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Every Question about our Regulatory System for Beer, Wine & Spirits, Answered.

March 1, 2018

 

 

After months of hearings, deliberations, and breakout committee sessions, the State Treasurer’s Task Force released its recommendations concerning the updating and streamlining of alcohol regulations here in the Commonwealth. We’re ready to dive into their report to see exactly how the ABCC proposes to make our alcohol regulations easier for customers and businesses alike.

 

However, we know all too well how confusing these laws can be--and we’ve tried to demystify portions of them in past--but we know that the Task Force report is likely to raise more questions than it answers among the public. To combat that we’ve put together this list of useful information and things you should know before you jump headlong into their report and findings.

 

First though…

 

What is the Alcoholic Beverage Control Commission?

 

The Alcoholic Beverage Control Commission (ABCC) is a committee appointed by Treasurer Deb Goldberg who oversees all things alcohol here in the Commonwealth. They serve under the Treasury and, according to their website, their “overall objective is to provide uniform control over the sale, transportation, possession, purchasing, and manufacturing of alcoholic beverages in the state.” If you want to start a craft brewery, you’ll be dealing with the ABCC. If you’re a distribution company that provides alcohol to stores, restaurants, and bars, you deal with the ABCC. If you want to open a restaurant that serves alcohol, you’ll deal with both your municipal licensing board and the ABCC. If you break a regulation concerning the production, transportation, distribution, or retailing of alcohol in Massachusetts you deal with—you guessed it—the ABCC. Because of their wide scope of services, they’re busy: they say that they deal with “many cases each week”—and those are just violations, never mind permit applications, or any of the other services they provide. Because of their intimacy to the regulation of alcohol in Massachusetts, they know better than everyone just how confusing and archaic our system is.

 

Starting earlier this year the ABCC set out to recommend reform to our system. They formed several breakout committees—or ‘working groups’—to review the regulatory framework they oversee. Those groups focused on ABCC resources and operations, industry improvements, licensing processes, local economic development, and public health and safety. The ABCC also held six public meetings around the state where they heard the recommendations and concerns of people working in every alcohol related industry. With the information from those meetings and the recommendations provided by the working groups, they then crafted a series of regulatory reform recommendations, which were released at the very end of 2017.

 

 

What is the Three Tiered System?

 

The three tiered system is an alcohol distribution system implemented after the repeal of prohibition in the US. The first tier is made up of alcohol producers. Any entity that legally manufactures any alcoholic beverage for sale in Massachusetts is considered a producer, no matter the size of the operation. Once the product has been made, the regulatory system mandates that the producer sell their goods ONLY to a wholesale distributor, which makes up the second tier of the system (there are some exceptions, like brewpubs, but we’ll get to that later). Wholesale distributors are responsible for transportation of alcoholic beverages throughout the Commonwealth. They pick beverages up from production facilities and truck them to stores, bars, and restaurants. Some wholesale distributors will also help to package and promote beverages—after all, they are buying the beverages from producers, so it’s in their best interests to sell everything they buy. The wholesale distributors may not act as retailers (i.e. they cannot sell alcohol to the general public). Instead, they must sell the beer, wine, and spirits to retail stores. Retail stores are any stores that are licensed to sell alcohol—whether that be a big store like Total Wine and More, or the tiny package store on the corner. Alcohol may only be purchased by consumers once it has ended up at one of these retail stores.

 

To recap: producers (1) make alcoholic beverages which they then sell to wholesale distributors (2) who then truck the drinks to stores, bars and other retailers (3) around the state. You can find a great in-depth dive about the three tiered system here.

 

Therefore, if you want to take your beer brewing set-up from your basement to Main Street, you need to find a distributor to ship and sell your IPAs to retail stores. That’s where Franchise Law comes in. So…

 

What is Franchise Law?

