[00:00:00] Justin Kendall: Heading to CBC? Kick things off the day before at Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with the Brewbound team. It's free to attend and walking distance from the convention center. Head to Brewbound.com slash lovecity.rsvp. And don't forget to catch the Brewbound team at booth 956 during CBC. Next on the Brewbound Podcast, know your rights when your distributor sells, consolidates, or leaves California. Welcome to the Brewbound Podcast. I'm Justin Kendall.
[00:00:49] Zoe Licata: And I'm Zoe Licata.
[00:00:51] Justin Kendall: And Jess is out this week on vacation, so it's just me and you, Zoe. It's the Justin and Zoe show once again this week. Jess will be appearing in the interview portion of this week.
[00:01:03] Zoe Licata: How exciting.
[00:01:04] Justin Kendall: Yes. Our featured interview will be with the Bev Alk Regulatory Practice team at law firm Errant Fox Schiff. Partner Nichole Shustack and Senior Associate Isabelle Cunningham will be joining us. You may have heard them in previous conversations that we've had on legal news and tapping into their legal expertise. Stay tuned for that, but we're really going to dial into distributor consolidation as well as how intoxicating hemp products are coming to market. We got a few plugs this week. We got a Plug Brewbound Insider. All of these stories that we're talking about, you can go deeper on with our Insider product. Become a subscriber today. We've got a job board too. I know a lot of folks out there are looking for jobs and we run this job board. We've done it for several years and there are a lot of great jobs on there. So if you're looking for work, give it a look. And finally, uh, we got to plug brew bound live, which is coming up December 9th and 10th, which I say it's coming up and it is, I mean, it's what nine months away, 10 months.
[00:02:12] Zoe Licata: Yeah, still worth plugging because you know, you can usually get a discount if you sign up early. So anybody who came just a couple months ago, if you really enjoyed your time, highly recommend getting your tickets for that now. Also, it's a reminder that we start planning this super early. So if you are somebody who wanted to, you know, you had a pitch for someone you wanted to see speak, if you are someone who wants to speak, if you have a topic you think would be really interesting for us to cover, let us know because that stuff gets planned way in advance. So the earlier, the better.
[00:02:45] Justin Kendall: Glad you mentioned that because that is something that we are fielding at the moment. So hit us up, news at Brewbound.com. It would probably be the easiest way to get to us right now. We've got a lot of news to cover. So let's just dive in. And there is a new beverage platform that has formed in Oregon.
[00:03:07] Zoe Licata: Yes, the latest craft beverage platform, I won't say just entirely craft beer, but the latest beverage platform is the Oregon Beverage Collective. So this is the combination of Crux Fermentation Project, Cascade Lakes Brewing, Silver Moon Brewing, Good Life Brewing, and Tumalo Cider Company. Apologies if I mispronounced that, but they're all kind of Bend area based companies that have formed this collective. It is a mix of ownership, so they're not all merging into one company. Silver Moon, Good Life, and Tumalo are all still independently owned. Cascade Lakes and Crook's Fermentation are now owned by the same people, but are still operating as separate companies. So along with this collective announcement, the news was shared that the Hand Family, which are also the folks that own Cascade Lakes, have now acquired Crook's fermentation from their founders. So a lot of news going on there. All the actual nitty gritty details are in our coverage. We're also going to be speaking with Andy Rhine, He's one of the owners of Crooks Fermentation in Cascade Lakes, and he is now the president of this Oregon Beverage Collective. He's going to be joining the podcast shortly, so look out for that episode, which will have a lot more details on how this came to be.
[00:04:28] Justin Kendall: I have been to three of these five companies.
[00:04:31] Zoe Licata: That's pretty good.
[00:04:32] Justin Kendall: Yeah, that's not too bad. Crux, beautiful space. Silver Moon, very cool space. And then Cascade Lakes at the time, they owned a lodge. So you would go into basically a ski lodge Amanda Huang out and drink beer. And that was kind of fun.
[00:04:46] Zoe Licata: Yeah. We estimate the total production for all these folks is going to be just over 40,000 barrels. That's just based on the Brewers Association's 2024 data, which of course we know isn't updated for the past year and it doesn't include cider or any other beyond beer data. So that number may be slightly off, but that's our current estimate. And the majority of that production is going to be moving to Crux Fermentation's facility. So yeah, wait for further details on what that means, how that transition is happening, how teams are affected, all that stuff.
[00:05:20] Justin Kendall: Yeah, and this collective trend continues. You've listed a handful, and that's not even all of them that we've seen so far.
[00:05:29] Zoe Licata: trying to dig and see what ones we've covered, and I definitely missed a bunch. But we've had Hand Family Brewing, Wild Ink Brands, Barrel One Collective, Great Frontier Collective, Finest City Beverages. Most of those are very regional-based platforms. They're sticking to one state or even smaller. And this one, again, is basically just in the Bend area. The Oregon Beverage Collective insinuated that this wasn't because necessarily any of these beverages were in a terrible place or were super struggling. This just made the most sense for the greatest opportunities to grow these brands. So there's always different reasons for these platforms coming together and we've seen different results. So it's going to continue to be a trend that we're going to have to watch and see.
[00:06:17] Justin Kendall: Well, congratulations to Larry and Paul too on their exit from Crux after what, 13 years?
