Craft brewers not giving up on expanding self-distribution

North Carolina lawmakers late Tuesday night stripped from House Bill 500 a provision that would have lifted the proverbial cap on the state’s most successful brewers and effectively allows distributors to retain control of the retail market.

Rep. Chuck McGrady, R-Henderson, a primary sponsor of H.B. 500, called parts of the current law for the state’s more than 200 brewers “arcane.” But the bill won’t pass, primarily, because distributors won’t relent to the increased limits. It also adds mostly uncontroversial language easing the rules, for example, on brewers in relation to tours and tastings.

“There is a [Proposed Committee Substitute] for [H.B. 500 and] that bill drops the self-distribution provision [and] the franchise termination provision,” he said in a tweet. “I hope to move that bill.”

The distribution lobby says the current system works well and is crucial in satisfying consumers’ wants and needs. They say H.B. 500 and similar bills places their businesses, many of them family owned and operated, at serious risk. They point out the entire portfolios of 12 wholesalers in North Carolina don’t add up to 200,000 barrels, or 66 million bottles.

Another tact by distributors to derail the bill was a product of a move by Rep. Jamie Boles, R-Moore, who introduced House Bill 480 last week. That bill, as filed, would require the ABC Commission and Department of Revenue to ensure distillers and brewers comply with state tax laws and require that certain brewers submit an annual report to the ABC.

A provision in H.B. 500 would have allowed brewers to distribute no more than 200,000 barrels of beer each year. Current law caps that limit at 25,000, meaning brewers reaching that threshold must procure a distributor, who acts as a middle man and, along with the retailer, is part of the three-tiered distribution system.

The issue is far from dead, however, and the House Alcoholic Beverage Control meets at 3:00 Wednesday afternoon to take up what’s left of H.B. 500, as McGrady referenced.

For that matter, a House bill in filed February that would raise the brewers’ threshold above 100,000 barrels remains in play.

At least three North Carolina craft breweries — Red Oak in Whitsett, and Olde Meck and NoDa in Charlotte — are approaching the 25,000-barrel threshold. The brewers, Carolina Journal has reported, want to continue control over their distribution and plan to halt growth if the law isn’t changed.

“We are extremely disappointed with the decision to remove our provisions from H.B. 500,” said NoDa’s Todd Ford.

“Unfortunately, the House leadership has decided to abandon their small-market, pro-business principles in favor of back-room politics that benefit only the beer distribution cartel and the 30 politically connected families that run them. We have other options before us and we will pursue them all whether they be legislative or legal. This is America and we are confident that, in the end, policy will prevail over crony politics, but just not today.”

NoDa’s Suzie Ford said the latest move by lawmakers to appease distributors marks a beginning but not an end. Other options are in play.

“Call me naive but I believed we would be given a fair chance,” she said. “From the beginning that was not the case when five pro-distributor members were added to the ABC committee after the initial members were announced at the beginning of session.”

Those new members include Rep. John Bell of Craven County, the House majority leader.

“The Republican leadership should have to answer for why they stacked the deck against a pro-business, free-market proposal that only grows North Carolina jobs and invests more money back into our communities,” said Suzie Ford.

Jon Guze is director of Legal Studies for the John Locke Foundation. In a Locker Room blog post Wednesday, he writes that, because the wholesale distributors constitute such a powerful lobby lawmakers are reluctant to approve even limited reform.”

But other legal moves will probably come.

“The wholesalers and their friends in the legislature shouldn’t be too complacent, however. In recent years, litigators in other states have successfully defended economic freedom on the basis of those states’ constitutions. (I wrote about one such success in a previous blog post.) Because it’s such a blatant example of cronyism, the beer distribution cap is vulnerable to challenge based on several provisions in the North Carolina Constitution.”