The Ohio House and Senate are considering cuts to craft beer
Two Ohio House lawmakers have introduced legislation that brewers insist is vital to their industry’s growth. State Reps. Brett Hellyer, R-Ulrichsville, and Tim Barhorst, R-Fort Loramie, want to give small breweries more flexibility to make deals with wholesalers. State Sen. Andrew Brenner, R-Delaware, introduced similar legislation in the Senate over the summer. The first hearing for his bill was held last month.
What is franchise law?
The alcohol industry is heavily regulated, with state laws drawing a clear line between producers, distributors and retailers. This three-tier system provides opportunities to tax and trace products, while theoretically maintaining a competitive market.
However, in the 1970s, the beer industry had consolidated to the point that large brewers could effectively dictate terms to wholesalers. If a distributor only ships from a few producers, those producers can threaten to pull out—resulting in a tough deal with a much smaller company.
So, in 1974, state lawmakers stepped in and leveled the playing field. To prevent brewers from throwing their weight around, they imposed strict limits on when brewers could resolve a distribution deal.
The brewing market has changed dramatically since then, and craft brewers say state law hasn’t kept up. They contend that the dynamic of the 1970s has flipped, and now a handful of large distributors dominate the craft brewery space.
“Under current law in Ohio, craft brewers have no negotiating power, no recourse and no way out,” Mary McDonald, executive director of the Ohio Craft Brewers Association, argued in May when brewers began pushing for legislative changes. These contracts are unfair.”
Over the summer, craft brewers lobbied lawmakers to introduce legislation, but they also tried to find shortcuts. As the biennial operating budget works through the General Assembly, they urged lawmakers to include a provision for changes to the franchise law. This effort was not successful.
However, Senator Brenner took them to the field and introduced SB 138 to revise Ohio’s franchise law. His bill got its first committee hearing in September. In his introduction, he said the state law was “written for the market 50 years ago.”
“These breweries account for less than 13% of grocery store sales and less than 3% of convenience store sales,” Brenner said. “This amendment to Ohio law will not jeopardize distributors’ businesses in any way, but instead provides 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 the protection of local breweries in our area, and it is time for state law to reflect that,” he added.
Brenner’s legislation and a recently introduced House bill maintain contract restrictions on large breweries, but impose a minimum of 250,000 barrels. The standard barrel is a half barrel. The House bill also amends the state’s permitting system to ensure that breweries below the 250,000-barrel minimum can continue to sell beer on-site or directly to retailers.
For context, important craft breweries in the region like Great Lakes, Rhinegeist, and BrewDog fall well below this mark. According to Axios Columbus, Great Lakes production for 2021 led the pack in Ohio by about 128,000 barrels.
The House bill, introduced earlier this month, has yet to receive committee assignment. In a craft brewers press release, Rep. Heller sounded an optimistic tone.
“When I learned about the current franchise law, it was clear to me that this was bad business policy,” Hillier said. “With a bill in the Senate and now in the House, I hope we can quickly resolve this problem that has been going on for too long,” he added.
But while brewers demand reform, distributors are questioning their characterization of the industry. Jacob Evans of the Ohio Wholesale Beer and Wine Association argued that the current system works well. He dismissed craft brewers’ complaints of being stuck in bad contracts as an “urban myth.”
“I can give you hundreds of brands over the last decade that have had that difficult conversation with a wholesaler, hey, I’m not happy or I want to go in this direction, I want to go in this direction, and they’ve split amicably. They’ve gone in They went their separate ways without going to court at all.
At a press conference in May in which they announced their plans to push for the legislation, several brewers told stories of difficult relationships with wholesalers. They also argued that many brewers are reticent to speak out because of fears of retaliation from their distributors.
Evans also noted that breweries that produce 1 million barrels or less could already sell directly to retailers if they wanted to. Craft brewers contend that self-distribution takes resources away from brewing beer — hindering business growth. However, some brewers say they plan to self-distribute for as long as possible to avoid being tied to the contract.
Follow OCJ Reporter Nick Evans on Twitter.
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