It’s a really tough time to be an independent craft brewery.  Despite headlines saying that alcohol sales are skyrocketing, and while that is true, small craft breweries have essentially seen two out of three of their main sources of income cut down to nothing.  More specifically, small breweries have almost complete losses in taproom sales and distributed sales.  According to the Brewers Association, brewery on-site sales are down 68% (most are reporting drops in excess of 70%) and on-premise distributed beer (kegs to retailers) are down 91%.  These are bad numbers for the future of independent craft beer.

Recognizing the issue, most state alcoholic beverage control agencies have enacted emergency rules or relaxed enforcement of certain rules to allow small breweries to try to survive until the market returns.  These include relaxations of tied-house rules—rules designed to keep the three tiers of the alcoholic beverage industry (manufacturers, wholesalers, and retailers) separate and free from undue influence among the tiers.  Some of these regulatory relaxations include conduct that was previously outright illegal in some jurisdictions.  They include “to-go” sales from the brewery to the customer (usually curbside or limited contact), delivery of beer, free delivery, longer hours of operations, charitable promotions, production of hand sanitzer, returns of alcoholic beverages, and many more.  Before COVID-19, these activities were prohibited in many jurisdictions.

And while people seem to be drinking more during the great quarantine, those increased numbers aren’t translating to independent craft breweries as much as one might think.  As one of my former clients recently put it, “Any day where we approach breaking even is a good day.”  This is so because, despite government efforts to help, taprooms are closed and restaurants aren’t buying kegs.  This leaves small breweries at the mercy of to-go orders and merchandise sales.  Those numbers simply don’t add up.  I’m afraid we will see a rapid extinction period for many small and independent breweries.

The interesting legal angle, to me at least, is how will the state regulating bodies justify a tightening of the relaxed rules once COVID-19 is contained?  By relaxing regulatory rules during the crisis, the agencies recognized that their normal rules are burdensome on small breweries and that those rules needed to be loosened to help small breweries stay open.  So once COVID-19 clears up, what is the regulatory purpose for tightening the rules back up?  The primary purposes of most states’ alcoholic beverage control rules include temperance and preventing vertical and horizontal integration.  It seems unclear that discontinuing privileges provided during the crisis, like delivery or to-go orders, would further either temperance goals or integration prohibition.

While I expect regulating bodies to in fact tighten their rules when this is over, I expect to see pushback from small breweries at the state and local levels to maintain some of the privileges that the regulating bodies themselves saw fit to relax when breweries really needed them.  I will address these justifications and arguments against them in a law review article over the summer.  Look for it next law review cycle..

Only the strong will survive this.  A new brewery or one that has not found financial stability is in deep trouble of huge losses and most likely closure due to COVID-19.  It’s just a fact.  Despite pleas and community energy from passionate craft-beer folks, the reality is that to-go orders, gift cards, and merch sales alone probably will not be able to keep the lights on for many.  That’s where the government is trying to come in.

Many folks in this industry blast regulators for seemingly arbitrary, arcane, and paternalistic regulations and laws on the books.  Me too—sometimes.  But I am heartened to see the speedy and agile response that many state regulators have taken to at least try to keep breweries and related manufacturers in business.  It has been only five days; yet many states are doing their part.  California, for example, has relaxed several of the less business friendly restrictions in record time—all of which were prohibited six days ago.  To wit (each with exceptions and caveats and only for the time being):

  • Retail-to-Retail Transactions: off-sale retailers can purchase alcoholic beverages from on-sale retailers to avoid spoliation.
  • Extension of credit: manufacturers may extend credit to retailers beyond 30 days.
  • On-sale retailers can sell for off-sale consumption.
  • Bona fide eating places may sell to-go drinks for pickup or delivery (huge btw).
  • Any licensee can sell beverages to people in motor vehicles outside the premises through a pass-out window or slide out tray (think drive thru).
  • Delivery is permitted.

And even some states that are less craft-beer friendly are getting in on the game.  For example, South Carolina has similarly suspended the prohibition on drive-thru or curbside pickup.  Still, for those states that have not gotten their act together, now is the time (looking at you Kentucky et al.).

And another good that is coming out of this thing are those craft distilleries doing their part by suspending distilled liquor production and moving it to hand sanitizer.  Because hand sanitizer is not a distilled beverage, it legally comes outside the purview of state alcoholic beverage regulators.  Check your FDA obligations though.

So thanks to most state governments for trying to help independent beer during this catastrophe.  For those that haven’t yet, come on people.  After all, most states have at least implicitly recognized that independent beer is “essential” by leaving them open during this pandemic.  At least, I’d argue that in court if I had to.

As always, check your state’s alcoholic beverage control agency’s website for updates and can and can’t dos.  Enjoy a local beer—nobody is driving anywhere.  Support local now more than ever.

