The Reform on Tap Task Force was created by Maryland Comptroller Peter Franchot in conjunction with the Brewer’s Association of Maryland, brewers, wholesalers, retailers, and interested parties in an effort to combat the destructive legislation (HB 1283) that was pushed through the Maryland General Assembly (notably by Mike Miller and Mike Busch). The Task Force accepts input from all parties with a vested interest in alcohol related manufacturing laws to created a new Bill that would favor breweries and other manufacturers of alcohol while not undercutting retail or wholesale interests. The goal is to continue to foment the growth of Maryland breweries and their vast economic contributions to local employment, neighborhoods, and citizens.
All meetings are open to the public and are listed, along with relevant documents from the meetings at the Reform on Tap Task Force website. Updates/ recaps on the meetings can be found on the website or on this page:
September 6, 2017
The Reform on Tap Task Force tackled the sticky sector of retail alcohol sales this week. A line up of guest speakers from the third tier were present, followed by a Q & A that was opened up to the public. John Bodnovich, Executive Director of American Beverage Licensees detailed the amount of retail sales in the alcohol trade and specifically addressed Maryland’s sales, employment, and economic metrics in the industry. Although Bodnovich refrained from taking up a position on privatization or franchise laws, he did offer opinions on the sector. He addressed sales in states that sold alcohol in chain stores (grocery/big box) specifically noting that their offerings were limited. He also noted that the private label products (booze created specifically for that chain) created an environment for (strong) influence upon consumers and what they purchased. This was merely the beginning of a cautionary tale.
The sentiment of caution for allowing the sale of alcohol in grocery and big box chains (Walmart, Costco, etc.) became a theme of the meeting. Distributors offered that chain stores like Safeway or Walgreens often have a remote buyer (out of state) that demonstrates a decided lack of interest in a local product they have no familiarity with and ultimately refuse to carry. This fear was echoed by smaller breweries concerned about getting their product into chain stores when they were still building their brand. Larger breweries have achieved name recognition to get the placement in big box stores in such states that allow it.
Retailers were present in large numbers at this meeting to demonstrate their support NOT to allow the sale of alcohol in grocery or chain stores. Many personally revealed the damage such legislative changes would create. The greatest concern was losing their businesses entirely, either because retail space would be limited to chain stores only, which was compounded by the surfeit of alcohol availability at several nearby businesses. Many of these independent retailers are family owned businesses (some fourth generation) that would be threatened by this proposed change in alcohol licensing.
Hugh Sisson stated plainly, “Beware the law of unintended consequences. In states where alcohol is sold in grocery stores, that has been the case for decades. The systems (sales in grocery stores or not) work well in the markets they were established in. Let’s not fu©k this up!” I think we can all agree with that!
If this is so detrimental, why entertain this at all? The answer-overwhelming consumer interest, based upon polls conducted by the Reform on Tap Task Force for starters. Additionally, it must be discussed openly for all to understand the pros and cons of the proposed change.
Adam Benesch hit the nail on the head when addressing why 89% of respondents to the Reform on Tap poll favored alcohol sales in grocery stores, by inquiring if perhaps the question posed to the respondents of the poll should have been “would you want grocery sales with only 1/3 the selection?” An excellent point, and one that might prompt a completely different response from consumers. Perhaps another survey is in order?
Distributors and retailers alike also made the case that a lack of personal representation in stores would cause small breweries to suffer as they would not be explicitly promoted. Currently sales are secured by the local face to face between distributors and retailers and ultimately consumers. The impersonal nature of grocery and chain stores eradicates that interaction entirely. The support for the local breweries is most certainly appreciated but where was all of this support when HB1283 was created through backroom bargaining by the retailers and distributors? Better late than never? Or merely self-interest?
All of this comes back to building brand recognition of local breweries as the recipe for success (along of course with a quality product put to market). This was recognized by two of the guest speakers:
John Bodnovich, in wrapping his presentation declared, “We all do better when we all do better.” This is absolutely true, which is why there needs to be an increase taproom pint sales, to build the brand and allow the distributors and retailers to thrive alongside the breweries.