[00:06:24] Zoe Licata: Yeah. Long time.
[00:06:27] Justin Kendall: Well, let's talk about shipment data. Oh boy. So you know how I like to spend a Friday night. I like to dive into domestic tax paid shipments. That's actually what I did because I'm a psychopath. And I was just curious. I was like, how far can I go back if I dig into the BI data? And I know domestic tax paid are always volatile because they're always getting updated. So I can look at an old press release and it'll be outdated, of course, but. Looking at 2025, and the numbers just hit last Friday, this was a historically bad year for U.S. beer shipments, which is something I feel like I've written a few times in these year-end recaps of shipments. For 2025, shipments topped 139 million barrels. That was down from 147.76 million barrels in 2024. There's still a chance that these numbers will be revised, but when you go month to month, every month in the red. And then when I say it's a historically bad year, this was a new low total for barrel shipped in the last 14 years. I think we've shed around 30 million barrels since 2021. And if you go back to 2012, it's 41 million barrels total across all those years. And this is just as far back as the BI's domestic tax paid data goes. So going back to 2012 when Lester Jones was still working there.
[00:08:03] Zoe Licata: Yeah. The reason why you've kind of had to write this similar headline a couple of times is because it's kind of been steadily declining almost every year for a good number of years. So that's why we're kind of at a new low for multiple years in a row, but this one was extra low. And looking at that monthly data really, really points that out where usually you see at least a couple months where shipment growth happened and that did not happen this year. And even over the course of reporting on these monthly numbers over the last year. There were a couple months that seemed at first like they were going to be up. I feel like March was one of those and maybe sometime around the summer. But as more data comes in and these continue to be updated, it ended up everything was down year over year.
[00:08:50] Justin Kendall: In the states, every state in the red as well. And I laugh only because of the absurdity of all 50 states being down as well. And when the BI reports to on total supply, that was also down 5.6%. So that encompasses state level data as well as imports.
[00:09:13] Zoe Licata: Yeah, we thought that imports was going to be like the big drag with everything that went on last year, but having it be every single state is wild. We are hearing positive stories of folks, you know, expanding into states and positive things happening in other states, but there's apparently some things that no one is immune to.
[00:09:34] Justin Kendall: And if you want to put a positive spin on this, we got some easy comps here in 2026. That will be fun for all of us to track, and then let's talk about something also not so fun, and that's BrewDog. BrewDog is up for sale. That was reported over the weekend by Sky News, and they have tapped a restructuring firm called Alex Partners to gauge interest from prospective buyers on, quote, unquote, a quickfire deadline for indicative offers, meaning they're trying to sell this off very quickly.
[00:10:10] Zoe Licata: Yeah, we'll see what happens, but it's another, there've been rumors of things happening at BrewDoc for a couple months now, and this was kind of the first real concrete thing saying, oh no, they are really making some significant changes. Also rumors that some of their ownership may be returning, but all remains to be confirmed. One in particular. Yes, yeah. One in particular, so you can read all the details on that in our coverage, but it is still yet to be confirmed by folks, but it seems pretty much that they are going to be separating some things.
[00:10:46] Nichole Shustack: This episode is brought to you by the Craft Brewers Conference, where big ideas, bold beers, and brutally honest shop talk collide. Join thousands of industry pros leveling up their game. Don't miss it. Register now at CraftBrewersConference.com.
[00:11:06] Justin Kendall: Let's move on and really quickly talk about Constellation Brands. Apparently, they've been plotting a succession plan for several years, they said, but came to news, I think, to a lot of folks, including us and analysts out there. And if you were to tell me that they were going to pick Nicholas Fink as the successor to Bill Newlands, I would have been like, who? And I think a lot of analysts also had that reaction.
[00:11:36] Zoe Licata: Yeah, so late last Thursday, Constellation Brands that Bill Newlands will be resigning and as of mid-April, the CEO spot will be going to Nicholas Fink. So he is a current board member for Constellation Brands. otherwise not super into this beer world. He is the CEO of Fortune Brands Home and Security. But what is particularly interesting and what analysts pointed out is that he is super familiar with M&A. And so this could potentially signal some things to come for Constellation Brands. What really I think is significant is this is just another CEO change for a major international beer company. We saw Molson Coors recently made their switch, a much different process. They kind of announced a long time ago that they were looking for a new CEO and that Gavin Hattersley would be retiring at the end of 2025. Then it took a while and they finally announced that their chief strategy officer, Raoul Goyle, would be taking the spot. So he's had that and has been a very outspoken new leader for that company. And then also just A month ago, we heard that Heinenken's CEO and board chairman, Dolph Vandenbrink, would be stepping away after six years. So there's been a lot of changes. That's just the CEO changes. Boston Beer, that's another one we recently saw with Jim Cook taking that spot again.
[00:13:06] Justin Kendall: And Leshia, the CMO, is departing from Boston Beer as well.
[00:13:11] Zoe Licata: Yeah, so that's just the CEO stuff. And then there's been lots of other C-suite changes across various companies like Lesia, a bunch at Heineken. So there's tons of movement happening when it comes to beer leadership.
[00:13:23] Justin Kendall: One of the things you brought up was M&A. And I think that Constellation Brands a very checkered history of dealmaking, whether it's ballast point or canopy growth. I think that Nicholas has probably been around for most of that, or at least has seen the fallout for most of that. So I wonder how gun-shy he may be about deal-making there.
