Bills are proposed, but Mass. distributors, brewers still don’t agree on franchise law solution

The always contentious Massachusetts beer industry remains locked in a battle over franchise laws but is a compromise on the way? Um, well, there are bills proposed, which is at least a start.

Quickie on Mass. franchise law

Most regulations governing the beer industry range from 40 to 90 years old and reflect a much different era. In the 1970s, when the current franchise laws were enacted, there were about 60 mom-and-pop wholesalers who were completely dependent on just a handful of major national brewers. If a major brand decided to end the relationship, the wholesaler was out of business. Today, the roles have reversed. There are now less than a dozen wholesalers in Massachusetts, and each of them carries hundreds of brands. Meanwhile, brewers are locked into their relationships with wholesalers with virtually no way out. If the wholesaler can’t or won’t get a brewery’s beer into stores, the brewery will go out of business.

The proposed bill

Beer Distributors in Massachusetts are excited about a bill they’ve proposed to try and mend the franchise law fence. According to a memo sent our way by the group, the Emerging Breweries Bill, H.2823, (have to love shameless bill names) would allow breweries that make less than 30,000 barrels (413,000 cases) and are privately owned and operated to change distributors at any time, for no reason. But, distributors, who invest in marketing and materials and purchase inventory, would have to be compensated the fair market value for their investments.

Michael Epstein, a fourth-generation owner-operator of Horizon Beverage Co. of Norton says H.2823 “establishes an easy to understand volume level and provides enhanced distribution flexibility” for breweries whose production falls below that level.

Beer Distributors have called the bill “The 97 Percent Solution” because it would extend this benefit to “97 percent of breweries in the U.S.” Using a big percentage that reps the entire U.S. beer industry in order to show how this helps the local little guy is tricky.

Local brewers aren’t so sure

We reached out to the Massachusetts Brewers Guild to see if they felt similarly, and Guild Rep. Kathryn Alexander, Account Supervisor for Solomon McCown & Co. said the group is opposed to H.2823.

By Alexander’s count, “This bill would exclude the brewers of 90 percent of the beer brewers in Massachusetts, punishing the likes of Jack’s Abby, Ipswich, Harpoon, Trillium, Tree House, Night Shift, Wachusett, Sam Adam’s and others. This bill would punish brewers from being successful during a time when the beer industry is helping to turn around downtown centers across the state.

Instead, the guild, which has been advocating for franchise law reform for 10 years, is advocating for the passage of two other bills: H. 183 and S. 136.

• S. 136 (sponsored by Sen. L’Italien) would govern the brewer and distributor to contracts — the way every other private business is governed.

• H. 183 (sponsors by Rep. Peisch) would amend the current law accordingly: It would insert a 90-day binding arbitration clause into the existing process used to settle disputes between brewers and distributors. Currently, disputes drag on for years and years while the brewer is still obligated to depend on the distributor he is fighting legally to sell his beer. The second provision defines those brewer/distributor relationships that would be eligible for the binding arbitration process when necessary. Wholesalers will still be compensated whenever a brewer moves to a new wholesaler regardless of the reason. It would create a carve-out for brewers that make up less than 20 percent of distributors’ business to be an exception to the 25E clause.

That 20 percent carve-out is a number the brewer’s guild has promoted for years and is maybe the biggest sticking point from the other side of the aisle, and you can see why, as that’s a solid chunk of business to have threatened to disappear. So, no, there isn’t exactly a compromise here yet, but the fact that distributors have reconsidered their position and proposed legislation does mean the wheels of progress are turning.