North Carolina Brewers, Wholesalers Reach Franchise Law Reform Compromise

North Carolina craft brewers and wholesalers have reached a compromise in a contentious years-long dispute over the state’s self-distribution and franchise laws.

After filing a lawsuit two years ago challenging the constitutionality of a state law requiring brewers who sell more than 25,000 barrels to forfeit self-distribution rights and sign with a wholesaler, Craft Freedom LLC — a trade group consisting of Olde Mecklenburg Brewery and NoDa Brewing Co. — has struck a deal with the North Carolina Beer & Wine Wholesalers Association that could create an additional brewer classification for “mid-sized independent breweries” selling fewer than 100,000 barrels annually.

Under the bipartisan Craft Beer Distribution & Modernization Act — introduced in the Senate (S.B. 246) on Wednesday and the House (H.B. 363) today — North Carolina breweries producing more than 25,000 barrels annually would not be required to sign with a wholesaler.

Currently, breweries that produce 25,000 barrels or less are allowed to self-distribute. Under the proposed legislation, the cap would increase to 50,000 barrels annually. Additionally, a company that exceeds the 50,000-barrel cap but sells fewer than 100,000 barrels would be allowed to self-distribute its first 50,000 barrels. Those companies would be required to work with a wholesaler for the remaining 50,000 barrels, however.

“Out of conflict has grown resolution to establish a framework that allows existing and new microbreweries to become economic engines for our state and provide a clear pathway to grow and prosper,” NoDa Brewing Company co-founder Suzie Ford said during a press conference Thursday.

North Carolina Beer & Wine Wholesalers Association executive director Tim Kent called the compromise “great news” for consumers, craft brewers, wholesalers and lawmakers.

“This agreement will essentially resolve a contentious issue that the General Assembly has had to deal with for about a dozen years,” he added.

In a press release, Olde Mecklenburg founder John Marrino said he believes Craft Freedom achieved its goal of modernizing state laws that now “give a variety of options to breweries of all sizes in all corners of the state.”

In May 2017, NoDa and Olde Mecklenburg, acting under the Craft Freedom LLC banner, filed a lawsuit alleging that the self-distribution cap and franchise laws that bind breweries into nearly unbreakable contracts with their wholesalers, were unconstitutional and “artificially suppressing” the craft brewing industry. The lawsuit was filed after lawmakers stripped provisions out of a bill that would have increased the self-distribution production cap to 200,000 barrels annually and allowed smaller brewers to more easily break their wholesaler contracts.

If passed, the Craft Beer Distribution & Modernization Act would signal the end of Craft Freedom’s lawsuit.

“This legislation would be basically the reconciliation of any differences that these parties have had,” Craft Freedom attorney Drew Erteschik said during the news conference.

Lawmakers as well as representatives from Craft Freedom and the N.C. Beer & Wine Wholesaler Association acknowledged Thursday that the lawsuit opened a dialogue between the parties that resulted in 23 months of negotiations and eventually the compromise bills.

“We’ve had an opportunity to talk to each other,” Kent said. “But more importantly, we’ve had an opportunity to listen to each other.”

Asked if wholesalers would miss out on sales as a result of the deal, Kent replied, “No, I don’t think so.”

Meanwhile, Ford said the proposal “opens up a lot of possibilities” for NoDa — which has not yet surpassed the 25,000-barrel threshold — to expand its business.

“We’ve never been anti-distributor,” she said. “They fulfill something that we can’t necessarily do. For us, we will be able to look at the whole state and really see what we’re going to do with our distribution partners.”

Speaking to Brewbound, she said the proposed law changes gives NoDa “tons of room to grow slowly and as we see fit” without taking on distributors.

Also included in the legislation is a provision that would allow beer companies producing fewer than 100,000 barrels annually to sell their offerings at their manufacturing facility as well as up to three affiliated retail outposts. Additionally, beer companies that distribute more than 25,000 barrels annually would be required to show “good cause” to terminate their distribution agreements.

Breweries that distribute up to 25,000 barrels annually would still be allowed to exit their distribution agreements without showing “good cause” by giving five day’s notice and paying “fair market value,” defined as “the highest dollar amount at which a seller would be willing to sell and a buyer willing to buy.”

The deal in North Carolina comes a month after the Texas Craft Brewers Guild, which represents the state’s nearly 300 craft breweries, and the Beer Alliance of Texas, a powerful wholesaler lobbying group, reached a “stakeholder agreement” that could potentially allow off-premise sales of up to two cases of beer (576 fl. oz.) per person, per day at the Lone Star State’s manufacturing breweries. Those sales would count against an existing 5,000-barrel cap for on-premise taproom sales.

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