Some North Carolina craft breweries plan to ask the General Assembly next year to change a state law they say is stunting their growth, but there’s little indication the association representing large beer wholesalers will cede any of their control over the state’s beer distribution.
The law places a limit of 25,000 barrels any brewery can produce and sell in a year without having to contract with a wholesale distributor. If a brewery exceeds the limit, it must use a distributor for all of its beer, not just the amount over 25,000 barrels. (One barrel equals 31 gallons.)
“We want that option for ourselves,” said Todd Ford, who with his wife co-owns NoDa Brewery in Charlotte. “I don’t see us distributing 70,000 or 80,000. But I’d like that option.”
At least three North Carolina craft breweries say they’re approaching that ceiling and soon may have to make decisions regarding their growth if the law isn’t changed.
One, Olde Mecklenburg Brewery in Charlotte, brewed about 19,000 barrels of beer last year and because it’s continuing to grow, the brewery no longer distributes beer in the Greensboro-Winston-Salem market.
“As a precautionary move, we pulled out of the Triad Jan. 1,” said John Marrino, owner of Olde Meck. “Because of the uncertainty, we said, ‘Let’s stop growing elsewhere and focus on Charlotte,’” Marrino said. “The last thing I want to be doing is cutting off Charlotte and driving beer up to the Triad.”
Bill Sherrill, owner of Red Oak Brewery in Whitsett, said his brewery soon will reach the 25,000-barrel cap.
“I don’t think we’ll hit it this year, but we’ll hit it definitely in ’17,” Sherrill said.
All three brewers say that if the cap isn’t lifted, they’ll cut back production rather than lose control over the marketing and distribution of their products.
“We are basically done growing if we can’t get this law changed,” Marrino said. “I will not be forced by this law to make a bad business decision from my perspective. I will not go over 25,000 as long as the law is in place.”
But the law has backers, led by the powerful N.C. Beer and Wine Wholesalers association. Tim Kent, executive director of the organization, said that distributors see no need to change the law.
“We think that the current system is a proven success by virtue of the fact that the exponential growth of the craft beer business and the fact that we have so many new breweries in this country, and the wide variety of brands that are available to the consumer,” Kent said. “That’s clear evidence that the system works.”
North Carolina’s dispute was highlighted in an August 2015 report by the Center for Public Integrity on beer industry lobbying in state legislatures. The report said that, since 1996, alcohol wholesalers have given $740,000 in campaign contributions to North Carolina legislators and that Kent’s organization employs seven lobbyists. (The fledgling North Carolina Brewers Craft Guild has two legislative lobbyists, according to Alex Miller, one of the lobbyists.)
Kent said that more than 90 percent of the brewers in the country produce 7,000 or fewer barrels a year. “Raising the barrel limit would provide a competitive advantage for a very small handful of brewers in North Carolina,” Kent said. “It would be to the disadvantage of everyone else.”
Kent said that other regional and national producers, such as New Belgium Breweries, came to North Carolina knowing the distribution laws. He said other breweries want to focus on brewing quality beer and leave the distribution to someone else.
The craft brewery owners said distribution decisions should be left up to the breweries, not dictated by state law.
“That’s the free-enterprise system,” Sherrill said.
Ford said he believes that his employees are best situated to market NoDa’s beer.
“This is the area where we live and the area we primarily wanted to focus on,” Ford said. “We didn’t think that there was anybody better to tell the story than our own employees.”
Ford said that wholesalers and distributors have value, but he feels like self-distribution affords NoDa the opportunity to be more nimble in servicing restaurants and bars in a relatively small geographic area.
This won’t be the first time craft breweries have tried to increase the self-distribution ceiling.
“The legislature has had this issue before it every session since 2003,” Kent said. “This is not a new issue.”
Indeed, Red Oak’s Sherrill has spent years pushing for the change. But a bill never has gotten out of committee. Distributors and wholesalers have convinced lawmakers to leave the law alone.
Rep. Chuck McGrady, R-Henderson, who has supported similar moves in the past, said in 2017 he plans to put forward legislation lifting the cap.
“I actually think the direction on this is changing,” McGrady said. “As you get new legislators elected, I think you’ll find that they’re more willing to look at our antiquated alcoholic beverage laws.”
McGrady noted that more and more craft breweries are sprouting up in North Carolina. “These are all small businesses that employee people,” McGrady said.
Sen. Rick Gunn, R-Alamance, who chairs the Senate Commerce Committee and last year sponsored legislation permitting craft distilleries to sell small amounts of spirits at their locations, said he’s hopeful that the two sides can hammer out a compromise that can be enacted into law.
“It is so much better when two business entities work together to come up with a win-win,” Gunn said. “Otherwise, it puts legislators in a position to have to pick a winner and a loser. I am still encouraging the craft brewers to work with the beer and wine wholesalers.”
Gunn acknowledges that both sides have dug in their heels.
Ford said getting out of a contract with a distributor is cumbersome. He also said smaller breweries are concerned that if they must distribute through a wholesaler, smaller breweries could be squeezed by incentives the larger, global brewing companies offer to retailers. “There could be many times where there is a strong motivation to move somebody else’s product other than yours,” Ford said.
“The distributors are in the business of selling products that the consumer wants,” Kent said. “Beer distributors are excited about the craft beer movement. We are anxious and ready to sell craft beer brands to retailers. There is no incentive for us not to do that.”
The craft brewery officials say they’re willing to wait a year for a couple of reasons. First, “short sessions” like the one in 2016 generally are reserved for budget adjustments and other less controversial matters.
In addition, the breweries hope to use the time between now and the 2017 session to make a more compelling case to legislators.