Coronavirus (COVID-19) Updates

This could be really bad for independent craft beer.  Most states have tied-house laws that prevent manufacturers from giving retailers a “thing of value.”  Among the many prohibitions this encompasses, manufacturers are (were?) universally prohibited from paying a retailer for advertising space.  Several exceptions exist, but the general purpose is to prevent a retailer from becoming beholden to a manufacturer and thus on the hook to push that manufacturer’s beer over another’s.  One of the obvious legal issues this raises is the First Amendment.

In 2017, the Ninth Circuit confronted this very prohibition in the context of a First Amendment challenge.  See Retail Digital Network LLC v. Prieto, 861 F.3d 839 (9th Cir. 2017).  Because this speech is commercial in nature (not core speech like political opinions) statutes restricting this kind of speech traditionally receive an intermediate level of scrutiny called the Central Hudson test.  This test is more lenient than strict scrutiny but something more than rational basis.  If you want to know more about these, email me.  Suffice it to say that statutes and regulations restricting commercial speech face a pretty tough test for a court to hold them constitutional. Under this intermediate Central Hudson test, the Ninth Circuit found that California’s prohibition of a manufacturer paying a retailer for advertising survived Central Hudson because it materially advances the states interest in maintaining a three-tier market system, and there was sufficient fit between that interest in the legislative scheme to prohibit market domination by large manufacturers.  See Retail Digital Network, 861 F.3d at 851-52.  Accordingly, for now, independent craft brewers in the Ninth Circuit can rest easy knowing that manufacturers cannot pay for advertising.

The Eight Circuit just threw a giant wrench in the issue.  In Missouri Broadcasters Ass’n v. Schmitt (dated January 8, 2020), the Eighth Circuit resolved the same challenge to a similar prohibition against paying for advertising in Missouri.  Unlike the Ninth Circuit, the Eighth Circuit held that “Missouri fails to show how the Statute, as applied, alleviates to a significant degree the harm of undue influence.”  The Eighth Circuit also pointed to the many exceptions to tied-house laws and stated that “[a] statutory framework with such advertising exceptions and inconsistencies renders the Statute as applied ineffective in preventing undue influence ‘in a direct and material way,’” in contrast to the Ninth Circuit.  If you are an independent craft brewery in the Eighth Circuit, prepare for an increased squeeze on shelf space and tap handles.

This creates a circuit split.  Big beer would like nothing more.

Why is the bad for independent craft beer you ask?  For two main reason.  First, the only manufacturers who can afford to play the pay for advertising game are the biggest ones.  If paying for advertising space became legal, the independent craft breweries you love would be at a severe disadvantage because they simply cannot afford to play that game.  And retailers everywhere would love increased revenues.  Secondly, and more importantly in my opinion, is that if large manufacturers were allowed to pay for advertising, who is going to police those deals?  More specifically, who is going to decide the reasonable value of an advertisement?  The point is, if large manufacturer A paid a retailer $20,000 per year for advertising, it completely blurs the lines between advertising payments and pay to play.  Frankly, this opens the door for those with deep pockets to legally engage in simple, plain pay-to-play conduct.  It would seriously squeeze your local independent.  We cannot afford to erode tied-house in this manner.  The results will be disastrous.

Cheers (I guess).  And let me know what you think.

*Nod to Ashley W. Brandt for breaking this case.

When Tom McCormick, Executive Director of the California Craft Brewers Association, comes to speak to my Craft Beer Law class here at McGeorge, one thing he always tells my students is that there is a shortage of attorneys conversant with craft beer law and the industry in California.  Well, three craft beer law attorneys just teamed up to form a powerhouse craft beer law legal team.  And I suspect it will have a positive impact on breweries’ legal needs.

According to a press release yesterday, Noble & Page LLP (San Luis Obispo) and Candace Moon of The Craft Beer Attorney, APC (San Diego) have formed an Of Counsel relationship.  This association speaks directly to me because Lucas Noble and Maddie Page are relative newcomers to the craft beer law scene, and I have watched them grow and learn (Lucas, dare I say mentored?) in this amazing industry and practice area.  Candace Moon, on the other hand, is the juggernaut of California craft beer law and is essentially the first attorney to have specialized in this area.  All three are friends of mine.  So it is amazing to see them come together to provide excellent legal services to California’s more than 1000 craft breweries.

In essence, this new association of attorneys forms the largest one-stop shop for any brewery’s legal needs, including ABC and TTB licensing, general counsel services, trademark and copyright, employment, and several more areas.  Lucas and Maddie bring youthful exuberance and energy to the table, while Candace brings more than a decade of expertise and strategy.  While there are several other craft beer attorneys out there in the state (all very capable in my experience, nod to Eugene Pak and Mike Kanach among others), these three teaming up represents a sort of consolidation like we see in the craft brewery segment.  By teaming up, these three attorneys will represent a large number of breweries in the state and are positioned to further increase their client base.

