As Beer Market Matures, Many Regulatory Obstacles Remain

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As the craft beer movement has continued to explode in recent years, some analysts have warned that the market is becoming over-saturated. R Street’s Jarrett Dieterle has argued that in the context of a saturated market, it’s even more important to eliminate restrictive government-imposed barriers that hurt producers; after all, the market providers enough pressure without harmful (and needless) external hurdles being layered on. Food policy expert Baylen Linnekin recently sounded a similar warning in an article for Reason.com:

While the market for craft beer is still growing, the rate of growth has slowed considerably in recent years. Brewers Association chief economist Bart Watson last year said the craft beer industry his group represents is showing signs of "deceleration."

I'm confident the industry's growth can continue. But here's a caveat: craft brewers also continue to face their share of outside obstacles, chiefly in the form of state laws that hinder growth and profitability…

 I'm generally optimistic about both the industry and trends in state laws in the decade or so I've been writing about the industry. But I'm also frustrated by the slow pace of change and by seeing the same tired arguments…

Craft beer is a highly competitive, innovative, and important industry with boundless potential. In the end, though, the industry can only go as far as lawmakers will allow.

Linnekin’s whole article is well worth a read.

The DrinksReform.org team has also previously interviewed Linnekin on the absurdity of America’s alcohol laws.

Agreement Reached to Lift North Carolina's Self-Distribution Cap

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As our team has previously covered, North Carolina caps the number of barrels that breweries in the state can self-distribute at 25,000 annually. This means that once a brewery exceeds that barrel limit, it is forced to work with middlemen distributors in order to sell its beer in stores and restaurants in the state. Unsurprisingly, this creates a whole host of problems for growing breweries. While previous attempts to lift the self-distribution cap have failed in the state legislature, the AP reports that a deal to lift the cap has been reached (although the cap still remains in place at a higher level, rather than being scrapped entirely):

Small North Carolina brewers and alcohol wholesalers raised glasses on Thursday to what they call a legislative compromise that allows the breweries to keep control of their products longer as they grow.

Legislators from both political parties and industry representatives announced an agreement in General Assembly bills filed this week to let these craft breweries sell double the amount of their beer annually on their own compared to what current law allows…

The legislation would allow the creation of a new classification of brewers that can self-distribute up to 50,000 barrels a year. While these mid-sized brewers would still be able to sell up to 100,000 barrels, distributions above the first 50,000 barrels would have to be performed by a wholesaler.

Read the rest here.

Washington State Craft Distillers Plea for More Tasting Room Flexibility

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In Washington State, distillers are currently allowed to operate only one on-site tasting room with serving limits of 2 oz. per customer. Crosscut.com recently ran a feature on the push among distillers in the Evergreen State to expand their flexibility in order to survive:

[P]roducers of Washington’s craft spirits say they’re not sure their industry has a future if they don’t get help from the state Legislature this year.

A proposal at the state Capitol would allow craft liquor distillers like Hembree to open two additional off-site tasting rooms, which they say would allow them to reach more customers. Unlike the single tasting room allowed under current rules, the two new tasting rooms would not be attached to a distillery’s main production center, allowing the business to expand to new locations.

Senate Bill 5549 also would allow craft distilleries more freedom to serve sample cocktails, so they can show customers how to use local spirits in mixed drinks at home…

Right now, the state’s craft liquor rules allow distilleries to serve half-ounce samples, which can be mixed with other spirits only if those, too, are produced on site. Under the bill, Washington’s craft distillers would be allowed to serve some craft spirits made by other local distilleries, expanding the variety of drink samples they can make.

Current law also sets a serving limit of 2 ounces of samples per person, per day. Senate Bill 5549 would keep that limit in place for straight alcohol, but abolish it for mixed drinks…

Read the while piece here.


Maryland Considers Reforming Beer Franchise Laws

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After several years of political firestorms between reform-minded state Comptroller Peter Franchot and the state lawmakers, a key legislative committee in Maryland’s legislature has signaled a willingness to reform and loosen the state’s strict franchise laws that govern the contracts between brewers and wholesalers. According to Brewbound:

Franchise law reform is closer to reality in Maryland without the help of Maryland Comptroller Peter Franchot. The Senate Education, Health and Environmental Affairs Committee voted unanimously last week to loosen the state’s franchise laws that lock brewers into contracts with their wholesalers, according to The Daily Record.

