Massachusetts Task Force: Brewers Deserve Right to Terminate Distributors Without Cause

A task force formed earlier this year to examine Massachusetts’ decades-old alcohol laws has unveiled a lengthy report that offers 37 recommendations to “improve the operations” of the state’s Alcohol Beverages Control Commission (ABCC).

The suggestions — which the task force made after reviewing laws in other states and meeting with ABCC officials, alcohol industry members and consumers — include modernizing franchise laws, increasing excise taxes and clarifying pay-to-play rules.

“I want to thank the Alcohol Task Force, led by Macey Russell, for their independent, thorough, and exhaustive review of the laws governing the alcohol industry in Massachusetts,” Massachusetts Treasurer Deb Goldberg, who oversees the ABCC, said via a press release. “Our office has just begun reviewing this report and will identify next steps that can be done internally, in addition to developing long-term legislative priorities that will promote public safety, help our Massachusetts businesses, and enhance the smooth operations of the Alcohol Beverages Control Commission.”

Most notably, the group tackled the contentious issue of franchise law reform, recommending that Massachusetts’ general laws be amended to be more brewer-friendly.

The task force suggested that written contracts between alcohol producers and wholesalers be required and recommended adding language to the law to allow breweries to terminate contracts with wholesalers for no cause.

The group also proposed that contracts between distributors and brewers could be terminated, without cause, if the alcohol producer made less than an agreed upon amount of barrels annually and agreed to pay a termination fee equal to two years of net profits.

Other brewer-friendly proposals included a recommendation that breweries be allowed to break distribution contracts with wholesalers, without showing cause, within the first 12 months of business. Under current law, breweries can walk away from an agreement within the first six months. The group also suggested shortening so-called “right to cure” provisions of franchise agreements, which give wholesalers 120 days to improve relations with alcohol producers after a notice of discontinuance is furnished, to 90 days.

In addition to advocating for franchise law reform, the task force also suggested increases to the excise taxes on beer, wine and spirits, which would pay for 30 new ABCC investigators and 15 new staff members at a projected cost of $3.1 million annually.

According to the report, the state collected more than $83 million in excise taxes during the 12-month period ending June 2017. The task force believes that by raising the excise tax on all alcohol by 50 percent, the state could collect an additional $41 million.

If enacted, Massachusetts’ excise tax on beer – which ranks 44th lowest in the U.S. — would increase from $0.11 cents to $0.16 cents per gallon ($1.55 per barrel) and generate more than $19 million in additional revenue.

The task force also proposed hiking the excise tax on wine from $0.55 cents per gallon to $0.82 cents per gallon, and on spirits, from $4.05 per gallon to $6.07 per gallon.

The task force also recommended various amendments to toughen pre-existing laws that prohibit alcohol companies from offering retailers inducements and unfair discounts.

The so-called pay-to-play restrictions, which captured numerous headlines over the last two years after Craft Beer Guild LLC was fined $2.6 million for violating laws that forbid brewers and distributors from providing items of “significant value” to retailers in exchange for guaranteed placement, are too ambiguous, the group argued.

“One way to provide clear guidance is by stating affirmatively that ‘significant value’ is any service or item in excess of a particular dollar amount,” the report stated.

After examining how other states address issues of pay-to-play, and after conversations with various industry participants, the task force determined that Massachusetts’ general laws should be amended to establish a “clear line in the sand.”

“We recommend that there should be no gift or services in excess of $50 per item or unit of item annually in the categories of point of sale advertising specialties and consumer advertising specialties categories, a limit of $300 annually in the display category (per display), and displays cannot be loaned,” the group wrote. “Retailers who want products and services over that amount must pay the distributor for the items at ‘cost.’ Under this structure, paper products such as napkins, coasters, bottle openers and t‐shirts would be permitted along with any other item or unit of items valued less than $50. The $50 limit seems reasonable for point of sale advertising and consumer advertising specialties, and $300 for displays.”

The task force addressed a variety of other issues, including Internet alcohol sales, retail licenses restrictions and permitting, which can be viewed here.

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