Jack Milani didn’t agree that the focus of the meetings should be placed on increasing retail alcohol licenses, or expanding taproom sales. He believed the concern should rest upon convincing Maryland consumers to spend more on Maryland products. Once again, the logical, common sense answer is to build the brand through taproom sales, which translates into retail sales, even at a higher price point. This is particularly true with increasing beer tourism from both within and external to the state.
Yes, it may be repetitive but the answer to the points made by both of these gentlemen resides in the undeniable fact that brand building begins in the taproom. Craft breweries first offer their wares to the public in the taproom. After the brewery tour/taproom experience consumers are more inclined to purchase that brand in liquor stores, in bars, and restaurants, promulgating growth for the retailers selling it, the distributors supplying it, and the breweries manufacturing it. Once again a win for every tier!
Although the crowd present was overwhelmingly in favor of preventing the sale of alcohol in grocery and chain stores (roughly 98%), some wanted to explore it further, questioning the anecdotal evidence presented in favor of hard facts, which seemed unavailable. Tom Flores chimed in, uttering a most critical sentiment that most of us share,
“Many assumptions have been made here and previously, particularly regarding the flat beer sales and the zero-sum game. Where is the support for this?”
We all know the problem with assumptions… it is time for evidence to support or refute them at this point. John Bodnovich parroted the ‘zero-sum’ game theory of beer sales without buttressing the statement with evidentiary backing. I, much like Flores, would like to see a compilation of data sourced from all three tiers (objectively) and presented as a basis from which to craft arguments and ultimately more substantial conversation toward legislation; whether it be increased taproom sales, economic development resulting from breweries, or grocery store sales impacting brewery and retail growth.
Beer for thought!
Brewers Come Alive
August 15, 2017
The most recent meeting of the Reform on Tap Task Force took place at Peabody Heights Brewery in Baltimore on Tuesday August 15. An air of expectation hung over the room after the last meeting. I am delighted to report it was not a disappointment. In fact it was rather productive. For perhaps the first time, the brewers bravely voiced their concerns, engaging in an honest dialogue about why these changes need to happen, and oh my how enlightening it was!
The meeting went straight down to the business of answering questions at the heart of the issues. Although a mere three (of the six) planned questions were addressed, the discourse was genuine.
The three questions tackled:
1) Should Maryland brewers have the same unlimited self-distribution privileges as those in Virginia, Pennsylvania, and the District of Columbia?
2) Would the Maryland beer industry be affected if brewers had unlimited self-distribution privileges? If so how?
3) Should the business relationship between the producer and the distributor be governed by state franchise law or by a negotiated private contract between parties?
Although taken one at a time, much of the discussion overlapped. When the first question was posed, respondent Julie Veratti of Denizens opened. She very simply stated, “Yes!” It is what came after that was most instructive and finally got to the heart of many issues the breweries face. The arbitrary 3,000 bbl limit was at the core. Leslie Schaller of Bond Distributing took credit (with fellow distributors) for raising the self-distribution limit in 2013, stating she allowed the increase because craft brewers surveyed agreed to the number. A direct quote from Bond, “Distributors raised the self-distribution limit in 2013.” In reality, as pointed out by Len Fowell (our moderator) the legislature was responsible for raising the limit. This however demonstrates the hubris and the control the distributors have with the political actors in Annapolis.
It was after this exchange that a real discussion ensued. Much to the shock of most distributors at the table, a number of brewers spoke out. Make no mistake is was quite civilized (as it should be). The distributors took a cue from the professional demeanor of the brewers and toned down the intimidation and aggression. This was when we learned that breweries (both those that self-distribute, along with those that self-distribute in only certain locales – like Montgomery County) are already pushing up against that 3,000 bbl limit. We also learned the cost of that limit. For Justin Bonner of Jailbreak, they will have to slow the momentum of sales in Montgomery County and can no longer entertain hiring a third well-paid sales rep for the area. That clearly cuts into their business and Maryland’s economic growth (less jobs, less taxes, less revenue, etc.). For Veratti, the only way to grow (without a barrel increase) is to increase taproom sales- which is also limited by law. It is a no win situation for her business for future growth.