Under the proposed changes, beer companies making fewer than 30,000 barrels annually would be allowed to exit their existing distribution agreements by giving 45 days notice and paying fair market value. Brewers making 12,500 barrels or less would be required to pay fair market value for the product remaining in a wholesaler’s warehouse, while companies making between 12,500 and 30,000 barrels would be required to pay the fee as well as the wholesaler’s marketing costs.

Currently, brewers are required to give 180-days notice and show “good cause.”…

Read more here.

Utah Partially Repeals Its Weak Beer Laws

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In December of last year, R Street’s Jarrett Dieterle took to the pages of The Salt Lake Tribune to call on Utah politicians to scrap the state’s ‘weak beer’ law, which forbids grocery stores from selling beer over 3.2 percent alcohol by weight. According to the Tribune, Utah lawmakers have reached a deal to raise the limit to 4.0 percent, although they were unable to secure a full repeal:

Utah lawmakers have struck a deal to let higher-alcohol beer be sold in Utah grocery and convenience stores.

House members signed off on the measure Wednesday by a 61-14 vote, sending the bill back to the Senate for a final vote that is expected to occur Thursday.

This second substitute bill would boost the cap on retail beer from 3.2 percent to 4 percent by weight, a level that would include the majority of beer that already is in retail outlets, said bill sponsor, Sen. Jerry Stevenson, R-Layton…

The initial version of SB132 would have hiked the alcohol limit on retail beer from its current 3.2 percent by weight to 4.8 percent. Utah’s predominant faith, The Church of Jesus Christ of Latter-day Saints, opposed that plan.

Last week, that proposal, which already had been approved by the Senate, was gutted by a House committee and replaced with language that would create a task force to study the issue.

Wednesday’s version is a blend of the two bills. 

Read the rest here.

R Street: It's Time for Texas to Permit Sunday Liquor Sales

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We recently discussed West Virginia’s passage of legislation legalizing Sunday liquor sales, and now Texas is considering doing the same thing. R Street’s Josiah Neeley, a resident of the Lone Star state, wrote for the American Spectator about why Texas lawmakers should embrace this reform:

Texas laws governing alcohol have their own quirks. Take Sunday sales, for example. Texas is one of a handful of states that maintains a ban on certain types of alcohol sales on Sundays. Whatever the original motivation of the Sunday sales ban, the current version is so shot through with exemptions as to make it arbitrary and senseless. Sales of hard liquor on Sunday are prohibited, but only if they are for off-site consumption. Bars can still serve hooch, and stores can still sell wine and beer. It goes without saying that you can still buy as much liquor as you want on Monday through Saturday and then drink it on Sunday…

Folks who favor economic liberty want these anachronistic rules wiped away. Meanwhile, voters worried about Texas’ public coffers can also take heart—permitting drinks sales each day of the week may generate more sales tax revenue. And consumers certainly would like these needless hassles eliminated.

While modest, bills like these are a sign that Texas’ attitudes towards liquor aren’t encased in amber. Times change, and the laws governing drinks should reflect that…

Read the whole piece here.

Connecticut Considers A Pair of Beer Bills

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After anti-brewery legislation that would have forced state brewers to choose between off-premises and on-premises sales was killed earlier this year, Connecticut lawmakers are now considering several pro-beer bills. According to the Hartford Courant, these would include bills to increase the amount of off-premise beer brewers can sell and allow larger retailers to sell beer in the state:

Advocates for craft brewers and distillers, distributors, restaurants and package stores showed up a legislative hearing Thursday to voice their concerns and support regarding several proposed bills they say will have an impact on their businesses.

Key among the proposed legislation is a bill that would increase the amount of beer craft brewers can sell for off-premises consumption from 9 liters to 23 liters per day…

Another proposed change would allow big-box stores such as Target and Walmart to sell beer…

Read more here.

A (Small) Step Forward For Virginia Distilleries

Silverback Distillery CEO Christine Riggleman.

Silverback Distillery CEO Christine Riggleman.

Virginia distillers continue to labor under some of the worst distilling laws in America, but their outlook is set to get (at least slightly) better. Virginia has the the 3rd highest distilled spirits taxes in the country, requires all liquor sales to take place through government-run liquor stores, and restricts the amount of tastings and servings a distillery can provide to on-premise visitors to a mere 3 oz. of spirits.

Even worse, the state’s notorious “NET 30” payment scheme requires distillers who sell their own bottles in their tasting rooms to send 100% of the proceeds of the sale to the Virginia Alcoholic Beverage Control Authority (ABC). Then, only 30-45 days later, ABC sends back the distiller’s portion (which amounts to a mere 46% of the sale price after Virginia’s high mark-ups and taxes are factored in).