[00:13:47] Zoe Licata: We will see.
[00:13:48] Justin Kendall: We will see. And lastly, we're going to end and talk a little bit about Heineken. They plan to lay off around 6,000 people over the next two years. And a lot of it's due to AI, apparently.
[00:14:03] Zoe Licata: Yeah, I was surprised to see this was, at least within the beer world, this was the first thing I've seen where a company has straight up said that they are eliminating jobs because of AI efficiencies or changes to their systems. due to AI, which is a bold thing to say, but it's the truth. They have been very outspoken about their plans to be a more efficient company, whether that is being more eco-friendly and those sort of efficiencies or just bottom line more efficient. And this is one of those steps. So those job cuts will be happening sporadically over the next couple of years, affecting a couple of different areas.
[00:14:49] Justin Kendall: AI job replacement is a real thing that is happening right now. Dolph over at Heineken is definitely in the running there after a quote that says something to the effect of, and this is a first operationalization of that debt commitment. And if you can tell me what that means, I appreciate it.
[00:15:18] Zoe Licata: That's a little over my head.
[00:15:20] Justin Kendall: They have to have a class for speak like that, right?
[00:15:24] Zoe Licata: I think it's a requirement to be in any sort of company leadership role is you have to learn a few corporate non-word vocab.
[00:15:34] Justin Kendall: Well, before we get operationalized, let's get to this week's featured interview with Nichole Shustack and Isabelle Cunningham from Errant Fox Shift.
[00:15:45] Isabelle Cunningham: What do brewers and Bev Alk brand leaders need to know about the legal landscape now that we're in 2026? Here to discuss are some of the latest additions to the Bev Elk Regulatory Practice team at law firm Arendt Fox Schiff. We have partner Nichole Shustack. Hi, Nicole, how you doing?
[00:16:02] Brewbound Podcast: Hi, Jess. Hi, Justin. Great to be here.
[00:16:05] Isabelle Cunningham: So glad to have you. And Senior Associate, Isabelle Cunningham. Izzy, how are you? I'm good. How are you guys? Happy to be here. We're so glad you guys are here. As always, before we start the conversation, just a quick note that Nicole and Izzy are lawyers and they are sharing wisdom and insight, but this does not constitute legal advice. Consult your own legal team for any pressing matters. If you don't have a legal team, why not these two? Right? Well, Nicole and Izzy, you guys are no strangers to the Brewbound Podcast. We are thrilled to have you. The bulk of our conversation today is going to center on middle tier consolidation, which shows absolutely no signs of slowing down. So coming up at this from the mindset of a supplier, we really are hearing all sorts of different situations happening out there. Now let's say you're a supplier and you're reading a news story, oh, I don't know, on Brewbound.com that one of your wholesalers has just been acquired. What are some of the first steps a savvy supplier would take?
[00:17:05] Brewbound Podcast: It's a great question, Justin. I think, you know, it's something that most suppliers obviously will encounter at some point, but probably especially in 2026. I think given the consolidation we've seen in the back half of 2025 and kind of just the environment for a lot of wholesalers and given kind of where the industry is, we're expecting to see some additional consolidation in the market across the whole. So it's a pretty timely, timely question. The first thing to kind of do is take a step back and really understand what your rights are as it relates to the proposed transaction. When you're reviewing what your rights are, you have to look at it from two main perspectives. First is from a franchise perspective. because we're in beer world, there are franchise state, you know, franchise laws and the vast majority of states, almost all states have some form of franchise rules. And that dictates, surprisingly, in some wholesaler transactions, what your rights are related to approving that transaction or disproving that transaction or, you know, what you can do with your brands in that situation. So the first thing to do is do a basic, you know, kind of search or have an understanding from a franchise perspective what your options are. The second is to turn to Scout Distributing agreement if you have it and to understand if in the lack of franchise rules kind of dictating what you can and can't do, The next kind of step is to obviously turn to that contract and understand what is in your contract as it relates to this contemplated transaction. And as a first step, it's always kind of a good idea to have a basis of what your legal options are. And then in the meantime, while you're figuring all of that out, we highly recommend sending your wholesaler a basic, hey, we got your notification. Here's some information that would be really helpful to us to evaluate what the market looks like in this for our brands. What is your market plan post-transaction? What does this transaction look like? What's the closing date? Kind of simple information, and it doesn't have to be overly formal. It doesn't have to be some legal instrument, but just kind of a, hey, what's up with this transaction? What information do you need to actually really do diligence and really understand the market? And what wholesaler would be best for your brands? And then you can work backwards from there. But Izzy, what did I miss?
[00:19:30] Breakthru Beverage: I mean, the one thing I would flag is that if you're reading about a transaction in, say, Brewbound, for example, for the first time, and you've not heard about it from your wholesaler directly, that's something to think about. That's the time to usually turn to the contract and see, you know, what were their obligations to notify us about this transaction? Were they supposed to tell us a certain amount of time in advance? If you find out that it's closed and you didn't know, then the wheels should be turning and you should definitely be reaching out to your lawyer to figure out what that means for you and your brand, what that means under your contract, what that means under franchise law. So typically, most wholesalers are pretty adept at notifying their suppliers when something like this is going on, but we have had clients coming to us saying, hey, I saw this in the news, it's closing in a week, what do I do? And so that's something that we're helping our supplier clients work through.
