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Could the Battle Over Beer Laws in Florida Happen in Pennsylvania?

by / Thursday, 08 May 2014 / Published in Blog

10481310_ml (2)For the past few weeks in the world of beer law, discussion of trademark infringement took a back seat to a fast-moving legislative battle brewing in Florida.  What started out as a bill aimed at allowing breweries to legally fill 64 oz. growlers (and I thought Pa.’s alcohol laws were odd), quickly morphed into a very complicated, comprehensive attempt to change some key laws governing breweries.  Among the proposed changes was one that would have required breweries that produce more than 2,000 kegs to use a distributor for all of their pre-packaged beer.  In other words, if a brewery that produces more than 2,000 kegs wanted to sell bottles or cans at its brewpub, it would have to “buy” its own beer back from a distributor in order to resell it.  To make matters more confusing, even though the brewery would be required to use a distributor, there would not be a requirement that the beer actually be delivered to the distributor first; therefore, the brewery would be paying the distributor for its own beer even though the beer never left the brewery.  As you can imagine, the craft beer community in Florida became very vocal.  Through various amendments and hearings, the bill’s requirements were eased somewhat, and it passed in the Florida Senate by a good margin.  However, due to it being fairly last minute, the bill had less than a week to be considered and passed by the House.  Ultimately, the bill never made it on the House’s schedule and never became law.  Everything remains the same in Florida for now.

The important take-away from this is that the battlefield for craft beer is not limited to fighting Big Beer for store shelves or bar taps.  As the number of breweries increases and the number of distributors decreases, the three-tier system of brewers, distributors, and retailers will likely see increased conflicts as each segment either vies to keep its position or increase its influence.  The easiest way to do that is not necessarily by increasing marketing, but by seeking to change the laws governing that industry’s business.  If the recent events in Florida have taught us anything, it is that, while distributors need brewers and vice versa, they do not see eye-to-eye on some pretty significant issues and will do battle against each other in the legislative arena if necessary.

The question is, could something like this happen in Pennsylvania?  The short answer is yes, absolutely.  We are already saw some big differences of opinion with respect to how brewers and distributors approached the liquor privatization attempts last year.  If it becomes clear that a new privatization or modernization plan is beginning to gain traction, expect to see both sides become more vocal regarding their positions.  As of right now though, privatization talks seems to be focusing more on easier access to beer (including letting distributors sell 6-packs and growlers) and wine, so there may not be too much conflict just yet.

There is, however, already legislation in the Pa. pipeline that would limit a brewery’s ability to sell its own beer.  Currently, in-state brewers can self-distribute their own beer in unlimited amounts – meaning they can sell it to bars/restaurants/distributors without the need to go through a distributor.  House Bill #1666 (HB1666), which was sent to the Liquor Control Committee on August 29, 2013, would limit breweries to only be able to self-distribute up to 75,000 barrels – a substantially higher amount than the proposed limit in Florida.  For perspective, 75,000 is somewhere between Troegs Brewing Co.’s annual production (around 55k) and Victory’s annual production (over 100k).  The other difference between this bill and the bill that nearly passed in Florida is this bill has more to do with fixing a problem with Pa.’s Liquor Laws than it does with trying to jockey for position in the three-tier system.  Though some would argue that this bill is actually pro-brewery because it provides breweries with more flexibility in negotiating and terminating their agreements with distributors.

The problem HB1666 tries to address has to do with the fact that Pa.’s Liquor Law currently treats out-of-state and in-state breweries differently.  While in-state brewers can self-distribute their beer in unlimited quantities, out-of-state brewers must use a distributor, which arguably is a disadvantage to them.  In 2005, the United States Supreme Court in Granholm v. Heald ruled that states cannot treat in-state and out-of-state alcohol manufacturers differently.  As a result, Pennsylvania’s law giving in-state brewers the advantage of self-distribution has been a prime candidate for amendment, and the Legislature has two options, either let all breweries self-distribute or restrict all breweries’ ability to self-distribute.  The 75,000 barrel threshold is pretty high, so small breweries will have time to grow through self-distribution before having to contract with distributors.  Keep in mind though that this bill is still in a committee and could very easily see plenty of amendments prior to being passed.  If what happened in Florida is any clue, expect discussions to get a little heated as the bill works its way through the Legislature.

 

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