The other quite relevant aspect in all of the self-distribution discussion was brought by Hugh Sisson, an active participant in the meeting. He fully supported unlimited self-distribution but also noted that there comes a point when the economics don’t justify self-distribution for brewers. Each brewery has to decide what that point is, but distributors have no need to worry- as breweries grow they absolutely need the distributors. There is no negative impact on the middle tier according to Sisson, and most brewers agreed with this. Many breweries like Denizens, Attaboy, and Chesapeake want to continue self-distributing because they want to retain control of the product from start to finish with refrigeration a key argument. For most breweries however growth exceeds that ability, and they must forge a relationship with wholesalers to get their beer to market.
One key point brought up by Bonner was supported by Sisson and many brewers- there are a finite number of distributors in the state (as previously discussed). New distributors cannot open easily or at all because Maryland breweries are already under obligation to current distributors (due to current franchise law) unless they: a) haven’t opened yet, or b) self-distribute only. There is no realistic business model for new wholesalers in Maryland. Therefore, considering the craft brewery growth that has already occurred, how many breweries are too many for a distributor to represent? What is their saturation point? Eventually, a brand or brewery will not be a priority because the sales reps have too many craft breweries in the portfolio. That lack of quality representation by the overloaded distributor can destroy the brand. Add to that the 6 months it takes any Maryland brewery to extricate from a franchise agreement and the brewery is out of business.
This brought the dialogue to independent private contracts replacing franchise law. Private contracts would allow negotiation of all terms from refrigeration, to determining what and where a brewery will self-distribute, to how it is stored, and everything in between. The greatest argument against private contracts came from the distributors (not surprisingly). As noted, franchise laws were put in place as a way to protect distributors from macro-breweries. If a distributor’s business was 90% Budweiser for example, and they suddenly dropped that wholesaler it would go out of business. The franchise laws protect them from such a scenario, and that is important. However, we are not discussing macro-breweries in Maryland, we are talking about craft breweries. These rules are not applicable as craft makes up a small percentage of the overall wholesale portfolio. Protections can be negotiated into contracts for the distributor to allay their justified fears, but it has to be a level playing field. As it currently stands, if a distributor doesn’t perform well for a brewery (e.g. stops distribution in one metropolitan city) the brewery will be out of business. Macros can absorb the loss of a city, craft breweries cannot. 180 days to extricate from a wholesaler (franchise law) is far too long for craft. The breweries also need protections in place. When asked by Schaller (Bond) if any brewers had bad experiences disengaging from franchise agreements with distributors, several brewers finally spoke up. This was summarily dismissed by Schaller with the admonition, “Not to throw the baby out with the bathwater over one bad distributor…” Brewers like Carly Ogden of Attaboy did not let that stand without a quick retort, “How many bad experiences with distributors do you need? 90?”
Yes, despite some of these terse exchanges, this meeting represented a far better give-and-take of information and a more realistic representation of issues from both sides in an equitable manner. Once again distributors rallied against elimination of the 3-tier system, although as stated by Comptroller Franchot, no one has interest in eliminating it. The argument was used by distributors as an attempt to refocus talking points, perhaps to avoid some of the meatier discussions that ensued. Regardless, there was less redirection (and sleight of hand) and more accountability from many of the task force members that demanded answers to the questions posed. For the most part, they obliged. Sometimes they were, like Eric Best (of Bob Hall, LLC), quite candid and forthcoming.
Tom Flores made a significant point that the laws need to reflect the reality of the industry today, not five years ago, not 30 years ago. Flores is a vocal proponent of no longer protecting the ‘status quo’, scrapping the entire system and starting over based on the current industry. This could take years to accomplish. Delegate Washington, among other members of the legislature, were not only present to hear the discussion, they were vocal about their support for eradicating laws that suppress revenues and place certain businesses at a disadvantage in favor of others. Refreshing indeed!
The momentum is here now for change from the public, the participants, and the legislature. Businesses are suffering today from restricted growth due to arbitrary limits placed upon them by current law.
As Randy Mariner stated, “I thought Maryland was open for business.” Let us jettison these arbitrary limits and truly be ‘Open for Business’!
Results of Comptroller’s Survey on Brewery Law Changes
“Vast Majority of Marylanders Support Changes to Current Brewery Laws
Comptroller’s survey results overwhelmingly favor reform effort”
ANNAPOLIS, Md. (August 14, 2017)
An overwhelming majority of Marylanders support fundamental changes to the state’s alcohol laws that govern the production, distribution and sale of beer, according to the results of an online survey released today by Comptroller Peter Franchot.