Cheers to Lucas, Maddie, and Candace.  When you need to hire associates (and that day is coming), you know where to look—McGeorge and its craft beer law program.

 

For those of you who read this blog, you might be wondering where the heck I have been? Am I alive? My friends, don’t try to write a book. I say that in jest, of course, but I have been working on the world’s first craft beer law textbook (under contract with Carolina Academic Press) over the summer and over these first few fall months. It is all consuming of my writing time (well, that and two law review articles). Suffice it to say that I have missed my blogging enterprise. But I should be done with the book soon.

A few updates on my scholarly stuff. First, I just finished my third California Craft Beer Law class at McGeorge. This one went really well and had a gifted group of students. Guest speakers included Ting Su (Eagle Rock Brewing), Mike Kanach (Intellectual Property Partner at Gordon Rees and craft beer attorney), Tom McCormick (Executive Director of the California Craft Brewers Association), and Sacramento’s very own Ken Anthony (Founder and Owner of Device Brewing Co.). Second, I have a law review article coming out with the Gonzaga Law Review on unfair competition and remedies stemming from Big Beer’s and Big Distribution’s market conduct in the near future. Third, I and my Research Assistant (Tom Gerhart) have been hard at work on another law review article concerning predatory pricing and anti-competition in the beer market. Updates on that to come. Lastly, for any law profs reading this, McGeorge has asked me to put on a substantive craft beer law presentation at AALS in January 2020 in Washington DC. Check it out to learn about craft beer law and what McGeorge is doing in that sphere (yes, there will be a beer tasting component hosted by yours truly).

And now some substance from our friends at the California Craft Brewers Association. Good news. The CCBA’s sponsored bill, AB 746, authored by Asm. Jim Wood, passed both houses and was signed into law by the Governor last week. This bill amends California’s Health and Safety Code to exempt brewers from the CA Department of Health’s permit requirements. This helps in two ways. First, every brewery in California will save about $1100 annually in permitting fees and expenses. Second, this bill essentially consolidates public health and safety requirements with local regulations that breweries already must comply with. The result is less logistical hoop jumping and less paperwork. Nice win CCBA.

There is A LOT happening in the craft beer legal world these days. Stay tuned in the coming weeks for a post on the new mandatory sexual harassment training requirements for breweries, diversity and inclusion taking hold, and some insights on brewery on brewery conflicts that seem to arise from the increasingly competitive marketplace.

As usual, Cheers! And let me know what you think.

You know how you get sick after being confined in crowded areas like airplanes or New York City? It appears the same can be true for some companies when markets get crowded. I will say for the record that the independent craft breweries and industry folks that I know, almost universally, are good, community-oriented people who genuinely want to make incredible products and leave a positive footprint in their respective spaces. But with more and more people coming into the industry for varying reasons*, some of the sheen has worn off as of late. So what kind of bad behavior are we talking about? A couple of examples might shed some light and make you uncomfortable.

First up on the tap list: Racism. Founders Brewing Company, Michigan’s largest brewery, was recently sued by a former employee for racial discrimination involving some shocking claims. Tracy Evans asserts in his complaint that Founders fostered a culture of racism by, among other things, (1) calling a printer upstairs “the white guy printer,” while the general employee printer downstairs was called the “black guy printer”; (2) not firing employees who called Mr. Evans the n-word at work; (3) disparate treatment among white and black employees; and (4) allowing racist comments to go unchecked (such as a white employee lamenting how “dark” the Detroit taproom is). Interestingly, Founders denies some of the allegations, but not the use of the n-word by at least a few employees. The litigation is ongoing, and Founders claims to have since required sensitivity training and hired a director of diversity and inclusion.** For a scathing opinion about racism in craft beer beyond this one instance, see Beer Kulture’s response to the Founders issue at https://www.beerkulture.com/kulture-tings/selective-outrage-does-inclusion-include-us. We can do better than this.

Next up: Sexism. Several women craft beer writers will say that they have been aware of sexism in craft beer for a long time.*** But it recently came to a head and within the public eye when the publisher of Great Lakes Brewing, Bill Metzger, published an article that contained the following: “In the age of #metoo, the pendulum has swung too far. One aggressive move and a man’s career can derail. I feel the walls closing around me, my room to move shrinking. My instincts to bed every woman I see are reducing from a king-sized mattress to a cot, the size of which I can only remember from a tour in Iraq.” Uh. Ok. Of course, social media took off after Metzger. Metzger claims that it was satire and that he was offering social commentary. Perhaps. And at least one female beer writer believes him. (See id.) If you simply Googlize it, you will find stories of female industry folks who have seen or felt this type of behavior all too commonly in craft beer. Again, we can do better.

