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North Carolina’s Beer Pong Battle

Beer-makers square off against a cronyist system.

A legislative battle currently is brewing that could determine whether North Carolina beer-makers will still be able to sell and market their own beer. The result could have long-lasting implications for the future of craft brewing in the Tar Heel State.

North Carolina law currently allows brewers who produce less than 25,000 barrels annually to sell and distribute their own beer within the state. In practical terms, this means that, once a brewery grows large enough to exceed 25,000 barrels, it is forced to work with a distributor middleman if it wants its beer to be sold in bars, stores, or other retail outlets. This is a vestige of the protectionist post-Prohibition three-tiered system, which requires strict walls of separation between alcohol producers, distributors, and retailers.

But two Charlotte brewing companies—NoDa Brewing Co. and The Olde Mecklenburg Brewery—have decided to fight back. They started CraftFreedom.org, which has signed on dozens of breweries to raise awareness of the issue and push the General Assembly to raise the cap. The group had some initial success, as state lawmakers recently considered HB 500, legislation that would have increased the self-distribution limit from 25,000 to 200,000 barrels per year.

Unfortunately, after intense lobbying by beer-distributor interests, the two most important reforms in the bill—the self-distribution cap increase and modifications to state franchise laws to make it easier for brewers and distributors to dissolve their relationships—recently were killed in committee and won’t be considered again for another two years. The legislation was watered down after the Alcohol Beverage Control Committee was stacked with five additional pro-distributor legislators. However, this doesn’t mean the problem is going away anytime soon.

As the craft-brew scene began to explode in Charlotte over the past few years, NoDa realized that it was quickly approaching the 25,000-barrel self-distribution cap, according to production manager Matt Virgil, one of several NoDa principals I spoke with at the recent annual Craft Brewers Conference in Washington. Given the way the cap currently works, if the five-and-a-half-year-old brewery produces one barrel more than the 25,000 limit, it would have to sign away the sales rights to all its beer to a third-party distributor.

“We’d have to sign everything over, which is something that to us doesn’t make sense,” Virgil said. To avoid that fate, NoDa has started pacing itself to remain under the cap.

Though the beer-distributors lobby, a powerful and influential group in North Carolina politics, unsurprisingly wants to keep its government-imposed monopoly on distribution rights, the NoDa team is careful to point out that they aren’t anti-distributor. For Chad Henderson, NoDa’s head brewer and a co-owner, it’s an issue of control. Henderson notes that he has many friends who are distributors and, as he puts it, “distributors have an obvious value” given their ability to haul large amounts of beer over great distances.

NoDa’s team disclaims any intention to play the part of a distributor outside its own backyard of Charlotte and the brewery already works with a distributor to transport its beer into nearby South Carolina, a relationship the NoDa team describes as positive—but also voluntary. Henderson noted that the brewery may soon grow “to a point where we really want to have a distributor, but we just want it on our own terms.”

More than anything, NoDa is worried about how signing away its sales rights could affect employees. Charles Willett, NoDa’s controller, points out that working with a distributor reduces the brewery’s revenues from beer sales, which essentially would force it to eliminate delivery and sales positions. “We don’t want to have to then turn around and sell off equipment and fire people that have worked so hard to make this,” Willett said, predicting that up to 11 NoDa employees could be out of a job if the brewery is forced to sign up with a distributor.

Research has shown that states with more generous self-distribution rights have more breweries than states that restrict self-distribution. Furthermore, North Carolina already has seen positive results from past beer liberalization efforts, such as the state’s 2005 “Pop the Cap” initiative, which raised the permissible alcohol content in domestically made brews from 6 percent to 15 percent. As Willett pointed out, before “Pop the Cap,” North Carolina had only 28 breweries. Today, it has 190.

Willett says the argument is primarily one of basic fairness: “We want to be treated like any other industry,” not one where “growth is penalized, where you put your capital and your time and everything into making a brand, making a product and then you have to sell away the rights to it. That’s ridiculous.”

For now, state lawmakers do not appear to agree. While the decision to gut HB 500 in committee squandered a prime opportunity for reform, NoDa has vowed not to give up the fight. One hopes state politicians will start to listen before it’s too late.

C. Jarrett Dieterle is a fellow at theR Street Institute in Washington, D.C., and edits the website DrinksReform.org.



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