“Maryland’s current beer laws are dysfunctional and outdated and work to the detriment of consumers and small business,” said Comptroller Franchot in response to the unscientific survey. “Without comprehensive reform, Maryland’s reputation within the national craft brewing industry will continue to suffer. We must have laws that make sense for all the stakeholders and promote economic growth for all three tiers and create the best market for Maryland consumers.”
This past spring, the Comptroller announced the formation of a Reform on Tap Task Force to do a comprehensive review of the state’s antiquated laws governing the manufacturing, distribution and sale of Maryland craft beer. Forty task force members, representing every region of the state from large and small breweries, distributors, restaurants, bars and retailers, consumers and local and state officials have been meeting regularly to discuss issues affecting the industry. As a result of the meetings, an online poll was taken live from August 7 to 11. During that time, 2,472 respondents completed the survey. Below are the questions and the results:
Question 1: What is your opinion on the limits on craft beer production in Maryland law?
72 percent of respondents said there should be no limits on beer production; while an additional 20 percent said they are too low. The remaining 8 percent said they are either too high as they are or that they are “fine” at current levels.
Question 2: What is your opinion of the sales limits in Maryland law?
79 percent of respondents said there should be no sales limits; while 14 percent said these limits are too low. The remaining 7 percent said either they are too high as is or they are “fine” at current levels.
Question 3: What is your opinion of this “buy-back” provision in [HB 1283]?
89 percent of respondents expressed disapproval of the buy-back provision in House Bill 1283; while 4 percent said they approved and 6 percent said they had no opinion.
Question 4: Should the business relationship between the brewer and the distributor be governed by Maryland state franchise law, or should it be subject to a private contract that is negotiated and signed by both parties?
83 percent of respondents said the relationship should be governed by a “negotiated, signed contract”; while 10 said it should be governed by state franchise law and 7 saying they had no opinion on the matter.
Question 5: What is your opinion on Maryland’s current self-distribution law?
72 percent of respondents said there should be no such self-distribution limits, while 18 percent said the limits should be raised. Of those remaining, 7 percent said current law is reasonable, 1 percent said the limits should be lowered and 2 percent said self-distribution should be prohibited altogether in the state.
Question 6: What is your opinion on Maryland’s current “take home” sales limit on one case per customer?
66 percent of respondents said there should be no take-home limit while 25 percent answered that the existing limit is too low and should be raised. Of those remaining, 8 percent said the existing limit is reasonable, 1 percent said take-home sales in the state should be prohibited altogether and lest than 1 percent said the existing limit is too high and should be lowered.
August 10, 2017
I must begin this announcement with a caveat. I am well known for providing my sources of information and independent verification of those sources for any material I provide. Today I must beg your indulgence and ask for your trust as I cannot disclose my sources for this important post. I will reveal that they are extremely well-placed within the Reform on Tap Task Force.
Privileged information has been divulged that Comptroller Franchot has decided to move forward with sweeping legislation transforming the way craft beer is made, distributed, and sold in the state of Maryland. Here is the proposed legislation (for the 2018 session):
1) Taproom and brewery hours will revert back to what they were prior to HB1283 (leaving it up to the county, city, or local municipality once again).
2) No barrel limits will be placed upon breweries or the taprooms they operate.
3) Franchise laws will cease to exist between breweries and distributors in the state of Maryland. Relationships between breweries and the distributors they choose to work with will be created and determined through individual/ independent contracts negotiated between the two parties.
4) There will be no barrel limit to self-distribution for Maryland breweries.
5) There will no longer be a distinction between brewery classes / licenses (since there are no barrel limits)
As the shock of this revelation wears off, be aware that there are still critical issues that MUST be addressed. First and foremost, since this proposal is all but inked, where does this leave the 3 Tier System? Exactly as it has stood for decades- unchanged. Franchot promised to keep the 3 tier system and he is honoring that promise. Second, as stated in my last Reform on Tap update (July 20) this is a WIN for EVERYONE. Craft brewers will manufacture more great beer (and gain more national recognition), equating to more work for distributors, and more sales for retailers (bottle shops and bars alike).