Along those lines, this one hurts. Track 7 Brewing out of Sacramento has just been sued for, you guessed it, sexual harassment and wrongful termination.****  The allegations are a bit salacious (Track 7 denies them), and it would make me blush to write them here. So I won’t. But I have publicly lauded Track 7 to my friends, my students, and my colleagues. I won’t be going there or drinking Track 7 beer unless or until this behavior objectively stops or is proven untrue. See? People actually care who makes their beer. We can find better.

Lastly (for now): acting like someone else. The Supreme Judicial Court of Massachusetts just yesterday upheld a decision of the Massachusetts Alcohol Beverages Control Commission against Craft Brewers Guild (“CBG”), a craft beer wholesaler, finding that CBG engaged in commercial bribery (errr pay-to-play). The Commission levied a fine of $2,623,466.70 (that is quite a fine in this world TBH). The Supreme Judicial Court upheld the Commission’s findings that CBG “had paid monetary rebates in differing amounts on craft beer purchases to certain licensed retailers in violation” of Massachusetts tied-house laws.***** Damn. You mean “Big Beer” isn’t the only one to engage in pay-to-play? Stay true to your roots, folks. We can do better.

I believe, perhaps naively or wrongly, that independent craft beer has at least some amount of moral high ground. The amount is certainly up for debate and different perspectives–there are those who would disagree. If we want to keep it, we simply cannot ignore this type of conduct lest we become like every other industry out there. But this community is far more conscious than that. The people I know and interact with are welcoming, caring, and entrepreneurial small business owners. Let’s not let a crowded market or an unwillingness to engage in uncomfortable conversation turn us into something we are not. Often times, the consequences won’t be just legal—they will be empty taprooms and old beer on shelves. We demand better.

Cheers. Let me know what you think.

*See https://www.forbes.com/sites/taranurin /2019/02/12/publishers-odd-anti-metoo-rant-raises-question-of-how-writers-should-cover-beer/#da6faa3f5cba

**See https://www. freep.com/story/entertainment/2019/02/21/founders-brewery-detroit-grand-rapids-racism /2929524002/

***See https://www.forbes.com/sites/taranurin /2019/02/12/publishers-odd-anti- metoo-rant-raises-question-of-how-writers-should-cover-beer/#da6faa3f5cba

****See https://www.sacbee.com/food-drink/beer/article226840499.html

*****https://www.mass.gov/files/documents/2019/02/28/12547.pdf

 

The following is a student article written for my last craft beer law class at McGeorge.  The student author is Katie Green, and as a “reward” for receiving the highest grade in the class, here is her article for your reading pleasure.  Ms. Green makes an interesting argument about why craft beer needs to explore PACs instead of relying on grassroots movements.  And with all the whisperings I keep hearing about craft beer PACs, maybe she isn’t off the mark.  Enjoy, and congrats Katie.

Politics and Pale Ales: How Grassroots Activism, Lobbying, and Legislation Impacts the Craft Beer Industry.

Introduction

    Visit any one of the many independent breweries in downtown Sacramento, and you’ll likely find lobbyists, Capitol staffers, and even a politician or two, talking shop over their favorite locally crafted beer. This subset of patrons, many of whom may have been unaware of Craft Beer much before five years ago, also have a hand in the success and expansion of the industry. Craft Beer, both in California and in the nation as a whole, has exploded over the last decade. The Golden State is home to more breweries than any other state in the country, and the state’s market of craft breweries continues to grow at an astonishing rate. Most Californians live less than ten miles from one of the nine hundred independent breweries.[1] These local breweries employ more than fifty-five thousand full-time employees and produce over seven billion (yes, with a ‘B’) dollars in revenue every year.[2] In 2016 alone, California’s independent craft breweries contributed almost one and a half billion dollars in tax revenue.[3]

The vast expansion of Craft Beer is almost unbelievable at a time where monopolies dominate many economically viable industries.[4] Indeed, just six years ago, ninety percent of the beer industry was controlled by a rather infamous duopoly – Anheuser-Busch InBev and Miller Coors.[5] Interestingly, at the same time that shipments from five of the biggest brewers in the country have dwindled, beer has also become America’s most popular alcoholic beverage.[6] Some have reasoned that Americans are simply drawn to better-tasting beer. Other perhaps more romantically inclined theorists have likened the shift to a heightened awareness of cultural and social differences between Craft Beer communities and Big Beer companies. “Craft breweries are the living room, the town hall and the gathering place” for communities across California, says Tom McCormick, the executive director for the California Craft Brewers Association (CCBA).[7]