[00:20:22] Brewbound Podcast: Yeah, Izzy and I used to always say that, you know, when you're notified of a transaction, you should look at that as an opportunity. It's an opportunity to evaluate the market. It's an opportunity to maybe get a new contract in place. It's an opportunity to maybe get some additional marketing commitments. you have leverage, and there's not a lot of time in a supplier-wholesaler relationship where you have leverage, right? And this is one of the few times that you do. So you want to make sure that you're thinking about it early, like Izzy pointed out, right, with a notice of provision, and make sure you have the adequate time to, like, really understand what the options are and what's best for your brand. But two, also, you know, realize that even if you ultimately approve the transaction, because you might have some approval rights, via franchise law or contracts, you might be able to have some leverage and get yourself and your brand position in a better place than it was previously. So you have to think about these as opportunities, right? An opportunity to evaluate, an opportunity to make sure that you're with the best wholesaler, and an opportunity to make sure that they're contributing and you're aligned on what the commitments are from that wholesaler.
[00:21:35] Isabelle Cunningham: All of that is great stuff to think about you guys, but what can you do to protect your leverage in these situations?
[00:21:41] Breakthru Beverage: That initial first step is huge. It's basically notifying the wholesaler that you're not just sort of going to let this slide through. It's that initial notice that says, Hey, we know about this transaction, but we're really reviewing it. You know, we're going to do our diligence. We're going to review both how our brands are going to move, what that means from a, even, you know, warehouse perspective, what it means contractually. what it means in the market, just basically laying the groundwork for the fact that you are going to be really digging into the transaction and not sort of just letting your brand, you know, freely move from one wholesaler to another based on their own business considerations. You know, they have decisions that they've made in the background that weren't right for their business about why your brand might be changing houses. But I think that first step of sending the notice, letting them know that you need information from them, you know, our standard form letter essentially says, We take these things seriously and we withhold our consent and tell you here from us otherwise that we have specifically provided it. So I think that's number one in maintaining your leverage is making it clear that you do have the ability to provide consent and not just sort of offering it up as something that they can take for granted essentially.
[00:22:49] Brewbound Podcast: Setting precedent is really important and to like boil this down, I think treating all wholesaler transactions in the exact same manner, right, is always recommended regardless of kind of even the legal aspects. Even if you don't know what legal ground you stand on, right, like you don't know what franchise law says, what your options are, you don't have a distribution agreement maybe, you should still treat every transaction in kind of a similar manner, right, to ensure that you have leverage for this transaction but also future transactions. Set a precedent. Treat everyone exactly the same. Ask for the same information. Set a little bit of a cadence of how you treat these things and ensure that you're, you know, getting the information you actually need to make an informed decision. Don't just let this opportunity again, like, kind of slip by. It's important because even if you don't utilize the leverage that you might have from a legal perspective, you can, again, still utilize that leverage to maybe get some other things. and a seat at the table if you don't have an annual business plan like a you know set scheduled annual business plan every year and so you know some important elements like you have the option again to have some asks and uh it's important to not to not just treat this and you know robotically and just sign an approval right on the spot, go through the process. It's worth it because it sets you up, not just for this transaction, but for kind of future transactions in the event, you know, unfortunate that you ever have to disprove one, right? You're gonna have, that's all gonna come into play. And so, you know, you wanna make sure that you kind of treat them with some uniformity.
[00:24:25] Breakthru Beverage: From a franchise perspective, your ability to withhold consent to a transaction is usually limited to a situation where you have pretty strong evidence to suggest that the wholesaler taking on your brands isn't equipped to handle it. And the way that those restrictions are written is different in every state. There's some consistency thematically, but the specifics kind of vary state by state. But building that concrete case by requesting all that information, just as Nicole spelled out, is really critical. So if you do all that diligence, that would be the type of situation where you may have a case to say, you know, this company, this business, these officers, directors, owners aren't equipped. They don't have the skill set, they don't have the financing, whatever it might be. But to get to that place, you have to have done all that diligence. So you can't sort of sit around and wait and say, you know, oh, I have a preferred wholesaler, where my brand is going is not that. But having not done all of those sort of interim things and taken all those interim steps, you're gonna have a really hard time proving that you meet the very high threshold to sort of withhold your consent for a transaction and to direct your brand where you want it to go, even under the law, et cetera.
[00:25:31] Justin Kendall: So for suppliers who do withhold consent or who are cut by the merged entity or the acquiring distributor, what should they be thinking about as they figure out what's next?