Unsurprisingly, this antiquated process creates tremendous cash flow problems for craft distilleries since they are not even able to touch the money they derived from bottles sales until over a month later. To add insult to injury, the state also charges distilleries handling fees even for bottles sold inside the distillery (and thus handled exclusively by the distillery’s own employees).

Despite these burdensome rules, the state legislature has been resistant to even small changes to the law. Finally, this year, a modest step forward was achieved. An effort led by Silverback Distillery CEO and Founder Christine Riggleman resulted in Virginia lawmakers passing legislation that ends the NET 30 payment scheme and eliminates on-site handling fees (although the law doesn’t take effect until 2020). The DrinksReform.org team reached out to Riggleman, whose distillery is located in Afton, Virginia, to get her reaction to the news.

“[The legislation] allows us to have the working capital on-hand to meet demand,” Riggleman said. “With the flow of tourism and customers, you can’t predict always what the demand for the products will be, so you need the funds on-hand to be able to gear up for busier times.” Riggleman specifically cited the need to have adequate cash flow to invest in bottles and labels in preparation for periods of heightened sales, like around the holidays—something that is hard to do when the Virginia ABC holds their sale proceeds for over a month.

While Riggleman was relieved that her efforts resulted in real change, she was quick to note that more work remained to bring Virginia’s laws on distilled spirits in line with how it treats beer and wine. “This is just a band-aid; I still want full parity [with beer and wine],” Riggleman said. “We’re still hemorrhaging every month in Virginia trying keep up with customer demand as well as all the laws.”

In fact, Silverback Distillery recently opened a new production facility in Pennsylvania rather than expanding in its home state of Virginia. Riggleman noted that, in contrast to Virginia, Pennsylvania has no on-premise tasting limits and even allows distilleries to serve beer and wine.

Ultimately, Virginia will need to continue to grapple with the fact that its many Prohibition era laws are continuing to hamstring a promising growth industry. Hopefully Riggleman’s efforts will lead to more Virginia distillers joining the push for reform.

(R Street’s Jarrett Dieterle has previously profiled Christine Riggleman and her family’s experiences dealing with Virginia alcohol laws).

Bourbon Left Out of Kentucky Alcohol Delivery Bill

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Kentucky may be known for bourbon, but its lawmakers may leave the state’s flagship spirit out of their latest round of alcohol reform efforts. Last year, Kentucky made news by passing legislation that allows visitors to visit Kentucky distilleries and then have booze shipped to their homes. This year, a bill allowing consumers to purchase alcohol online and have it delivered may exclude bourbon altogether, according to WAVE 3 News:

Those at the Kentucky Distillers’ Association would probably tell you a lot of things are better with bourbon, but it’s not just barbecue sauce and bourbon balls. Now, they want to see a shot of the spirit included in Senate Bill 99.

Distillers said they feel left out of a bill that would allow wineries to ship online and electronic orders straight to your door.

KDA leadership said current language doesn't allow bourbon producers to do the same thing.

President Eric Gregory said HB 400, passed last year, does allow distillers to ship if people buy on site, but if they go home and want more bourbon he said they're out of luck.

Right now, SB 99 would allow for each person to receive up to 24 cases of wine from a seller annually. Bourbon is excluded…

Read the rest here.

Why Being a Brand Ambassador for Booze Is Harder in Control States

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Nearly everything is more difficult for alcohol producers and consumers in control states. That also extends to perhaps unexpected parts of the drink industry, such as brand ambassadors. Liquor.com interviewed several veteran brand ambassadors about the difficulties of operating in control states:

Being a liquor rep or brand ambassador can be a rewarding career. Knowing the ins and outs of a product or brand, spending time on the road visiting key accounts and building relationships with bartenders and owners are all key aspects of the job. But working in control states adds another level of complexity and challenge to the business of promoting a spirit, especially in stricter states that impose numerous regulations on how to sell alcohol…

Primarily, control states act as a single distributor for alcohol, selling directly from state-controlled liquor stores to bars and consumers and prohibiting bartenders from placing orders with anyone else. Building that relationship with bartenders, whether you’re the ground team working in that state, or a national rep who makes the occasional stop in, is key, even more so in control states when checking back in is an essential step.

“One difference in a control state is that you can’t always be closing, because there’s a disconnect between pitching products and educating, and the actual purchase,” says [Rocky] Yeh. “They can’t just take an order on the spot. It means there needs to be a lot more follow-up but in a way that’s not nagging.”…

Read the whole feature here.