 

Franchise Law, as it applies to alcohol production and distribution, can be found in Chapter 138, Section 25e of the General Laws of Massachusetts. It’s titled “Refusal to sell brand name alcoholic beverages to wholesalers as unfair trade practice; exception for good cause; discontinuance notice and procedure,” but that’s a horrible mouthful, so we’re sticking with Franchise Law. Section 25e states that if a producer enters into an agreement with a distributor as outlined in the three tiered system, and stays with that distributor for more than six months, they are legally bound together and may not refuse to sell their product to that distributor under almost any circumstances. In fact, producers may only break their contract in extreme cases. For instance they must prove their distributor is trying to “impair the reputation of the brand owner or the brand name of any product,”; is giving preferential treatment to a competitor; is “engaging in improper or proscribed trade practices,”; or fails to comply with the terms of purchase.

 

This law was originally enacted for distributors’ job security: if half their business comes from one brewery which decides it can get a better deal elsewhere and leaves, the distributor will likely face bankruptcy and closure. Massachusetts distributors argue Franchise Law is critical to keeping the three tiered system intact, and major revision to it could see immediate job losses in the wholesale distribution field.

 

Massachusetts producers—most notably the craft beer industry—take a different tack. They argue Franchise Law forces them into lifetime binding contracts with no option to leave. They point out that breweries can sometimes outgrow their distributors. They also note that such binding regulations give more power to distributors than to producers, with the owner of Sam Adams going so far as to call it ‘slavery’ at a hearing in September. Night Shift Brewing in Everett recently started their own distribution company in order to sidestep these regulations.

 

A much more detailed look at the debate can be found here.

 

What are the different kinds of breweries?

 

According to the US Brewers Association, there are three distinct categories of breweries in the US: micro, regional, and large. The differentiation comes not in the quality of the product they produce but the quantity. The modifier ‘craft’ denotes whether the brewery is independently owned and operated, in most, but not all cases. Craft beer is also usually brewed in ‘batches’ or limited release runs. It usually contains finer ingredients and is not meant to be mass-produced the way Budweiser is.

 

Beer is made in barrels (surprise, surprise), so the measurement of brewery size comes down to the number of barrels produced annually. A microbrewery is a brewery whose annual output is less than or equal to 15,000 barrels. That might sound like a lot, but keep in mind beer giant AB-InBev sold 93 million barrels of beer in the US in 2016.

 

After microbrewery comes regional brewery. To qualify as a regional brewery the outfit must have an output of between 15,000 and 6,000,000 barrels. It is again worth noting there can be regional craft breweries or regular regional breweries. For instance, a regional brewery owned by a parent company like AB-InBev would not qualify as a craft brewery.

 

Once a brewery’s output reaches over six million barrels annually it becomes a large brewery. To date, there are no large craft breweries in operation. Boston’s Sam Adams ranks as the largest independently owned craft brewery in America with an output of around 2.3 million barrels annually, still well within the regional designation.

 

Now that’s out of the way…

 

 

Are there different kinds of craft breweries?​

 

Now that we know craft breweries must be independently owned, make beer in batches, and generally use high quality ingredients, we can start to segment them out. There are generally three kinds of craft breweries: craft, farm breweries, and pub breweries. Craft breweries are straight forward. They are independently owned, usually own their own brewery production facility (although they can contract out other breweries to brew batches for them at other facilities), and work with a distributor under the three tiered system to market and sell their product at retail locations. They can be microbreweries or regional breweries depending on their size. They may have a ‘taproom’ (or several) located either in the brewery or elsewhere that sells their beer, but no other alcoholic beverages.

 

A pub brewery, according to Massachusetts law is a craft brewer that sells their beer at an on-site restaurant or pub. The Brewers Association takes this definition further, stating that in order to be recognized as a ‘brewpub’, a brewery must sell at least 25% of their product annually at this location—if they fail to meet this threshold they are simply a craft microbrewery with a nice place to eat.

 

Lastly, we have the farm brewery. A farm brewery is a craft microbrewery that grows its own hops and/or malts. Almost all other kinds of breweries—craft or otherwise—purchase ingredients from third-party vendors and farmers. Farm breweries operate by producing their own main ingredients at a farm owned by the same individual or group that owns the brewery. They can also have taprooms or pubs associated with them, but may only be called a farm brewery provided they grow their own material.

 

 

We know just how confusing and tiresome the Massachusetts alcohol laws can be, but at least now you know the basics, and can call yourself an educated consumer!

 

 

 

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