As the Craft Beer community continues to grow at such staggering rates, the need for a united front when it comes to lobbying for and against legislation has become a must. The industry, which prides itself on its grassroots culture, is hesitant to formally induce California brewers into joining together as part of a Political Action Committee (PAC), as Big Beer brands have done for years.[8] Whether this reluctance is sustainable for the long term is doubtful at best. Even some of the most philosophically committed Craft Beer loyalists admit that where legislation is concerned, big (beer) money talks, and walks, and creates bills that hurt smaller breweries. Leaders in the community seem hesitantly resigned to the idea that at some point in the not-so-distant future, Craft Beer will need to play in the same league as that of Big Beer. The endgame is almost certain, especially in big markets such as California – the Craft Beer community must join together, not only as one political voice but as one politically driven financial contributor.[9] The fear that Craft Beer will lose its soul if politics is involved is perhaps misguided; a PAC is merely a stone that David can use to defeat Goliath. Craft Beer doesn’t have to join Big Beer to beat it, but it does have to be willing to play the same game.

Democracy is the Ethos of Craft Beer.

   In 1978 President Jimmy Carter deregulated home brewing, which had been banned since Prohibition in the 1920s.[10] President Carter is often credited with saving the Craft Beer industry, but he isn’t the only modern president to appreciate homebrew.[11] During his presidency, Barack Obama became the first Commander in Chief to brew beer at the White House.[12] President Obama and his staff, none of whom had any experience with brewing before creating the now famous honey ale, are said to have been inspired by craft brewers across the nation.[13] Indeed, independent brewers inspired the country’s leader to try his hand at their craft.

Craft brewers are entrepreneurs first, but they have also become community organizers. Of course, as small business owners, brewers must be active in providing for their employees and patrons, but their activism often goes much further. Breweries have hosted meetings promoting Planned Parenthood, HIV testing, and climate change awareness.[14] Hundreds of brewers from California participate in an annual “Hill Climb” at the U.S. Capitol in Washington D.C. to educate legislative staff on issues affecting the industry.[15] During the 2016 election, over four thousand breweries sold beers that were branded in reaction to Donald Trump’s candidacy – “Dumb Donald.”[16] Meanwhile, Pete Coors hosted a Trump fundraiser.[17]

Despite Coors’ high profile, high price, fundraiser, the 2016 election solidified craft breweries as a must have community in any politician’s campaign stop repertoire. The candidates, most likely in an attempt to be elected the person that voters would most like to have a beer with, made brewery visits the new “political troupe,” in a “proverbial toast to the economy and to local businesses.”[18] Craft breweries and their employees became a voice for America during the last election, and they have continued to be pervasively socially conscious in the wake of the country’s political unrest.

Just one example of Craft Beer’s commitment to more than their product is the People Power Beer initiative. More than fifty breweries across the U.S., including five in California, have pledged to take part in the social initiative that promises to donate a portion of its proceeds to ACLU.[19] The pledge states that the initiative supports championing equal voting rights, and is concerned with “civil rights threats in our culture.”[20] Notably, the bottom of the People Power Beer website states, “This site was created by a federation of brewers who care about our country.”[21]

Democracy is part of the genetic makeup of Craft Beer. The “keep your politics out of my beer” folks are a minority that is losing ground and that, quite frankly, seem to fit more appropriately in the Big Beer crowd (even if Big Beer is quietly shelling out millions to politicians).[22] While leadership at CCBA and the Brewers Association may be concerned that politically driven breweries may alienate patrons, leadership in the community must also recognize that Craft Beer has never been more popular and that a significant portion of the industry’s patronage may be in favor of Craft Beer’s community-oriented values and love for diverse groups of people.

The First Amendment, The Supreme Court, and Dark Sudsy Money.

            Over one hundred years ago, Congress passed the first-ever legislation intended to prohibit corporations from influencing election campaigns through financial contributions.[23] Wealthy alcohol manufacturers, who were fearful of Prohibition, were some of the first to challenge the new law by arguing that their cash contributions to local and federal political candidates were a protected right under the First Amendment’s free speech protection.[24] Courts and legislatures of the time saw these contributions very differently, which led the Brewers Association to bring a suit in federal court.[25] The Association was rebuked by the Court which reasoned that corporations were in fact not “citizens of the United States.”[26]

Almost a century later, the Supreme Court reversed that reasoning and found that corporations were indeed afforded free speech rights, and that campaign finance laws placed undue restrictions on corporations’ abilities to exercise them.[27] Citizens United gave industries, including Big Beer, the ability to spend millions of dollars in “dark money” donations to political groups that finance candidates, only then to withhold the details of their spending.[28] Unsurprisingly, laws in California and across the country have and continue to favor Big Beer, and have often directly attacked small, independent breweries.[29]

  1. Big Beer Financial Contributions and Subsequent Legislation.

The philosophical divergence between Craft Beer and its bigger and less community-oriented competitors is striking. There is a certain amount of nobility that comes with Craft Beer leadership’s reluctance to conduct pay-for-play type lobbying in favor of more grassroots, boots-on-the-ground political advocacy. However, Craft Beer must come to terms with the current rules of the political game. When it comes to favorable legislation, campaign finance can sway even the most well-intentioned of politicians.[30]