What about the remaining Task Force meetings? There will not be a vote on the issues addressed but they are still critical. Why? View it as an opportunity for those in the industry to make their case, and inform the public of why it is absolutely necessary to support these changes. Knowledge is power. Many in the legislature voted for HB1283 without knowledge of the damage it would leave in its wake. 2018 is also an election year and pressure must be brought to bear upon those that would vote against the aforementioned changes. The legislature serves at the pleasure of the people- not the other way around. We determine who should represent us in office. If they are not acting in our best interests (or in this case in the best interests of the manufacturing industry that is helping to build our communities, creating both jobs and revenue) they should no longer serve as our representatives. This is particularly true if they are more concerned with pleasing lobbyists for the distributors, and lining their campaign coffers, instead of acting for the will of the people they purport to represent.
It is also relevant that the breweries step up. The distributors have been extremely vocal, but they have not answered questions honestly, nor made a case for why legislation should remain as it stands today. With few exceptions the breweries have remained virtually silent through these Task Force meetings, and this has not gone unnoticed by the public at large. They must make their case. They must voice (for themselves) the need for these new laws, no matter the size of their brewery- or perhaps because of it. At times through this process it has been excruciatingly painful to watch myriad brewers sit silently while the distributors intimidate, obfuscate, and take full credit for the success of the industry (which is completely unmerited). It is understandable that the brewers are quiet- I get it. It is incredibly difficult to sit next to the entity responsible for getting your beer to market, and publically criticize them or suggest changes to the way that partnership is regulated, for fear of retaliation. Considering the way the distributors have behaved thus far- that may be warranted. No brewery wants to lose the business they have worked to build because they chose to defend themselves against an unfair tyrannical system in which they have (to date) held no power. BUT- if the breweries do not speak up this legislation may not make it through the 2018 session, and may lose momentum for future sessions.
“Tyranny is allowed to thrive when good people remain silent.”
The time has come for the brewers to unite in one voice, to speak out about the need for these changes. United there are no ‘little fishes’, but one large school, moving together and capable of weathering the currents distributors might create in backlash. There is also a way to do so without singling themselves out for retaliation- The Brewer’s Association of Maryland (BAM). They have an incredibly adept executive director in Kevin Atticks, who has navigated the mire of Annapolis politics quite adroitly in the past. He is literally paid to represent them, which includes acting as their voice in the legislative arena. Individual breweries are hogtied by the distributors but the BAM Executive Director isn’t. The brewers need a champion, and he is done warming up- it is time to let him lose in the stadium.
Historically it has been proven that appeasement does not work, as the aggressor will just keep taking more, never satisfied with what they have. The Task Force will present their findings, and openly reveal the already decided upon ‘blueprint’ I have mapped out for you today. However, the time will come in February, 2018 (when the Comptroller begins pushing this through the House and the Senate) that the concerns and support of the breweries MUST be vocalized (by the breweries or their appointed representative Mr. Atticks) or this bill may die.
Don’t look back 10 years from now with regret because you did not fight for your rights, change the laws, and secure the future of this beloved craft industry when you had the momentum and public support to do so.
The Distributors Perspective #2
July 20, 2017
This month’s meeting took place at Jailbreak Brewing Company in Laurel, Maryland. The meeting opened with a change in format. A series of questions were posed, with opportunities for answers from brewers, retailers, legislators, and distributors. Due to time constraints only six of the questions were addressed, to no one’s satisfaction.
Warning, this update is a bit opinionated. First I am going to quote Liz Murphy who noted that this task force is setting a precedent for brewers, wholesalers, retailers, legislators all sit down in the same space to discuss the issues facing alcohol manufacturing and distribution in Maryland. That in and of itself is productive. This particular meeting was not productive at all. In point of fact, I must label this meeting ‘OBFUSCATION’. With few exceptions the distributors made a point not to answer any of the questions posed. Instead, they offered other information, like how many people they employ, how wonderful they are to their craft brewery customers, how they bear the responsibility for the success of craft breweries in the state, and even how they smoked weed in the 1960’s. I kid you not. The only thing missing was the cheerleaders.
