News: CJ Exclusives

Craft beer distribution compromise cheers brewers, wholesalers

House Rules Committee Chairman David Lewis, R-Harnett, speaks Thursday, March 14, on behalf of bills raising the distribution cap on craft breweries. (CJ photo by Becki Gray)
House Rules Committee Chairman David Lewis, R-Harnett, speaks Thursday, March 14, on behalf of bills raising the distribution cap on craft breweries. (CJ photo by Becki Gray)

Editor’s note: This story was updated 11 a.m. Friday, March 15.

A collection of lawmakers, lawyers, lobbyists, and brewers gathered for a news conference Thursday, March 14, to talk about a pair of bills that, if passed into law, would even further energize North Carolina’s thriving craft beer market.

Collaboration, common ground, and a collective win for all were common refrains from speakers, including House Rules Committee Chairman David Lewis, R-Harnett, a primary sponsor of House Bill 363, Craft Beer Distribution and Modernization Act.

That measure and its companion, Senate Bill 246, maintain the current three-tier system — producers, wholesalers, and retailers — and adds a new, mid-level classification of brewers to state law. Brewers, under the proposals, could self-distribute 50,000 barrels of their products, as opposed to the current 25,000.

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

“I’m proud to stand here before you and share with you an example of how good public policy is made is when parties who have disagreements are able to come together find common ground and get things done,” Lewis said.

Despite the cheerful tenor of the news conference, the disagreements to which Lewis referred were borne out in a lawsuit filed in 2017 by Craft Freedom LLC, The Olde Mecklenburg Brewery LLC, and NoDa Brewing Co. The lawsuit says the distribution cap and franchise laws injure and threaten to impose additional damage on the brewers.

Superior Court Judge Allen Baddour in May 2018 ruled the lawsuit could proceed to trial.

Immediately thereafter, Craft Freedom announced it had issued subpoenas to distributors and others. “These subpoenas seek information about distributors’ political contributions, as well as communications involving their lobbyists.”

That lawsuit, said brewers’ attorney Drew Erteschik, is on hold.

“This historic proposed legislation would end the lawsuit if adopted,” he said in the news conference. “This legislation would be basically the reconciliation of any differences these parties have had, and there would be no need to continue.”

Tim Kent, executive director of the N.C. Beer and Wine Wholesalers Association, emphasized the effort by all parties to compromise and craft agreeable legislation.

“This announcement today is great news,” he said.

“This announcement is also very good news, I think, for the state. This agreement essentially will resolve a contentious issue that the General Assembly has had to deal with for more than a dozen years.”

Kent called it a win-win-win-win proposition.

“It’s a win for the brewers. It’s a win for the distributors, it’s a win for consumers, and we’d like to think it’s a win for the General Assembly. …”

Erteschik said he doesn’t think the lawsuit led to the latest efforts toward reform, but instead agreed with Kent’s assessment.

“There’s no question this is the best resolution, for everybody,” Erteschik said.

“I don’t think that the lawsuit spurred this. I think these are issues that have been around for a long time, as Tim said. This is a product of people doing what they should do, coming together and talking about their differences, learning from each other and figuring out a way where everybody can benefit.”

Most notably NoDa Brewing Co. and Olde Mecklenburg.

“This opens up a lot of possibilities for us,” said NoDa co-founder Suzie Ford. “We have never been anti-distributor.

“They fulfill something that we can’t necessarily do. So for us, yes, we will now be able to look at the whole state and really see what we’re going to do with our distribution partners.”

The beer industry in North Carolina, said Kent, each year has an $11-billion economic impact. The state has 300 breweries and distributors who employ upwards of 5,000 people. 

The bill importantly differentiates national brewers like Sierra Nevada and New Belgium — each with breweries in North Carolina — who produce about a million gallons of barrels of beer each year.

To self-distribute up to the first 50,000 barrels, the brewery must not sell more than 100,000 barrels annually, say handouts about the bill provided at the news conference. “This keeps the self-distribution privilege to small and mid-sized breweries. Really large breweries would still not be authorized to self-distribute,” the handout say.

“It gives us essentially what other businesses, small businesses outside the alcohol industry, already have,” said Todd Ford, NoDa co-founder.

It gives brewers such as NoDa, which now steers clear of the 25,000-barrel limit, the ability, Todd Ford said, to make business decisions for their company based on what’s best for that company. It’s a fast-evolving market, he said, and what worked even four years ago may have changed dramatically. The new laws could change things.

“So we can grow in a way that we think is best for our product, its quality and for its appreciation within the market. We don’t have to follow somebody else’s business plans that were dictated by state law.”