[00:25:44] Brewbound Podcast: So first and foremost, you have to have a home unless you withdraw from the market, right? And typically a brand doesn't want to withdraw from the market for a variety of reasons, but the obvious ones because, you know, you might have some mandates or you might, you know, you just don't want to pull out of a market that you've already spent some capital getting into and getting established. But, you know, in the event that you decide that you're not going to approve a transaction, and or you know there's risk if the new acquiring wholesaler isn't going to pick up your brands you have to have a backup option so go out into the market know your options what wholesalers cover that territory who will is willing to pick up brands and have the meetings as soon as you notify you get notification of this whether it's from an article and rebound, or you actually get a formal notification, that should immediately make you reach out to wholesalers and understand who your options are. Because even if you don't want to approve a transaction, if your options are you're with this wholesaler that you may not, you know, is not preferred, or you have to withdraw from the market, right, you may make a different decision. You just have to have kind of a backup wholesaler is first and foremost. And then when you have that, again, you should be asking similar questions to those other wholesalers or the other potential wholesalers that you're asking of the selling wholesaler and the potential buying wholesaler. What does my market plan look like? What is the brand plan as it pertains to my brands moving forward? These are questions that you should ask other wholesalers in the market so you truly have the information at your fingertips to do the analysis that you need in order to really approve a transaction. So you have to reach out and understand your options. If you do have an option and you identify, we always call them preferred wholesalers, right? You're not going to, you know, A is selling to B and you want to go with C because they're your preferred wholesaler. There's many different steps you have to take, you know, into consideration to make that. First and foremost, what are your franchise rights? In many, many states, there's a threshold where you may have approval rights on the face, but you can't unreasonably withhold your consent to a transaction. which is a fancy legal way of saying that if the wholesaler that's buying your brand rights can perform kind of the basic functions of a wholesaler, you have to kind of approve and go with it, unless you can prove that that wholesaler can't support your brands for whatever reason. And there's lots of other reasons why they go, you know, wholesaler, it doesn't make sense, right? Maybe they have your biggest competitor brand. But you have to kind of know the market position again and kind of that specific market to be able to make those determinations. Rarely does a state give you just like carte blanche ability to just disprove a transaction without any kind of basis. So you have to at least know a basis. And to build a basis, you have to have some precedent information, like about how your brands are performing in the market, and to kind of make sure that you, quite frankly, have evidence to not approve of a transaction.
[00:28:52] Breakthru Beverage: You'd be surprised to learn how many times a transaction, a wholesaler transaction, sort of results in a supplier changing wholesalers in a way that maybe the transaction didn't contemplate, but that it wasn't actually as a result of that supplier withholding consent. So typically what happens is that you identify the preferred wholesaler. I say typically, ideally what happens is that you identify our preferred wholesaler in the market and the wholesalers amongst themselves are able to work out something that results in that supplier's brands moving to the wholesaler that they want. So like Nicole just spelled out, it's difficult from a legal perspective to withhold consent because of how high that threshold is in order to withhold it. So oftentimes what you're trying to facilitate is a transaction that's more favorable to your brand as opposed to having to say, hey, no, I'm withholding my consent to this transaction and I'm actually gonna go with this C wholesaler. What actually you want to occur to limit your legal risk is to try to facilitate a sort of willing buyer, willing seller arrangement between the parties that are more favorable to you so that you don't have to go into that really difficult, sometimes legal exercise of demonstrating that both contractually and under the law, you have the ability to prevent your brand from moving When typically, you know, one brand is part of a much larger transaction, a much bigger portfolio of brands moving, sometimes a wholesaler closing all together. So that's typically what we're like fighting for in the background. When a supplier isn't so sure that they want to go with the wholesaler that their, you know, their prior wholesaler has designated their brands to move to.
[00:30:29] Isabelle Cunningham: So let's say this wholesaler acquisition does happen, but you have been informed that your brand. is not being considered to go along with the acquirer? One, does that situation ever happen? And two, what recourse do you have here?
[00:30:42] Brewbound Podcast: it does. And unfortunately, with the way franchise laws are set up, they are predominantly set up for protections on behalf of the wholesaler, right against a supplier, not the other way around. So typically, unless your contract spells out otherwise, that you have some kind of notice provision, or there's some kind of requirement or, or something that the wholesaler owes you, they can terminate you usually without a penalty. And so it it does end up kind of putting you in a situation where you could be stranded, right, without a wholesaler or without a partner. In that case, you don't have a lot of options, unfortunately. What is important, if that does happen to your brands, right, is to ensure you are left with kind of the max amount of leverage if you ever have to re-enter into a market. So I would ensure that you get a release, for example, from the selling brand rights, right, and a termination of that contract. and just send an actual formal termination of that contract even if your brands aren't being transferred, right, to kind of cut ties and sever and to ensure that somehow your brands aren't assigned to this new wholesaler and then if you ever re-enter the market down the road that there's some kind of existing, you know, franchise protection there. So you have to be a little bit careful. You have to formalize that a little bit more than you you would think you would have to in a situation like that. It's important to send them like a formal termination, canceling your contract. And unfortunately, you know, if there isn't another wholesaler, at least immediately that you can identify, it likely means you're going to have to withdraw from the market.
[00:32:20] Breakthru Beverage: I'd say the other thing too, you know, to the extent that you have the desire to stay in the market and you are actively seeking, you know, other wholesalers to carry your brand, trying to, to extract as much information out of your outgoing wholesalers you can, customer lists. Who are they talking to at these accounts that carry your product? To the extent that you can get that information and hold on to it and to be able to sort of pitch that to a wholesaler that, you know, maybe they're kind of lukewarm on your brand now and it's not, you know, there might be a kind of gap in the middle between when this transaction closes and when you can get into a new wholesaler, having that data ready to go. So whatever you can extract from the wholesaler that might be dropping you. going to be to your benefit to be able to give you the best case possible to get into a new distributor's hands and give them at least some tools and say, you know, we're not starting from scratch here. Here are all these contacts. Here are all these connections. There are avenues for you to explore. We can make this lucrative in this market, you know, that kind of thing.
