Craft beer regulation change stalls in NC legislature

Lawmakers will drop their attempt to raise the self-distribution limit for North Carolina’s craft brewers, according to a proposal distributed to members of the House Alcoholic Beverage Control Committee shortly after 8 p.m. Tuesday.

Rep. Chuck McGrady, a Henderson County Republican, confirmed that the new version of House Bill 500 will also drop language that would have allowed brewers to more easily break their contracts with wholesalers.

“I can’t pass the bill with that in there,” McGrady said. “I’m very disappointed. It just seems like the inside politics game wins here.”

The beer bill has been one of the most closely watched pieces of legislation this session. Just getting the bill out of committee in its original form would have been a difficult task. A bruising battle surely would have ensued on the House floor, and Senate leaders have said they have little appetite for the measure.

Under current law, small brewers may distribute up to 25,000 barrels of beer on their own. If they produce and sell more, brewers must enter an agreement with a wholesaler, a middleman who collects taxes and delivers beer to bars, restaurants, and retail stores. The system is a holdover from the Prohibition era and was originally aimed at keeping large brewers in check.

Small brewers now say it does the opposite by ceding advantages to large beer companies and wholesalers. Craft brewers say the state should let them grow more before being forced to turn over a key part of their business to an outside company.

“Why do state laws penalize the breweries who have invested the most?” Todd Ford of NoDa Brewing in Charlotte told the House ABC Committee last week.

Many breweries choose to sign up with a distributor before hitting the 25,000 barrel cap, he said. “It should be our choice, but not be a state mandate,” he said. NoDa is one of three craft brewers in the state approaching the 25,000 barrel limit.

Small brewers have found allies in conservative free-market groups, who have decried the current system as government interference.

Wholesalers have vigorously fought back, saying that the system has worked for decades. And they have used a recent Department of Revenue report to question the ability of small brewers to properly account for their stock and keep up with taxes.

In addition, they have brought the force of campaign spending to bear. An analysis by Democracy NC, a good-government watchdog, found the wholesalers have backed up their arguments with $1.5 million in donations between 2013 and 2016 to legislative campaigns and political party committees.

“House Bill 500 would put my business at serious risk,” Tim Efird, CEO of Standard Distributors in Gastonia, told the House ABC Committee last week.

He said that not only would raising the self-distribution limit be a problem but that allowing small brewers to break distribution agreements without showing cause would hamper wholesalers and brewers alike. “What wholesaler would be willing to take on any new craft brewers? Not many,” he said.

Wholesalers’ argument has been bolstered by social conservatives, who have warned that eroding the three-tier system will lead to more drinking and therefore more social ills.

Without the two most controversial provisions, HB 500 is now a collection of small reforms to the alcoholic beverage control code. It would, for example, allow breweries to sell alcoholic beverages they don’t manufacture in their tap rooms. It also would call for a study of whether a complete rewrite of the state's alcohol laws is warranted. And it would make changes to make it easier for breweries with multiple locations to sell, store, and transfer their products.

Still, McGrady said he is disappointed the two marquee provisions won't be on board.

“The question for me as a legislator is: do I allow the bill to die with those in it, or do I go ahead and pass a bunch of common-sense stuff?” he said.

The House ABC Committee is due to meet at 3 p.m. Wednesday.

This story was originally published April 19, 2017 at 11:01 AM with the headline "Craft beer regulation change stalls in NC legislature."