Massachusetts Wholesalers Concede Ground to Brewers as Franchise Reform Battle Rages On

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Massachusetts craft breweries have, for years now, been fighting for more legal freedom to switch wholesalers, arguing outdated regulations unfairly lock businesses into contracts with no way out. Also for years now, the state’s distributors have stood against them, countering that such changes would lead to small brewers, as well as large volume players that are integral to wholesaler portfolios, axing partnerships without good cause.

Tuesday, though, wholesalers took their first major step toward concession, testifying at the state house in support of a new bill that, if passed, would loosen regulations as they relate to contract termination for the vast majority of the state’s craft brewers. By lending their considerable political weight to an initiative to bring about reform, distributors have essentially softened their staunch opposition, a 180-degree turn that has left brewers feeling confident real change is not only possible, but is imminent.

“For 10 years, we were a solution without a problem,” Dan Cence, a lobbyist for the Massachusetts Brewers Guild with Solomon & McCown, tells GBH. “Now we’re talking about ‘what’ as opposed to ‘if.’ And that’s a tectonic shift.”

Under the status quo, as established 46 years ago now and long championed by wholesalers, brewers can, in fact, cut ties with distributor partners. But to do so, they must show “good cause,” which brewers say can be difficult to prove and cost small businesses thousands if not millions in legal fees without any guarantee they’ll win the necessary appeal from the state’s liquor control board. So in one sense, this move toward the middle is a good sign for brewers. But they aren’t ready to shake hands just yet. They, too, were at the state house Tuesday to oppose the bill while standing in support of two separate competing bills that attempt to provide them with even more latitude than what wholesalers are yet willing to abide. Meaning, this fight ain’t over yet.

Laid out, the wholesalers’ bill—H.2823—would allow breweries that produce less than 30,000 barrels annually to terminate a contract with a wholesale partner on the condition that the brewery provide the wholesaler 90 days notice. Furthermore, the affected wholesaler would be compensated fair market value for the brand, nebulously defined in the bill as the price a brand would sell for “in an arms length transaction between a willing buyer and a willing seller…and both having reasonable knowledge of the relevant facts.” Distributors are calling this compromise the “97% solution,” because it would grant more leeway to all but the largest craft brewers in the state.

Conversely, the first or two brewer-backed bills—H.183—would enable beer makers whose brands account for less than 20% of a wholesaler’s total sales in the prior calendar year to sever business ties with 120 days notice. As outlined, the successor wholesaler would then pay the affected wholesaler an amount equal to fair market value. The other bill here—S.136—disregards sales volume entirely and puts forward that any manufacturer, per “the parties’ agreement, the law of contracts, and/or other generally-applicable provisions and principles of commercial law,” can discontinue wholesaler relationships with 120 days notice. The latter bill effectively does away with franchise laws.

If the two are ready to negotiate, the prevailing conflict preventing them from finding common ground, then, is in the details. Basically, the bills in question are similar in aim, but considerably different in scope.

Under the brewer bills, every craft brewery in the state would be able to walk away from contracts with much greater ease. On the flipside, the “97% solution” as proposed by wholesalers would, according to testimony provided by Keith Sullivan of Medusa Brewing, “exclude 90% of the beer brewed in MA including our state’s and nation’s most notable craft brewer brands -- Wachusett, Night Shift, Ipswich, Cisco, Jack’s Abby, Lord Hobo, Tree House, Trillium and Harpoon.”

“Why would we stifle the growth of an industry that is responsible for transforming empty factories and mills into hubs of tourism?” Sullivan continued. “Why would the Commonwealth penalize some of the fastest growing brewers who employ the most people?”

This cause is equally important to the smallest brewers in the state as well, however. Brazo Fuerte is a relatively new brand and currently self-distributes its products. Like Night Shift before it, the company is reluctant to sign on with a wholesaler at all because of the current state of the regulatory climate.

“I would love to engage with a distributor. I’d be able to expand more quickly without a doubt. But I’m hesitant to engage with a distributor at this time in this state only because of the law,” Bev Armstrong, Brazo Fuerte founder, tells GBH. “It’s not a complaint about what they’re doing. But the law makes it such that if there is a problem, [and] we all hope there won’t be a problem, but if there is a problem, there’s virtually nothing that a small brewer can do about it.”

Predictably, wholesalers see things a bit differently. They contend the “97% solution” works because the above-mentioned craft brands their bill would exclude are simply too big to sever ties without severely hampering a wholesaler’s business in the process.

Repeated calls from GBH to the Beer Distributors of Massachusetts seeking additional insight were not returned. But William Kelley, president of the organization, was quoted thusly by Boston Magazine:

“You’re playing a different game once you get over that [30,000 BBLs]...You’re not playing junior varsity anymore. You’re playing varsity. You’re in the major leagues.”

Wholesalers also believe these brewer-backed bills would go even further than providing relief to their craft partners and leave them similarly at the mercy of other multinational conglomerate partners.

There’s clearly still a ways to go here. But the willingness of wholesalers to negotiate at all—especially in light of the pay-to-play scandal that has underpinned the state’s broader conversation about how selling beer should work—has left brewers feeling good about the future.

“We will get something done this session,” Cence says. “We’re very hopeful.”

—Dave Eisenberg