Though it might be naïve to hold on so tightly to its grassroots beginnings, California’s Craft Beer community refuses to use any of its billions of dollars in annual revenue to combat the reasonably apparent kickbacks that Big Beer receives from contributing to both state and national political campaigns.[31] According to Bob Pease, the chief operating officer for the Brewer’s Association, Craft Beer is still “adjusting to the political scene.”[32] Further, Pease notes that because they don’t feel particularly challenged by significant producers, craft breweries aren’t in any major rush to create a PAC.[33] Tom McCormick has offered similar sentiments about creating a PAC for the CCBA.[34] Both nationally and in California, Craft Beer leadership isn’t saying that the community won’t eventually need a Political Action Committee, but merely that they aren’t seriously considering making one yet. It begs the question: What exactly is Craft Beer waiting for?

While the industry continues to waver between not having the fiscal resources and not believing that Big Beer threatens independent brewers’ livelihoods, Big Beer is spending big and winning big both federally, and in states such as California.[35] Molson Coors Brewing has given over 1.7 million dollars to federal-level (mostly Republican) candidates and campaigns.[36] Constellation Brands, which owns Corona beer, is also another top alcohol driven political contributor.[37] Employees affiliated with that company joined its PAC and gave almost two-hundred thousand dollars to federal-level candidates (sixty-nine percent Democrats) during the 2010 cycle.[38] AB InBev spread the “love” evenly, giving to both Democrats and Republicans during the past two decades.[39] The Boston Beer Company, maker of Sam Adams, contributed nearly 32,000 dollars to federal-level Democratic candidates (none of Sam Adams’ money went to Republicans).[40] Donations from these beer-filled cash cows pay dividends in favorable legislation.

In 2010, the California Beer and Beverage Distributors (CBBD) donated ten thousand dollars to oppose California’s Proposition 19, which would have legalized marijuana (which was later legalized in California by voter initiative in 2017).[41] Backlash from independent breweries, Sierra Nevada and Stone Brewing, was swift. Both publicly asked to be disassociated with the CBBD and its political decisions.[42] The CCBA was also quick to announce that it had no knowledge of, or involvement in, the decision to contribute to the campaign to defeat Prop. 19.[43] Noticeably, brands such as Heineken and AB InBev, which are also represented by the CBBD, did not comment on the trade association’s apparent opposition to the legalization of marijuana.

One particularly recent example of legislation that was pushed by, and favorable to, Big Beer is California’s Assembly Bill 2573, otherwise known as “California’s Glassware Bill.”[44] The bill will allow a licensed beer manufacturer to give up to five cases of retail advertising glassware to an on-sale retail licensee per year, and will also permit an on-sale retail licensee to accept up to ten cases of retail advertising glassware per location for every calendar year for use at the licensed location from beer manufacturers.[45] The legislation, which has gone through several amendments and just passed the Assembly last month, was authored by Evan Low.[46] Anheuser-Busch happens to be one of Assemblymember Low’s top contributors.[47]

Mobilization of brewers and Craft Beer supporters is no longer enough to successfully combat Big Beer. Craft Beer, over the past decade, has shown that it has staying power. This threatens Big Beer. AB InBev, Coors, and other Big Beer brands are becoming more reliant on the loosened restrictions that Citizens United provided for them.[48] What they lack in taste and moral values, they make up for in monetary hubris and a willingness to pay for political favoritism. Particularly in big markets such as California, lobbying cannot come in a purely grassroots form if craft breweries want to sustain their growing impact.

2.  California Craft Brewers Association’s Route to Favorable Public Policy.

The California Craft Brewers Association is a 501(c)6 non-profit trade association that represents craft brewers across the state.[49] The CCBA monitors legislative activity, primarily at the state Capitol, and responds on behalf of the almost one thousand breweries in California.[50] In addition to supporting brewers in bringing Californian’s quality brews rather than soap water, the CCBA sometimes acts as a watch and attack dog when Big Beer pushes legislation that hurts smaller independent breweries. But with California’s breweries producing billions of dollars every year, in addition to Big Beer’s relentless legislative attack on small brewers, using every tool CCBA can muster is crucial. Pitting Craft Beer’s purely grassroots movement against Big Beer’s cash contributing machine is a little like asking a t-ball player to go up to bat against Madison Bumgarner.