Important questions were posed with regard to the length of time it takes to end a relationship with a brewery and a distributor- why 180 days? Is there any detriment to shortening it to 90 days, and if so where is that evidence? Why do we need franchise laws in the first place? Why not have specific individual detailed contracts instead? Most of the franchise laws cater to large breweries, not small breweries, therefore what can be adjusted in Maryland to mitigate the impact of a ‘bad decision’ (like a new brewery signing with the wrong wholesaler)? These questions were met with the same information provided last month by the distributors- talking points printed out in binders. Most of time they talked about unrelated things or intentionally clouded their responses with vague qualifications, and obfuscations centering around unrelated regulations, or distributor costs that had little or nothing at all to do with the questions being posed.
To add insult to injury, Lestor Jones (NBWA economist) was once again present with smoke and mirrors. He inaccurately quoted statistics (yet again) from the Brewer’s Association of America- touting Maryland craft breweries as ‘ growing at a fine pace’, when we are literally (stagnant) in the bottom third in the country. He ignored other incredibly relevant information as well. When asked if there was supporting evidence from distributors that reducing the number of days (to terminate a contract) to 90 from 180 was detrimental to distributors in neighboring states, Jones responded that it wasn’t relevant because they were neighboring states with different franchise rules. In other words Maryland stands alone- is incomparable and just terrific, and everyone should stop complaining and leave things as they are. Ignore the man behind the curtain…..
Some distributors clearly did not understand simple economics. one gentleman complained that if breweries increased taproom sales, it would harm distributors. Well, the Brewer’s Association just released a report that breweries without taprooms saw an increased growth in 2016 of 18.8%; where as breweries with taprooms saw 33.7% growth. That growth was outside of the brewery (in addition to taproom sales), which means those additional barrel sales went through a distributor. Thus, taproom sales create MORE business/profit for the distributor! This is all common sense economics. As the distributors keep shouting, “We are all in it together in this 3-tier system,” perhaps they need a lesson in economics (NOT from Mr. Jones). Might I suggest they begin to think about the brewery side of things, as it can produce benefits to every tier if and when all relevant facts are taken into consideration.
Carly Ogden of Attaboy said it best, “Why do we continue to hold onto laws from 1974? This is not 1974, and the market, the breweries, and the consumers have completely changed. It is time for the laws to reflect that. It is time for breweries to be considered. Laws should not protect one entity to the detriment of another.”
The problem here is that distributors don’t want the real conversation with the breweries, and they want to continue to put a massive wall against any change they do not abide, understand, or might threaten the protections they currently have in place. There were several times where the distributors behaved and responded as if breweries need the distributor’s approval to even suggest changes to the law, as if they held all of the power. This pervasive attitude goes to the heart of the issue. They do have all of the power, and are completely unwilling to cede any of it. That brings me to the next point. Brewers are not going to sit down next to their distributors and complain about them, at least not in an open forum- for fear of the damage it may cause to their brand/business. That is known as self-preservation.
There was a bright moment however. The legislators present were very interested in changing the current law. They were equally concerned about the backroom, dirty dealing that occurred in the House which pushed HB1283 into law, all to lure and ultimately please Guinness (Diageo) and distributors regardless of consequence. Quite frankly those senators provided a refreshing candor to the dialogue, fully supporting the breweries- a welcome change. Perhaps a closed door meeting between brewers and legislators could provide a venue for transparency and honesty with regard to what really happens on the manufacturing side of things, belying the myopic assertions of the distributors (that are all inherently wonderful.) Something has to give, or nothing will change and Maryland craft breweries will continue to be ignored in deference to the distributors.
Ignore the man behind the curtain to your own detriment.
The Distributors Perspective
June 22, 2017
Three Maryland distributors from across the spectrum addressed the Task Force today. They each were from differing parts of Maryland.
A) Betty Buck of Buck Distributing started things off. Buck has been operating for 71 years. She detailed the perspective of wanting to do right by craft brewers. She discussed the times Buck worked with craft brewers in a way no other distributors standardly would, noting they are all in it together. She is dedicated to the promotion of Maryland’s craft brewing industry. Buck also noted her company’s philanthropy in the community.
“When you get your living from the community, you must give something back.”
B) Dick Carey of Carey distribution discussed the need for franchise protection with brewers. He mentioned how critical it was for bankers to loan money based on franchise contracts for wholesalers. Most notably he said that Maryland breweries have it far better for sales/profit opportunity than those in Virginia. Why?
