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Brewery law compromise spurred by lawsuit

Gov. Roy Cooper signs House Bill 363, Craft Beer Modernization Act, joined by lawmakers, brewers, and lobbyists, May 30 at Raleigh Brewing Co. (CJ photo by John Trump)
Gov. Roy Cooper signs House Bill 363, Craft Beer Modernization Act, joined by lawmakers, brewers, and lobbyists, May 30 at Raleigh Brewing Co. (CJ photo by John Trump)

Rep. Chuck McGrady, his hand on the polished bar, couldn’t stop smiling as he leaned in for a better look.

Gov. Roy Cooper, McGrady just to his right, was smiling, too.

A group of lawmakers — Republicans and Democrats — brewers, and distributors, all lined up around and behind the governor. They laughed, clapped, and cheered.

House Bill 363, the Craft Beer Distribution and Modernization Act, was now law, the result of a historic compromise among mid-sized craft brewers and the N.C. Beer and Wine Wholesalers Association.

Tim Kent, executive director of the wholesalers association, called the bill mutually beneficial. Beer, he said during the ceremonial signing May 30 at Raleigh Brewing Co., has a $9.2-billion economic impact on North Carolina annually.

“This was a bipartisan operation, and the legislature got the bill through both chambers very quickly and efficiently,” Kent told those who gathered for the signing.

“This reaffirms the state’s commitment to the three-tier system, and it significantly strengthens the beer franchise law,” he said. “At the same time, it creates a brand new classification for brewers … who will be able to grow flourish and continue to prosper in the marketplace. Those are good things.”

The bill just signed, McGrady, R-Henderson, was holding court — laughing and still smiling.

You seem happy, someone asked him .

“I am,” he said.

This fight, just one in a succession of battles to modernize North Carolina’s outdated — and arguably draconian — alcohol control system, is won. But more battles remain.

McGrady, who has announced he won’t seek re-election, is the unofficial House leader in efforts to reform the archaic N.C. Alcoholic Beverage Control Commission. Now, though, he’s in the process of shepherding several alcohol-reform bills through the General Assembly, including House Bill 536, ABC Omnibus Regulatory Reform, which has cleared the House ABC Committee and awaits in Finance.

The bill would, for example, allow liquor tasting at ABC stores, allow online sales on a reciprocal basis, and allow distillers to sell an unlimited number of bottles from their distilleries.

The momentum, it seems, is shifting toward reform, as opposed to away from it.

“We’ve got a distillery bill (Senate Bill 290), sort of craft distillery bill, just like the craft brewing bill, that I expect will move over from the Senate,” McGrady said. “And lurking out there is the idea of getting the state out of the distribution and sale of (spirituous) alcohol. I don’t know whether that’s got enough muscle to make it right now, but the trend line is certainly good.”

The passage of H.B. 363 signals at least a temporary end to a reform campaign that began more than a decade ago, as craft brewers took on the N.C. ABC system and a well-funded and entrenched network of wholesalers and distributors.

“Anyone familiar with the political dynamics of alcohol distribution in North Carolina knows that has been what has been accomplished is no easy task,” NoDa co-founder Suzie Ford said before the signing.

The failures, in fact, came by the bundle.

Just last year, House Bill 500, which Cooper eventually signed into law, originally included a provision allowing craft breweries that produce more than 25,000 barrels of beer a year to self-distribute, if they chose to. That provision, along with one making it easier for breweries to terminate their contract with distributors, was stripped from the bill after fierce objections from the wholesalers. Before that, lawmakers introduced bills to increase the cap to between 60,000 barrels and to as many as 200,000 barrels.

Those efforts, too, were in vain.

Negotiation and compromise were key to the success of H.B. 363, but those factors were probably secondary to a lawsuit and pending trial brought by craft brewers. The brewers’ complaint said certain state statutes were unconstitutional and consequently sought a permanent injunction against enforcement of the state’s distribution cap and franchise laws. The distribution cap and franchise laws, they said, were inflicting injury and threatened to impose additional damage to the brewers.

The lawsuit, because of the new law, has gone by the wayside.

While the H.B. 363 reaffirms support of the Beer Franchise Law and the three-tier system for the distribution of malt beverages, it does ease up on limits for production and distribution, which were severely restricting brewers’ plans to grow and expand.

That law, as Kent said, adds a new, mid-level classification of brewers. Brewers can now self-distribute 50,000 barrels of their products, as opposed to the previous 25,000. The legislation also gives growing brewers more flexibility in choosing where and how to distribute their beers around the state.

Breweries that exceed 50,000 would not lose the ability to self-distribute, although the new law affects only those breweries that sell fewer than 100,000 barrels of beer per year. Before, if a brewer sold 25,001 barrels per year, by state law, every barrel produced — including the first — would have to go through a third-party wholesaler/distributor.

H.B. 363 allows brewers such as John Marrino of the Olde Mecklenburg Brewery in Charlotte to go all in with plans for expansion. Marrino, who mostly limits distribution of his beer to Mecklenburg County, is ready to start construction on second multi-million-dollar brewery and restaurant in Cornelius, north of Charlotte near Lake Norman.

Marrino, who was part of the lawsuit, prefers to distribute his own beer. But the Cornelius site would have put Old Meck on a collision course with the state’s barrel cap.

“I would have been faced with having to make decisions about cutting back other parts of my business,” Marrino said. “And now, with this new legislation, I don’t have to do that. I can continue on with the wholesale side of my business, and the retail, without pulling back on one or the other.

“It’s excellent timing for me, and it takes a big load off our shoulders.”

On the drive from Charlotte to Raleigh, NoDa’s Todd Ford and wife Suzie had much to talk about. They, too, have decided against contracting with a distributor.

Rather than limits and sacrifices, regulations and restrictions, the Fords discussed opportunity and distribution growth. They talked about distributing their beer around the state, in places they may not have thought about before — in and out of North Carolina.

“That’s something I couldn’t have done until this bill was passed because, quite honestly, it would reduce the amount of beer I might be able to sell my local area,” Todd Ford said. “With that restriction removed… there’s great opportunity to look at areas and territories outside of our home area and see what’s best for our business, and a whole new customer base, perhaps.

“We’re not going to be everywhere.”

So, he said, forget Manteo to Murphy. But people want more choice, and NoDa plans to help provide it, on its own terms.

Cooper acknowledged H.B. 363 amounted to a compromise among the state, wholesalers, and brewers, each unhappy about certain provisions of the new law. Yet, they will agree, it’s progress nonetheless.

“I think we all know that the beer industry is important to North Carolina’s economy,” Cooper said during the signing ceremony. “And when you think about our economy, it’s often based on a number of things … like agriculture, innovation, tourism, and manufacturing. When we’re talking about the beer industry, all of those things are a part of that. We know it represents thousands of jobs for our state and tens of millions of dollars in investment.”

When McGrady first came to the General Assembly almost 10 years ago, he helped propose a bill to allow a brewery, held up by local ordinances, to open in Henderson County. It took three committee meetings to move the bill, which eventually passed. But just barely.

“Three weeks ago I passed the omnibus bill, with Sunday tastings … all this stuff, and it passed (the ABC committee) nearly unanimously,” McGrady said. “So, you’re really seeing significant change occur. And the deal that was struck here, in part because of the litigation, has got us in the right place.”



  • civilwar 12

    ABC stores should be shut down or privatized .