News: CJ Exclusives

Law Keeps Cap on Breweries’ Growth

Larger brewers can hold tastings and sell their beer onsite, but not distribute it

WHITSETT — In a special session the week after Thanksgiving, the General Assembly tweaked North Carolina’s liquor laws to allow midsize and large breweries to offer tastings and sell their beer onsite. Previously only small breweries, producing fewer than 25,000 barrels a year, were allowed to do so.

The law was changed as an attempt to attract two midsize breweries — Sierra Nevada and New Belgium — to the state. The California- and Colorado-based companies are interested in creating hubs on the east coast. But neither will come to North Carolina unless the state allows them to sample and sell their beer at the brewery sites.

The owner of Red Oak Brewery — which produces 17,000 barrels per year in the Guilford County community of Whitsett — says the law change won’t help him. While Bill Sherrill appreciates the fact that he can continue offering tastings and retail sales after he crosses the 25,000-barrel threshold, he doesn’t plan to cross it anytime soon. That’s because as soon as he reaches that 25,000-barrel plateau, the law says he’ll have to hire a wholesaler to distribute his beer — every drop.

Sherrill owns 15 trucks from which his employees deliver his Bavarian-style lagers to nearly 600 bars from Raleigh to Charlotte. He’s been self-distributing for 21 years, partly to save money and partly because he doesn’t trust anyone else with his product.

“Red Oak is unfiltered, unpasteurized, and has no preservatives,” Sherrill said. “It needs to be refrigerated at all times.”

He fears that if the beer’s not handled right and goes bad, his reputation, not the distributors’, would be tarnished.

Sherrill said he wants to pick and choose when he uses a distributor. When delivering to Raleigh or Charlotte or Greensboro, he can do it cheaper himself.

But in less populated, rural areas at the eastern and western edges of the state, he said “it doesn’t make sense for us to drive all over the place with one product. The big distributors can drop off six cases of this, 10 of that. They have enough volume to make it pay. So I would use distributors for that.”

Sherrill said part of the reason Sierra Nevada and New Belgium were able to grow beyond the capacity of their original locations is that their home states allowed them to self-distribute, no matter how many barrels they produced. He said breweries can save a lot of money by delivering to nearby, populated areas themselves.

The reason the distributors don’t want the law changed in North Carolina is “they want their cut off the top,” he said.
“Their truck is already going” to several stores and offering a lot of labels, “so they just throw on some Red Oak,” he said.

“They want to piggyback on the effort we put into making the finest quality beer and offering the best service.”

Tim Kent, executive director of the North Carolina Beer and Wine Wholesalers Association, argues that the purpose of distributors (or wholesalers) is to protect the public.

“One of the reasons we had Prohibition was because pre-1919 you had what were called tied houses,” Kent said. “The brewer, Anheuser-Busch or Schlitz, basically bought off the bars. They said, if you sell only our beer, we’ll give it to you at a very low price. That resulted in unusually low-priced alcohol, over-consumption, and a lot of drunks and a lot of women whose men were alcoholics and not coming home.”

Wholesalers, he said, ensure that a variety of beers are sold at bars and that they’re not sold too cheaply.

“Prohibition didn’t work,” Kent said. “It just led to organized crime. So they legalized alcohol, but they did it in a way that states have the ability to control it, and wholesalers are a key part of the solution.”

Rep. Tim Moffitt, R-Buncombe, who sponsored the bill that could entice Sierra Nevada and New Belgium to brew in North Carolina, said he’s not ready to lift the 25,000-barrel cap on self-distribution.

“When Prohibition ended, our state elected to regulate alcohol in a 3-tiered system — production, wholesale or distribution, and retail,” Moffitt said. “You could not be a tied system, meaning you can’t do all three. I guess it was a mechanism to prevent [monopoly].”

But when the General Assembly realized microbreweries were having a hard time competing under this system, Moffit said, they carved out an exception, allowing craft brewers to produce, distribute, and do retail sales.

“It’s allowed microbreweries to thrive,” he said.

But Moffitt said he’s not interested in letting them thrive too much. “Right at this moment, I’m not interested in removing the distribution limitation of 25,000 barrels,” he said.

“It’s a public safety issue in regards to alcohol consumption as well as a corruption issue in regards to a history where tied houses, prior to Prohibition, had a lot of negative outcomes,” he said.

Keeping distribution separate from production “is just easier to regulate,” he added.

Moffitt said he’d be willing to reconsider his position after a more thorough examination of tied versus tiered systems.

“Quite honestly, all this alcohol legislation is very new to me,” he said. “Because I represent Buncombe County and two national breweries were looking to locate in Henderson and Buncombe counties, which are sister counties, this became an economic development issue.”

Sherrill said Red Oak Brewery’s ability to expand also is an economic development issue. If the cap on self-distribution were lifted, he said he would invest half a million dollars in eight new brewing tanks. He also has plans to develop the 12.5 acre property around the brewery to include a restaurant, beer hall, museum, and hotel — if he can increase production and keep self-distributing.

Sherrill said he’ll continue to lobby to have the cap lifted, but said it will be an uphill battle, as the wholesalers association has three full-time lobbyists in Raleigh. “They don’t want the law changed because we’re a hell of a competitor,” he said.

Sara Burrows is an associate editor of Carolina Journal.