Franchise Laws

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.

Vermont Reforms Beer Franchise Laws, But Do They Go Far Enough?

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State franchise laws often make it difficult for brewers to end relationships with distillers, creating a legal restraint that can impact the growth of craft breweries. (R Street's Jarrett Dieterle discussed franchise laws in this past piece for The Federalist). According to Brewbound, Vermont has passed legislation that makes it easier for brewers to terminate their contracts with wholesalers:

On Monday, Vermont Gov. Phil Scott approved House Bill 710, which will allow beer companies making fewer than 50,000 barrels annually, and whose business accounts for three percent or less of a wholesaler’s total annual sales, to break their franchise agreements.

Beer makers who want to terminate their wholesalers will be required to provide compensation for inventory as well as five times the average annual gross profits earned by the wholesaler on the brewery’s products during the previous three fiscal years. For newer beer companies, they must pay for the period of time they’ve been in business.

The regulations are slated to take effect in 2022...

More here. Some brewers in the state, however, feel that the reforms didn't go far enough, as reported by Vermont Public Radio:

[T]he proposed changes to the law only make minor adjustments to that relationship, according to Sean Lawson, co-owner of Lawson’s Finest Liquids.

“I’m a little disappointed that the bill doesn’t go a little further,” Lawson says. “It’s a small step in the right direction of allowing small brewers the freedom to do business without the undue government interference, but there are a number of provisions that were concessions to the concerns of wholesalers and distributors.”

Lawson says brewers are disappointed that the new rules won’t fully start until 2022.

And the new law will only affect the smallest breweries — once a craft beer gets popular, and grows, there's a chance that it will not benefit from the new rules.

Under the new law craft brewers will be able to get out of contract, but they will have to buy their way out, another rule which Lawson says doesn’t sit well with craft brewers...

Read the rest here.

A Federal Court Just Sided With a Brewery in Its Dispute With a Distributor

Many states have strict laws regulating the relationship between alcohol producers and distributors within the three-tiered system of alcohol distribution. These so-called "Franchise Laws" make it very difficult for breweries to terminate their contracts with distributors, even when its clear that the brewery would be better served by a different distributor.

But a federal court just sided with The Great Lakes Brewing Co. after it tried to end its relationship with its distributor after the distributor changed ownership.

The court held that while contracts between brewers and distributors could not contravene Ohio's state franchise laws, it was still perfectly acceptable for the parties to bargain for certain rights and obligations in addition to those laid out in the Franchise Laws (again, so long as the bargained-for rights did not conflict with those Franchise Laws).

As R Street's Jarrett Dieterle has previously noted, research suggests that state's without restrictive franchise laws generally have more breweries.