[00:33:16] Justin Kendall: Something we may not have considered recently was a wholesaler leaving a market or filing for bankruptcy or just outright going out of business. So how did the steps change in those scenarios?
[00:33:32] Brewbound Podcast: It's a great question. So typically that's, especially if there's a bankruptcy situation, right, or they're withdrawing from a market, that's obviously a four calls termination. And why that's important is that Typically a four cause termination doesn't require you to pay any multiple for the brands. And so you kind of get your brand back for free, if you will. And it's important to kind of memorialize that, Justin, because in other situations, right, there's a value associated with your brand, right? which in any other type of situation, kind of, it affix to the brand, right? And you'd have to pay that to release your brand rights. In a situation like bankruptcy or withdrawal from the market from your wholesaler, the nice thing, if there is one, right, is that you get your brand rights back kind of for free. So the approach is slightly different, again, in that there, you know, typically you have a little bit Oregon Beverage. And what the outgoing wholesaler will likely do, right, is sell those brand rights before, you know, they leave a market. But, you know, bankruptcy, again, is usually under a franchise law and under your Scout Distributing agreements. It's a four cost termination event, which, again, means you get your brand rights for free, which gives you a little bit more flexibility because then another wholesaler can theoretically pick them up for free. But the process is still the same. You should still formalize it.
[00:34:56] Breakthru Beverage: in your conversation with your preferred wholesalers are a lot cleaner in that situation. A lot of times whenever we're talking about a preferred wholesaler, you have to be very careful about how you're communicating with them, what you're sharing about your current contract and your current relationship. Obviously, if a wholesaler is going out of business or leaving a market, you can be much more robust in your conversations with the other distributors in a network, and you can be much more forthcoming about what you need, what you've had, all those sorts of things. much more difficult in some ways, and it can also be a little bit more streamlined than others.
[00:35:31] Isabelle Cunningham: Let's shift gears and move over to intoxicating hemp, which is kind of certainly a hot topic these days. It's in a bit of a holding pattern as Congress tries to figure it out. We've got some bills that would extend the deadline, the Current permissions are set to expire next November, but there's a bill in play that would push it out three years. There's also bills in existence that making their way through the pipeline that could potentially set up a regulatory framework. So lots of ins, outs, what have yous. But what we're hearing from producers in the space is that they're not deterred and they are feeling very bullish on the future of intoxicating hemp. But what about brands that haven't launched yet? How much appetite for risk does one need to have in order to get off the sidelines in this burgeoning segment?
[00:36:16] Brewbound Podcast: Yeah, so I think we're seeing this a lot more. And as things kind of play out, you know, it gives brands a little bit of a whiplash because it's, you know, when you think you're making some progress or you get some good news, it seems like, you know, you take one step forward and two steps back kind of situation. Right. And so it can be really daunting to think about this. But I think what you have to be very mindful of, if you're especially an alcohol company dabbling in the THC space, is being very mindful that things are going to be rocky. There's going to be states that change that are unexpected and you have to be nimble. In order to be nimble, you have to think about this when you're structuring your company, and this is daunting. There are certain things from a corporate entity structure perspective that you need to be very aware of and need to do kind of in the inception of building out these brands to create some separateness, right, from your core brand to protect your core business, especially for brands that are, again, releasing this as part of an overall portfolio. What we've seen from an enforcement perspective is state regulators, for the most part, have come down from an enforcement perspective a little bit harder on alcohol companies because they have a hook in them. Because there's licenses that are issued as it relates to their products, right? And so it's easier, basically, to have that as a leverage point than just some anonymous company. Now, how to mitigate that is careful corporate structuring, where there's some separateness between your core business. and the hemp business. And that gives you both flexibility on lots of different fronts. It certainly mitigates your risk from a regulatory standpoint. It helps in financing or raising funds for these separate entities. It helps in the event you have to pivot really quickly, right? And maybe spin that off or do something with it, right? It's already kind of separate and kind of lives apart from your core business. That's the biggest piece of advice. If you're thinking about getting into this space and it seems really daunting and, you know, impossible, think about it almost as a separate business. The more separate it is, the less risky it is inherently from a regulatory perspective. So that's the number one thing is be very mindful all the way down to your corporate structure, right? Be very, very mindful of how you're setting this up.
[00:38:43] Justin Kendall: Are you seeing brands and distributors do that, set up that sort of firewall to protect themselves?
[00:38:48] Brewbound Podcast: Yes, to a certain extent, in all different levels. But yes, universally, that is kind of the recommendation, is to kind of keep these at least now, especially because, you know, specifically because the regulatory uncertainty right now, and not just on a federal level, right? We started this conversation focusing on federally how this is going to be treated, but on a state level too. States are moving back and forth on this issue constantly and there's, you know, tons of pending legislation across the nation on how to treat these products. And you want to create, you know, the key to all of this is to be as nimble as possible, to be able to turn on, turn off DTC, right, if you need to, or pull out of a state. And, you know, in order to do that, the number one recommendation, again, is to kind of create this, you know, the separateness between the two companies to keep it kind of, again, separate and apart.
