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Ohio House, Senate considering craft beer carve out

Published By Ohio Capital Journal on October 31, 2023
Tim Barhorst In The News

A pair of Ohio House lawmakers have filed legislation craft brewers insist is vital to their industry’s growth. State Reps. Brett Hillyer, R-Ulrichsville, and Tim Barhorst, R-Fort Loramie, want to give smaller brewers greater flexibility to make deals with wholesalers. State Sen. Andrew Brenner, R-Delaware, filed similar legislation in Senate over the summer. His bill had its first hearing last month.

What’s the franchise law?
Alcohol is heavily regulated industry, with state laws drawing a bright line between producers, distributors and retailers. This three-tier system presents opportunities to tax and track products, while theoretically maintaining a competitive marketplace.

In the 1970s, however, the brewing industry had consolidated to the point that large brewers could effectively dictate terms to wholesalers. If a distributor is only shipping from a handful of producers, those producers can threaten to walk — driving a hard bargain on a much smaller company.

So, in 1974, state lawmakers stepped in and leveled the playing field. To keep brewers from throwing their weight around, they imposed harsh limits on when brewers can dissolve a distribution deal.

The brewing marketplace has changed substantially since then, and craft brewers argue state law hasn’t kept up. They contend the dynamic from the 1970s has flipped, and now it’s a handful of large distributors holding leverage over a field of craft breweries.

“Under current Ohio law craft brewers have no negotiating power, no recourse and no way out of these unfair contracts,” Ohio Craft Brewers Association executive director Mary MacDonald argued in May as brewers began the push for legislative changes.

Bills filed
Over the summer, craft brewers lobbied lawmakers to file legislation, but they also tried a shortcut. With the biennial operating budget working through the general assembly, they urged lawmakers to include a provision making changes to the franchise law. That effort wasn’t successful.

Sen. Brenner took them up on their pitch, though, and filed SB 138 to revise Ohio’s franchise law. His bill got its first committee hearing in September. Introducing it, he argued state law “was written for the market of 50 years ago.”

“These breweries make up less than 13% of grocery store sales and less than 3% of convenience store sales,” Brenner said. “This modification to Ohio law will not in any way jeopardize distributors’ business but instead provide the freedom for both parties to negotiate contracts and enforce those contracts like any other service agreement.”

“Distributors worth hundreds of millions of dollars do not need protection from our local neighborhood breweries,” he added, “and it’s time state law reflected that.”

Brenner’s legislation and the more recently filed House bill maintain the contract restrictions for large brewers, but they impose a floor of 250,000 barrels. A standard keg is half a barrel. The House bill also amends the state permitting system to ensure brewers falling below the 250,000-barrel floor can continue to sell beer on-site or directly to retailers.

For context, significant craft brewers in the region like Great Lakes, Rhinegeist and BrewDog fall far below that mark. According to Axios Columbus, Great Lakes’ 2021 production led the pack in Ohio at roughly 128,000 barrels.

The House bill, introduced earlier this month, has yet to get a committee assignment. In a craft brewers press release, Rep. Hillyer, sounded an optimistic tone.

“When I learned about the current franchise law, it was clear to me this is bad business policy,” Hillyer said. “With a bill in the Senate and now in the House, I am hopeful we can quickly fix this problem that has gone on for far too long.”

Push back
But while brewers demand reform, distributors dispute their characterization of the industry. Jacob Evans from the Wholesale Beer and Wine Association of Ohio argued the current system is working fine. He dismissed craft brewers’ complaints of being locked into bad contracts as an “urban legend.”

“I can give you a hundred brands over the last decade that have had that tough conversation with a wholesaler of, hey, I’m not happy or I want to go in this direction, I want to go in that direction, and they have amicably split. They’ve gone their separate ways without ever going to court.”

At a press conference in May, announcing their plans to push for legislation, several brewers related stories of challenging wholesaler relationships. They also argued many brewers are reticent to speak publicly over fears of retribution from their distributors.

Evans also noted brewers producing a million barrels or less can already sell directly to retailers if they want. Craft brewers contend self-distributing takes resources away from brewing beer — which puts a damper on business growth. Still, some brewers say they plan to self-distribute for as long as possible to avoid getting roped into a contract.

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