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Massachusetts Beer Distributors Push Franchise Reform Bill at State House

May 19, 2017

Source: Brewbound

Justin Kendall

May. 18, 2017

Massachusetts Beer Distributors Push Franchise Reform Bill at State House

More than 80 members of the Beer Distributors of Massachusetts lobbied state lawmakers on Beacon Hill yesterday, rallying behind House Bill 2823, which would allow beer companies making less than 30,000 barrels annually to terminate relationships with wholesalers for no cause.

“In the halls of this building, where they look for consensus, I think rarely in their experience have they seen a bill that delivers a 97 percent solution,” Beer Distributors of Massachusetts president William Kelly told Brewbound. “That is, 97 percent of the breweries that were operating nationally at the end of the 2015 basically get a new choice in House Bill 2823.”

The issue of franchise law reform has been hotly contested in Massachusetts for many years.

Over the past six years, brewery owners have lobbied behind numerous pieces of legislation that would have significantly altered the strict franchise laws that govern relationships between beer manufacturers and wholesalers.

In each of those bills, breweries whose brands accounted for less than 20 percent of a wholesaler’s total annual sales would have been allowed to terminate contracts, without cause, as long as distributors were also compensated “fair market value” for the loss of business.

Massachusetts wholesalers have repeatedly blocked those attempts, however.

“We just think that’s too destructive because, quite frankly, that would let every single brand leave save one – the most prominent one – which is probably at this stage in the game anywhere from 40-to-45 percent [of a wholesaler’s business],” Kelly said. “So I think it’s unfair and unreasonable to believe that any business in this economic climate could take a 55 percent loss to business and continue on at all.”

After numerous failed efforts to move those brewer-friendly bills forward, lawmakers encouraged both parties to come to a compromise.

But in January, after years of playing defense, wholesalers took an offensive-minded approach and introduced their own bill, HB 2823.

Sponsored by Rep. John J. Mahoney (D-Worcester), HB 2823 (the Act to Promote Economic Development and Market Access for Emerging Businesses), which has 76 co-sponsors, would amend chapter 138, section 25E of the Massachusetts General Laws to read:

“Notwithstanding the provisions of section 25E of this chapter, an Emerging Brewery may, without good cause shown, terminate the right to distribute any brands of malt beverages for any licensed wholesaler to whom such Emerging Brewery has made regular sales of such brands of malt beverages, subject to the provisions of this section.”

The legislation would allow a brewery making less than 30,000 barrels annually to sever ties with wholesaler partners under the condition that the departing brewery gives notice to its distributor, pays a fair market value and reimburses the distributor for sales and marketing material.

Three Massachusetts breweries – Boston Beer Company, Harpoon Brewery and Wachusett Brewing Company – wouldn’t be covered under the proposed legislation, according to Kelly.

“Those are three breweries that have been very well established for a very long time,” Kelly said.

Bill Burke, president of Burke Distributing in Randolph, whose craft portfolio includes Boston Beer Company, Wormtown Brewery, Notch, and Castle Island, among others, told Brewbound that the wholesalers see HB 2823 as “a good compromise” to the craft brewers’ bill.

“30,000 barrels takes care of 97 percent of the brewers, so really, it seems to be a fair number,” Burke said.

However, a spokesperson for the Massachusetts Brewers Guild – a non-profit organization that works to promote and protect the interests of the state’s craft brewers – told Brewbound that a version of what would become HB 2823 was pitched to guild members during a closed door meeting last winter. Those guild members who attended the meeting rejected the offer, the spokesperson said.

“Our assertion is that the wholesalers shouldn’t be deciding what works for craft brewers to grow their business,” added Michelle Sullivan, the head of marketing for Boston Beer Company’s flavored malt beverage division and a leader of the guild’s government affairs committee.

“There are very few industries where the state says you pick a partner and it’s almost impossible to leave,” she added.

Nevertheless, Burke claimed that Massachusetts wholesalers would be open to working with in-state brewers to alter some of the language included in the bill.

“I don’t think you ever draw a line in the sand,” he said. “Not now. We’re trying to make something happen. But as a group, we’d have to talk about it.”

HB 2823 has been assigned to the Joint Committee on Consumer Protection and Professional Licensure.

The wholesalers’ state house lobbying effort came one day before the first meeting of a seven-person task force, assembled by Treasurer Deborah B. Goldberg, to examine Massachusetts’ decades-old alcohol laws. The task force is set to hold six public meetings, the first on May 18 in Waltham, Mass.

Kelly added that members of the Beer Distributors of Massachusetts had not yet been contacted by the task force.

“I’m waiting to see what comes of these public hearings, and what exactly the task force is looking to do,” he said.

The final task force meeting is slated for June 18 in Lawrence, Mass.

 

 

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