[00:39:44] Breakthru Beverage: I think optically, the distributor tier has shown the least amount of separation. We haven't advised, obviously for conflicts purposes, we don't advise a lot of distributors, but optically, I think Scout Distributing tier seems to be sort of, the lines are blurred a little bit in terms of where their hemp beverage distribution business ends and where their alcohol or non-alcohol beverage distribution businesses begin. So that's been the conversation that we've sort of had internally amongst ourselves saying, you know, we're doing all of this work to ensure this really clear separation from an operational and a financial perspective and a corporate perspective for our supplier clients. And then all of it's flowing into the middle tier and it's all sort of hitting the warehouse floor and getting distributed out by the same folks. So, you know, I don't know that that there's necessarily any rhyme or reason behind that necessarily, but I just think that it's sort of an interesting layer that we're doing a lot of work at the top tier to make sure that these things are entirely distinct. And I obviously can't say from an internal perspective how it's structured for distributors, but optically it certainly seems like they're very comfortable sort of presenting it as a total portfolio and just sort of a new addition to what they already offer.
[00:40:55] Justin Kendall: We talked a lot about Bev-Elk supplier contracts with their distributors, but when we have these types of contracts between intoxicating hemp producers and distributors, how are those contracts being structured? Because I think I've heard a little bit of both where sometimes they act as the non-Elk contracts and sometimes they've been treated as the Bev-Elk beer franchise protected contracts.
[00:41:23] Brewbound Podcast: Yeah. Obviously, it's in the wholesaler's interest to kind of get and treat THC products more akin to beer, because beer contracts usually have certain provisions of beer franchise kind of built into it, right? And that doesn't exist for THC beverages, at least in, you know. in the vast majority of situations. So we're seeing now that beer wholesalers are getting into the business, the contracts that we're seeing are more akin to beer, but that doesn't necessarily mean you have to go with that form of contract. You should be aware that you have a little bit more flexibility, and there's certain specific things as it relates to THC that you need in your contract that will not be in the beer contract, right, or the form contract. First and foremost, you need a carve-out that if something changes in that state from a regulatory perspective, you can pull out and withdraw from the market without a penalty. So if the state decides, you know, Texas has a total change of heart, right, and says, nope, it's illegal, that you can pull out of Texas without penalty because it's a regulatory or legal change. That is a big provision that's not going to be inherently Scout Distributing agreements, right? That's set up for alcohol because that's not going to be an issue. But it's kind of a unique thing that you have to be really mindful of with this agreement. Another classic thing is what Izzy said before, how the product is actually marketed and treated and how it's sold in the state is inherently likely going to be different than alcohol. So you have options. in many states, you can duel the product, right? You can give to wholesalers in the same territory where you can't with beer. So understand your, again, understand what your options are and your leverage. You're not going to be able to get all of these things in every situation, right? Because you might just need to get your product in with a wholesaler and kind of, you know, you're at their mercy. But it's important to understand, you know, what your actual legal options are as it relates to the product in that particular state. Because again, that gives you at least a little leverage. If you're going to give on something, you want to get something. So it's kind of one of those things where you should be pretty mindful. It shouldn't look exactly like your beer contract. It should have nuances and it should be, you know, the basis could be the same, but it's got to have special provisions as it relates to the product.
[00:43:44] Isabelle Cunningham: I want to go back to something that Izzy mentioned, and I should probably know this, but I don't. And I realized that a lot of the way that these frameworks for THC beverages and other products have come to be are a little bit outside the norm of what we have seen in Bev-Alc for decades and decades, but can THC infused beverages pay slotting fees?
[00:44:04] Breakthru Beverage: I would say it depends who's selling them. And it really depends on the state. It depends on the state. It depends on who'Scout Distributing it. It depends on who the supplier is. It depends how the supplier has structured their business. If they're selling, the entity that's selling the THC beverage is a licensed alcohol supplier. and you're in a state that says your trade practice rules apply regardless of what you're selling, it applies because you are a licensee, then the answer would be no. It would probably be no. If you have an entirely separate business, if you are a supplier out there that only makes THC beverages, you don't touch alcohol at all, and you have a distributor or you're selling direct to retail, arguably, you should be able to pay a slotting fee. So there are lots of wheels turning on this and folks thinking about it. whether you are a alcohol supplier that's dabbling in THC will really, really impact that conversation. And even if you arguably are allowed to, I think that would be a pretty, if we heard our client was ready to pay a slotting fee and they had a really lucrative alcohol business that was sort of the core driver and the revenue maker for them, we would be a little hesitant to say, Yeah, green, go, low risk. But it's a very nuanced and a state-by-state analysis and something that I'm sure the big players are considering and thinking through.
[00:45:32] Brewbound Podcast: The reality is like slotting fees in that prohibition is only for alcohol, you know, water and every energy drink and every, you know, anything else on the market. Like, that's like a commonplace that's built into budgets. It's like, you know, a line item, if you will. So it's so unique and how that's going to play out when states set up their regulations as it pertains to these products. It's going to be really interesting, especially if you kind of make them available in non-traditional alcohol. Like most alcohol retailers, right, are used to those rules. But if you're selling these products in a bodega or something that doesn't sell alcohol traditionally, they're going to expect slotting fees. And how that actually plays out is going to be really interesting and how regulators deal with that. That's all still pretty far ahead. It's much like Izzy mentioned with NA beverages and how they fit in. same issue and even how franchise law applies to those right to the wholesaler and the supplier as it as it relates to them right or does you know franchise protections go down to the actual product and the commodity that you're selling or the brand rights associated with it right to get even more complicated it kind of is a it's an evolving thing that's going to be really interesting because it's really putting a strain on kind of the existing trade practice you know rules as it relates to alcohol and um how that's going to impact the regulations as it pertains to THC beverages.