1) Excise taxes per case: .65 cents per case in Virginia, .20.5 cents per case in Maryland.
2) Maryland has mostly independent liquor stores. Virginia can only sell in chain stores. There is no local input in Virginia, therefore much more difficult to make it onto the shelves.
He noted that Maryland distributors are local and are trusted by independent retailers- building trust and aiding in placement of product which benefits the breweries.
C) Matt Lesky of BP Lesky Distribution focused on the relationships with brewers to sell the brand. They work with retailers to get product to market including developing his sales staff (many are certified Cicerones) to market the product. He also works with the Comptroller’s office with issues of safety, and ethics.
D) The next speaker was Lester Jones, Chief Economist of The National Beer Wholesalers Association. He discussed the predictability of alcohol consumption since 1939, and attempted to dispel ‘myths’ of the industry. He stated that Maryland was declining in alcohol consumption. He noted the vast number of millennials not having kids and purchasing alcohol. He mentioned a Neilson study that 50% of beer drinkers buy local, and that is a driving factor to purchase. He stated that there was a decline in consumption at bars and taverns in Maryland in favor of festivals, etc. He noted a $4.3 million economic impact from Maryland breweries on the economy. He said this was not economic development.
Jones struggled to see the development of the communities where breweries are located (from job creation to rejuvenation of the neighborhoods). This was apparently not factored into his calculations. He also pushed against a free market economy for craft beer as disastrous yet ignored the distributors that are 50% owned by Big Beer (Miller, AB-Inbev). He was challenged by many stakeholders in attendance (both distributors and brewers). Counterfeit products was the only argument presented to support aversion to a free market economy for breweries.
It was noted by many that only “Good Distributors” were present. HB 1283 was set up for distributors and there are many bad distributors out there. So how do they get out of the franchise agreement, etc. and deal with bad distributors?
Maryland requires 180 period after termination notice to end an agreement between a brewer and a wholesaler. Virginia 90 Days, Delaware 60 Days and Pennsylvania 90 Days. Must demonstrate good cause to end relationship with wholesaler. Wineries do not have franchise agreements in Maryland.
Leslie of Bond Distribution also weighed in with her opinion on the difficulty with tap space (retailers always want something new), and franchise agreements. She stated that each brewery is important and she has been financially harmed b/c of loss of franchise contracts when craft breweries are bought by AB-InBev, etc.
Laws that protect the bad distributors… what shall we do? Punish the entire industry?
“Free market should dictate the distribution and supply,” according to David Marquis of Chesapeake Brewing.
“The cost of an $80,000 truck for distribution does not equate to cost of brewing equipment. Something needs to give to make it more equitable. The exit from franchise agreements needs to be easier for both parties.” (Carly,Attaboy)
Tom Flores said we must address pay to play- as it does take place! As far as franchise law, he is bothered that a 1967 snapshot is the basis of our current franchise law. Society has changed and the wholesaler relationship needs to be updated to represent what is happening now. Flores wants to scrap everything and start over to make it equitable for all parties (tiers) involved.
No one present could answer why it requires 6 months to exit from the Franchise agreement (definitively). Bond offered one answer-the code dated beer is 6 months. That would offer time to get rid of stock and sell out what remained with a retailer.
The next meeting at Jailbreak on July 20 will address not only the retail end of the system, but also the unanswered distribution issues:
1) Why franchise dissolution is so long for breweries in Maryland.
2) Why breweries and not wineries for the agreements.
3) Taproom buyback.
I hope we make some headway!
June 7, 2017
Reform on Tap Task Force meeting today heavily focused on Contract Brewing and Tap Room Sales in relation to wholesale/retail business.
The difficulty with HB 1283 for contract brewers:
1) If you contract brew for a class 5 brewery, you cannot sell their beer on premises in your taproom.
2) Total sales of contract brewed beer cannot be greater that 25 % of total beer sold in taproom.
The positive note on 1283 is that it defined and legalized contract brewing in Maryland. It was murky and not legally recognized before this, although allowed.
