also introduced in 2013 and 2012.

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Bill Kelley

The current offer from wholesalers is a far cry from 2014 legislative reform in New York, which enabled craft breweries producing less than 300,000 barrels annually and making up less than 3 percent of a wholesaler’s business to terminate contracts without cause. New York breweries are also required to compensate a distributor for the fair market value of the business, something being proposed in Massachusetts as well.

Nevertheless, Kelley touted the proposal as an “equitable solution” for emerging breweries.

“It provides unprecedented opportunity for breweries to develop and grow their businesses, while protecting the independent local distributors and the jobs they create from the economic leverage of larger multinational corporations,” he said.

Phone calls placed to Rob Burns, the co-founder of Night Shift Brewing and the president of the Massachusetts Brewers Guild, and Rob Martin, the founder of Mercury Brewing and the former president of the guild, went unreturned as of press time.

Last October, Everett-based Night Shift Brewing launched a full-scale distribution business aimed at challenging what the brewery called an anti-competitive and archaic system.

Night Shift, which expected to produce about 10,000 barrels last year, began its wholesale operations in 30,000 sq. ft. warehouse in Chelsea under Night Shift Distributing LLC. The plan called for eventually distributing beer from about 25 craft breweries.

In a press release, Night Shift said it would not enforce the controversial franchise laws that lock breweries into nearly unbreakable lifetime contracts with beer distributors. The brewery’s owners also said they wouldn’t be paying bars for tap handles or showing brand favoritism.

“We think we can make a better mousetrap and treat people fairly versus the status quo,” Burns told Brewbound at the time. “If we don’t get a single brand, and we just piss off the wholesalers and get them to change their ways, we’ve succeeded.”

The filing of the bill comes just days after Massachusetts Treasurer Deb Goldberg appointed five members of a seven-person task force charged with examining Massachusetts’ decades-old alcohol laws. The group is expected to meet for the first time by the end of January.

A full press release from the Beer Distributors of Massachusetts which outlines the proposed changes has been included below. Full text of the Bill can also be found here.

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(Boston, MA) – January 20, 2017 – The Beer Distributors of Massachusetts Inc., today filed a bill giving breweries even more choice and flexibility in their relationships with beer distributors.

The “Act to Promote Economic Development and Market Access for Emerging Businesses” would allow privately owned and operated breweries that manufacture less than 30,000 barrels of beer (about 413,000 cases) per year to refuse to sell beer to any of their distributors at any time, for no reason at all. According to the federal government, more than 96% of the breweries operating in the United States would stand to benefit from having this new flexibility and additional choice.

This Bill was sponsored by Representative John J. Mahoney (D-Worcester), a leading voice for emerging businesses.

“For six years, special interests have advocated an unreasonable position that would allow breweries accounting for up to 20% of a distributor’s established business to walk out for no reason. That approach would devastate Massachusetts’s independent distributors, and place over 2,000 jobs — including many good-paying union jobs — at serious risk,” said William A. Kelley, president of the Beer Distributors of Massachusetts, Inc.

“This proposal is an equitable solution for Emerging Breweries. It provides unprecedented opportunity for breweries to develop and grow their businesses, while protecting the independent local distributors and the jobs they create from the economic leverage of larger multinational corporations.”

Under current Massachusetts law, if an emerging brewery wants to dissolve its relationship with a distributor after six months, it must have a good reason to do so. Currently, breweries are also free to distribute their products themselves, or to choose to add as many additional distributors as the brewery pleases. These options remain intact under the new proposal.

Under this new proposal, any Emerging Brewery wishing to end its sales to a distributor would need only to reimburse the distributor for the distributor’s inventory, and the fair market value of the business being taken from the distributor.