[00:46:59] Breakthru Beverage: I think the quick way to offend all your alcohol suppliers that you'd like to get on your side if you're a THC beverage only brand is to be out there paying massive slotting fees to retailers, even if it's from a place of jealousy that they themselves can't do it. But I think in terms of lobbying for support of what was once itself a prohibited industry, I would say just as a brand trying to find your way, maybe doing it might offend some other folks in the alcohols case. Whether that's enough to prevent them from doing it, I don't know.
[00:47:33] Isabelle Cunningham: Being in Massachusetts where we do have a legal cannabis market and anything with THC in it has to be sold through dispensaries, this industry, I'm almost embarrassed to say, snuck up on me because it's just not here. If I go to a liquor store, I don't see these drinks, whereas Justin goes to the grocery store in Iowa and he does.
[00:47:51] Brewbound Podcast: What's really shocking, because as a consumer, right, like putting all of our consumer hats on, we're all sitting in different markets. Izzy's in Rhode Island, Justice in Massachusetts, Justin Smiley, like I'm in PA, and it's like a total mixed bag. It's wild how different everybody's experience with these products is on a state-by-state basis. Like, there isn't really another commodity like that. Usually your experience is universal, like where you can buy a product, right? Where at least there's a norm for it in your state. It might not look exactly the same state by state, but there's like kind of a precedent. It's not. It's in random places here, right? It makes no sense. You can DTC it, you can, you know, ship it. I should say brands do ship it into the state. Not that it's permissible, but brands do.
[00:48:37] Justin Kendall: Not any that we know of.
[00:48:38] Brewbound Podcast: Exactly. But it is kind of wild. That's mind-blowing. There's certain people within this country who have very little exposure to these products, and there's others who see it every single day. When they go to their special grocery store, they don't even see alcohol. They see THC beverages, which is kind of wild.
[00:49:00] Justin Kendall: Not to go all calshy or prediction market here, but, and not as legal advice, but where do you think this goes? Do you think that we get a regulatory framework by the time we reach November or do you think it gets kicked down the road or do you think this goes into effect?
[00:49:19] Breakthru Beverage: Kick the can is my vote. Kick the can. I think eventually someday we'll end up with a regulatory framework for it just because of the demand and the money. but I just don't see, especially coming into a midterm election year, I do not see anyone taking this up in earnest, but I don't see them letting the ban go into effect either. So it feels like a perfect chance for them to punt.
[00:49:42] Brewbound Podcast: Yeah, I agree. I think it's a delay tactic. I think they're gonna kick the can, as Izzy said. I think it's really interesting because it is such a complex issue. We have a hard time getting the federal government to update our alcohol laws. They haven't been updated in a really long time, at least from a legislative standpoint, certainly. And to think about setting up an entire regulatory schematic and all of the things that would have to go into that in consideration, even from a jurisdictional perspective. what the FDA or potentially the TTB's role is in these products is, it's really daunting. It's an undertaking. And I just don't see how they could put all of that in place before, you know, a successful regulatory kind of scheme in place. you know, before November. And so I think it's, I strongly think, and it seems like this bipartisan bill to kick it to 2028 has like a lot of support. I also think there's something to say that the federal government recognizes that there's a lot of states like Minnesota that have actually set up regulatory schemes that are relatively successful. And I think they might give the opportunity to as many states as possible to kind of figure it out on a state level before they kind of come in and do it for anyone.
[00:51:01] Isabelle Cunningham: Okay, well, Nicole and Izzy, this has been so insightful and a really great conversation. I learn something new every time we talk to you guys. So thank you so much for taking the time. Congrats on your new firm. If people wanna reach out to you for more, where can they find you?
[00:51:16] Brewbound Podcast: great question. They could email us and we can drop our email addresses or go to erinfoxschiff.com and that will direct you to the alcohol page, the food and beverage page, and ultimately the alcohol page to find our information about us and our team. But we're super excited to join such an esteemed group of colleagues in the food and beverage space. You know, we really made the move intentionally to join kind of a group of people who are situated in the food and beverage space more generally, which is awesome. And it's been a great transition, but thank you so much for having us. We'd love to come on and chitchat about all the legal things.
[00:51:55] Isabelle Cunningham: Like I said, it is always a delight. And thank you so much for all the time and all your wisdom. Thanks, Jess. Thanks, Justin. Thanks. And that's our show for this week. Thank you for listening. The Brewbound Podcast is a production of BevNET CPG. Our audio engineer for the Brewbound Podcast is Joe Cracci. Our technical director is Joshua Pratt, and our video editor is Ryan Galang. Our social marketing manager is Amanda Smerlinski. Our designer is Amanda Huang. If you enjoyed this episode, please share it with your colleagues and friends and review us on your listening platform of choice. You can find our work at Brewbound.com. And we also welcome feedback and suggestions at podcast at Brewbound.com. On behalf of the entire Brewbound Podcast team, thank you for listening. We'll be back next week.
