In the wee hours of Wednesday morning, Massachusetts lawmakers finally passed franchise law reform legislation.
If signed by Massachusetts Gov. Charlie Baker, the measure would put to rest a long-simmering debate between the Bay State’s craft brewers and their wholesaler partners.
Should Baker sign the franchise law reform bill, the law would go into effect immediately.
Sam Hendler, co-founder of Jack’s Abby Craft Lagers in Framingham and president of the Massachusetts Brewers Guild, told Brewbound that he’s heard positive feedback from the Baker administration on the possibility of the bill being signed into law, which could come as early as today.
“We’re really, really close; we’re very, very excited and thankful to have gotten the votes we needed last night, and just anxiously sitting here with our fingers crossed,” he told Brewbound on Wednesday. “We are happy to be one of the last bills that passed.”
Beer wholesaler lobbying group the Beer Distributors of Massachusetts issued a statement thanking newly elected House Speaker Ron Mariano, Senate President Karen Spilka and members of the Legislature for approving the measure — “An Act Relative to Craft Brewers” (S. 2841) — and urging Baker to sign it into law.
“The compromise legislation approved earlier this morning reflects an agreement with the Massachusetts Brewers Guild, and will facilitate further growth and promote the health of the craft beer industry in Massachusetts,” William Kelley, president of the Beer Distributors of Massachusetts, said in a press release. “We are extremely grateful to the leadership of the Massachusetts Brewers Guild and everyone involved in the years-long effort to reach this agreement, and we are hopeful the governor will sign the legislation.”
In mid-July 2020, the guild and the wholesaler group announced an agreement that would end the decade-old debate and cover all but the state’s largest craft breweries.
As part of the deal, breweries that produce fewer than 250,000 barrels (3,445,000 cases) of beer over a 12-month period would be allowed to terminate their wholesaler contracts at any time by giving 30 days’ notice and paying “fair market value” for their brand rights. The legislation would benefit around 200 craft breweries in the state, with Boston Beer Company a notable exception.
Massachusetts’ existing franchise laws lock breweries into contracts with their wholesalers after six months of working together, unless the brewery can show cause for termination.
Although Boston Beer Company initiated the debate a decade ago, it will be excluded from the agreement. In 2019, the company produced more than 1.75 million barrels of beer, making it the second largest craft brewery by volume in the U.S., according to national trade group the Brewers Association.
Overall, Boston Beer — which produces the Samuel Adams beer brand, as well as Truly Hard Seltzer, Twisted Tea and Angry Orchard hard cider, among other products — shipped 5.3 million barrels of product in 2019. Those shipments excluded an additional 277,727 barrels of beer produced by Dogfish Head Craft Brewery, which closed its merger with Boston Beer in July 2019.
Past attempts to include Boston Beer in any reform bill met resistance from the state’s wholesalers. The Massachusetts Brewers Guild had sought a 6 million barrel cap, in line with the BA’s definition of a small and independent craft brewery, but wholesalers balked at that figure.
Hendler said he hopes the passage of the bill leads to “more transparent, honest and meaningful relationships” between craft brewers and their wholesaler partners.”
“I think, sometimes to our own detriment, craft brewers have been so scared to rock the boat with their wholesalers because they don’t have a Plan B; they’ve allowed small issues to fester and become big issues,” he said. “Healthy relationships need some honesty and that ability to work through an issue, and hopefully this evening of the scales can help breed that kind of relationship. That’s what brewers and frankly that’s what distributors need. That’s when these partnerships work best is when the two sides are working together towards a common goal and hopefully that’s what this will do.”
Hendler was unsure if franchise law reform would lead to many brewers moving their brands away from their current wholesaler partners. Although he doesn’t anticipate an “opening of the floodgates moment,” he said he would be surprised if there was no movement at all.
“I remember early on in my career New York passed a bill like this, and everybody was saying everybody’s gonna move, and there were a couple movements, but nothing massive,” he said. “That said, I think, in COVID times, there are a lot of brewers who are a lot closer to the brink, and might be willing to make a bigger, riskier move right now, if they feel like they’re facing an existential threat to their business at the moment.”
As for where the guild will turn its attention next, issues such as brewpub self-distribution and selling beer at farmers’ markets are on the agenda. However, Hendler expects the focus at the start of the new legislative session to be on extending the special privileges that have been afforded to brewers during the COVID-19 pandemic and possibly making them permanent.
“There’s been a lot of pushing on the system, as far as online ordering and curbside pickup and delivery and the list goes on,” Hendler said. “Craft brewers have been getting creative to ensure their product is still available, and that creativity sometimes can push against the boundaries of the regulatory environment. So, I think there’s gonna be a lot to reconcile over the next two years, as hopefully we get to some sort of normal and they’re gonna start rolling back emergency provisions, will any emergency provisions end up turning into long-term statutory changes?”
Additionally, Hendler said the guild is working to ensure that breweries will qualify for chunks of the state’s $668 million relief funding for small businesses and small business grants within a recently passed $627 million economic development bill.
“Ensuring brewers that have been most affected have access to those funds is something we are working on,” he said.
Those efforts will become even more important as the beer industry heads into typically the slowest sales period of the year, especially in colder climate New England where outdoor seating is not an option. On top of that, COVID-19 cases are once again surging across the country.
Nevertheless, Hendler said he’s encouraged by another round of Paycheck Protection Program funding from the federal government, as well as opportunities in the off-premise marketplace.
“I think that can be a critical bridge and lifeline for a lot of small brewers,” he said. “Hopefully this franchise law reform will allow some brewers who may have had trepidation about entering the wholesale marketplace to do so. That’s the one place there is volume right now is selling cans of beer through the wholesale marketplace. That’s one outlet that is really working.”