The good news is that trade associations such as the California Craft Brewers Association aren’t prohibited from using Political Action Committees to donate to legislators in order to influence policy.[51] While the Federal Election Campaign Act places strict limits on how not-for-profit organizations may contribute to political campaigns, trade associations may create a PAC in the form of a subsidiary, which then allows the association to solicit contributions to the PAC from its members.[52] Creating such an entity would allow California’s brewers through CCBA’s PAC to donate to political campaigns that are socially responsible and align with the Association’s values. Of course, CCBA could and should still use its talent for grassroots mobilization to influence policy and social awareness, as it always has. A Political Action Committee is merely a tool that shouldn’t replace the soul of Craft Beer. Nevertheless, the time has come for Craft Beer to show Big Beer that It isn’t afraid to play their game when necessary. Craft Beer and the patrons who love and support it deserve leadership that is willing to fight fiercely to protect the community that craft brewers have built.

Conclusion

   Lobbying efforts on the ground can only combat the money given by Big Beer to a certain extent, but it cannot cure the problem. Stalling the inevitable when the Craft Beer industry in California makes billions of dollars annually, doesn’t make much sense anymore. Craft beer doesn’t have to sink to the levels of Big Beer, and it shouldn’t. The industry can keep its morals intact while simultaneously playing the political game that, at least for the half-decade, every major industry has had to play. Yes, Craft Beer is different in that community values are integral to a craft brewery’s success. While modern Craft Beer highly values the First Amendment, it certainly didn’t ask for the Citizens United decision.[53] The reality is that for many craft brewers, their businesses are much more passion projects and labors of love than they are traditional companies. Nevertheless, the political reality is that Craft Beer must use every opportunity to solidify its place in modern history as America’s anti-Big Beer. By using Political Action Committees, Craft Beer trade associations, such as the CCBA, can better protect Craft Beer’s legacy.

[1] “Craft Beer Statistics.” California Craft Beer, 15 Dec. 2017, www.californiacraftbeer.com/ca-craft-beer/craft-beer-statistics/.

[2] AmericanCraftBeer.com. “Record-Breaking Number Of Craft Breweries In California.” American Craft Beer, 13 Dec. 2017, www.americancraftbeer.com/record-breaking-number-craft-breweries-california/.

[3] Id.

[4] Lynn, Barry C. “America’s Monopolies Are Holding Back the Economy.” The Atlantic, Atlantic Media Company, 24 Feb. 2017, www.theatlantic.com/business/archive/2017/02/antimonopoly-big-business/514358/.

[5] Lynn, Barry C. “Big Beer, A Moral Market, and Innovation.” Harvard Business Review, 7 Aug. 2014, hbr.org/2012/12/big-beer-a-moral-market-and-in.

[6] Thompson, Derek. “Craft Beer Is the Strangest, Happiest Economic Story in America.” The Atlantic, Atlantic Media Company, 19 Jan. 2018, www.theatlantic.com/business/archive/2018/01/craft-beer-industry/550850/; Gallup, Inc. “Beer Remains the Preferred Alcoholic Beverage in the U.S.” Gallup.com, 19 July 2017, news.gallup.com/poll/214229/beer-remains-preferred-alcoholic-beverage.aspx.

[7] “Record-Breaking Number Of Craft Breweries In California,” supra note 3.

[8] Cooper, Jonathan. “Like Craft Beer? Big Beer’s Leading Lobbyist Says You’re A Chucklehead.” Medium, Augmenting Humanity, 12 Feb. 2015, https://medium.com/@jemersoncooper/like-craft-beer-big-beers-leading-lobbyist-says-youre-a-chucklehead-6d7842c83386

[9] “Record-Breaking Number Of Craft Breweries In California,” supra note 3.

[10] Murphy, Libby. “The Day Homebrewing Was Legalized.” Craft Beer & Brewing Magazine, 2016, beerandbrewing.com/the-day-homebrewing-was-legalized/.

[11] Id.

[12] Smithsonian.com. “How Barack Obama Became the First President to Brew Beer at the White House.” Smithsonian.com, Smithsonian Institution, 12 July 2017, www.smithsonianmag.com/smithsonian-institution/how-barack-obama-became-first-president-brew-beer-white-house-180964016/.

[13] Id.

[14] Bernot, Kate. “Where Politics Stand in the Taproom in 2017.” DRAFT Magazine, 2 Feb. 2018, draftmag.com/politics-breweries-taprooms/.

[15] Holtog, Laurie. “California Craft Brewers Visit the US State Capitol!” California Craft Beer, 12 June 2018, www.californiacraftbeer.com/california-craft-brewers-visit-the-us-state-capitol/.

[16] Gill, Andrew. “Craft Beer Has Become a Potent Protest Symbol in the Age of Trump.” The Takeout, Thetakeout.com, 20 Jan. 2017, thetakeout.com/craft-beer-has-become-a-potent-protest-symbol-in-the-ag-1798256545.

[17] MCCASKILL, NOLAN D., et al. “Report: Coors, Shanahan to Host Trump Colorado Fundraiser.” POLITICO, 27 June 2016, www.politico.com/story/2016/06/mike-shanahan-peter-coors-trump-fundraiser-224847.