With regard to Tap Room Sales Justin Dvorkin and Ace Mortiz summed it up beautifully as a symbiotic relationship between breweries, restaurants, and retailers. The breweries send patrons to the retailers and restaurants, and everyone relies upon one another to increase sales. For Ace- he sends the 21-45 yr old demographic to neighboring restaurants and retailers once they visited the taproom. Dvorkin commented as both brewery owner and restaurateur that the brewery serves a unique place in the community- fomenting the growth of the neighborhood while generating more business for local restaurants and package stores looking for Maryland Craft Beer. Breweries want to see retailers and distributors succeed not compete with them! Dvorkin noted that in no way has locating a restaurant near Union Craft Brewery hindered sales- in fact it has accomplished quite the opposite. Patrick Brady of Fin City and Hoopers noted the same phenomenon- an increase in restaurant and retail business.
Most breweries also noted they charge higher prices than nearby retailers to purposefully NOT cut into their sales: truly symbiotic! Thus the argument of brewery sales taking away from wholesale and retail sales was abjectly false.
Kevin Atticks noted that 5 Maryland breweries (3 in planning and 2 established breweries) were lucratively courted by Virginia once HB 1283 was passed. Offers of grant money and flexibility for hours and tap room sales, et al were extremely attractive.
HB 1283 is clearly hurting business far more than helping bars or wholesalers that demanded its inception.
Tom Flores of Monocacy/Brewers Alley asked the most pertinent question:
“Does anyone actually believe HB 1283 will increase beer sales/consumption/production in Maryland? No one raised their hand.” Very telling…
Dick O’Keefe (owner of Peabody Heights) provided the most passionate and heartfelt statement:
“We were not asking for anything from the Maryland legislature- they just need to stop getting in our way! Stop tying our hands!”
May 24, 2017
Reform on Tap Taskforce Inaugural meeting
Here are the highlights for those that missed out:
Comptroller Franchot stated it was NOT the intention of the Task Force to end the three tier system but to work on making changes that would benefit all tiers. Presentations were made by several members:
*Jeff Kelly (Field Enforcement Director) presented on the history of Maryland’s alcohol licensing and three tier system. Kelley articulated the current issues facing alcohol manufacturers with regards to licenses, franchise laws, contract brewing, and self -distribution.
*Pete Johnson of the Brewer’s Association of America compared Maryland’s antiquated and labyrinthine regulations to other states pointing out exactly where Maryland was deficient. He offered examples of more efficient regulation beneficial to all tiers in the state and encouraged investigation by the task force to consider some of those options.
*Dr. Kevin Atticks discussed the seventy one active breweries in Maryland, and the growth and subsequent economic impact of breweries on the state. He also detailed how important ‘local’ is to Maryland. Through Grow and Fortify and Brewer’s Association of Maryland he is fomenting this agricultural growth. Currently Maryland has three malt houses with 4 in planning, new malting grain crops, and hop fields. He noted that breweries in Maryland are eager to build in older neighborhoods (in a state of rejuvenation). This brings jobs, feeds the local economies, and consequently improves towns.
*Allison Burr-Livingstone of Visit Baltimore discussed how culinary tourism is being promoted in Baltimore. She is targeting the local breweries, wineries, and distilleries through major travel and food magazines. Livingstone addressed the multifaceted approach to luring more tourists for Maryland’s alcohol and culinary industries noting a AAA survey that over 22 million Americans will take a ‘culinary’ vacation within the next two months and they are working to make sure that destination is Baltimore, and Maryland.
*Salisbury Mayor Jake Day discussed the immense economic growth in Salisbury due to ‘listening’. Day listened to what the consumers were asking for: local manufacturing of local ingredients into local goods like craft beer, wine, and foods (cupcakeries seemed very important here). He also sounded the alarm bell (much like Atticks and Johnson) that neighboring states with friendlier regulations are stealing away our talented brewers (and other manufacturers) to competing locales like Virginia and Pennsylvania that are less cumbersome in opening an alcohol manufacturing business.
The host of senators, brewery owners, media, and industry experts are taking this seriously- which is completely necessary and craft beer drinkers of Maryland should rejoice. However, there is a long way to go and a few warning shots were fired upon departure:
To improve the laws (and get anything through this mercurial Maryland legislature), we all must agree upon the changes in unanimity to Maryland’s alcoholic beverage laws (manufacturers, distributors, retailers, et al) otherwise we do not stand a chance.
All documents from today’s meeting will be posted to the Reform on Tap FB page Thursday 5/25/17.