[18] “Is 2016 the Craft Beer Election?” Food & Wine, 9 May 2016, www.foodandwine.com/blogs/2016-craft-beer-election.

[19] “People Power Pledge.” People Power Beer, www.peoplepowerbeer.com/.

[20] Id.

[21] Id.

[22] Murphy, supra note 11.

[23] “Important Dates: Federal Campaign Finance Legislation.” Center for Public Integrity, 19 May 2014, www.publicintegrity.org/2004/03/25/5852/important-dates-federal-campaign-finance-legislation; “Anheuser-Busch: Summary.” OpenSecrets, www.opensecrets.org/orgs/summary.php?id=D000042510.

[24] Id.

[25] Id.

[26] Phillips-Fein, Kim. “Company Men.” The New Republic, 29 Mar. 2018, newrepublic.com/article/147374/company-men-legal-struggle-citizens-united-corporations-rights-people.

[27] Citizens United v. FEC, 558 U.S. 310, 316 (2010).

[28] Id. at 327.

[29] Thompson, supra note 7.

[30] Brusoe, Peter. “That Time George Washington Bought an Election with 160 Gallons of Booze (and Other Presidents’ Day Stories).” Bloomberg Government, 12 Feb. 2016, about.bgov.com/blog/that-time-george-washington-bought-an-election-with-160-gallons-of-booze-and-other-presidents-day-stories/.

[31] Mackinder, Evan. “Politics on Tap: Alcohol Producers Pour Out Campaign Cash for Parties – OpenSecrets Blog.” OpenSecrets, 23 Mar. 2011, www.opensecrets.org/news/2011/03/politics-on-tap/.

[32] Id.

[33] Id.

[34] Swindell, Bill. “California Brewers Assess Political, Business Challenges (w/Video).” Santa Rosa Press Democrat, 15 Nov. 2014, www.pressdemocrat.com/business/3059182-181/california-brewers-assess-political-business.

[35] Phillips-Fein, supra note 26.

[36] Id.

[37] Id.

[38] Id.

[39] Steinberg, Brian. “This Presidential Debate Is Brought to You by Budweiser.” Variety, Variety, 7 Oct. 2016, variety.com/2016/tv/news/presidential-debate-anheuser-busch-budweiser-trump-clinton-1201881568/.

[40] Phillips-Fein, supra note 26.

[41] Grim, Ryan. “This Bud’s Not For You: Beer Industry Battling California Pot Initiative.” The Huffington Post, TheHuffingtonPost.com, 25 May 2011, www.huffingtonpost.com/2010/09/21/this-buds-not-for-you-bee_n_732901.html.

[42] Id.

[43] Coolican, J. Patrick. “Beer Lobby Gives $10,000 To ‘No’ On Proposition 19 Pot Legalization.” L.A. Weekly, 21 Sept. 2010, www.laweekly.com/news/beer-lobby-gives-10-000-to-no-on-proposition-19-pot-legalization-2385120.

[44] Bill Text – AB-2573 Beer: Premiums, Gifts, and Free Goods., 26 May 2018, leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB2573.

[45] “California Glassware Bill Passes Assembly.” Brewers Association, 11 June 2018, www.brewersassociation.org/current-issues/california-glassware-bill-passes-assembly/.

[46] Supra note 44.

[47] “Evan Low’s Campaign Finances.” Vote Smart, https://votesmart.org/candidate/campaign-finance/70415/evan-low#.WzcCEMaZPzV

[48] Notte, Jason. “Partisan Politics Is Even Infecting the Craft Beer Industry.” MarketWatch, MarketWatch, 30 Mar. 2017, www.marketwatch.com/story/partisan-politics-is-even-infecting-the-craft-beer-industry-2017-03-30.

[49] “BreweryDB.com Guild: California Craft Brewers Association.” Base Camp Brewing Company : Beers : BreweryDB.com, www.brewerydb.com/guild/huKquc.

[50] “CCBA in Your Neighborhood.” California Craft Beer, 10 June 2016, www.californiacraftbeer.com/ccba-in-your-neighborhood/.

[51] Miller, Barbara. “Trade Associations and Political Activities – Is a PAC Right for You?” ORBA, 15 May 2015, www.orba.com/trade-associations-and-political-activities-is-a-pac-right-for-you/.

[52] Id.

[53] Croxall, Daniel. “More Tied-House Laws (Probably) Bite the First Amendment Dust: Independent Brewers Should Pay Attention.” Craft Beer Law Prof, 3 Feb. 2017, www.craftbeerprofessor.com/2017/02/tied-house-laws-probably-bite-first-amendment-dust-independent-brewers-pay-attention/; “Flying Dog Brewery Establishes Non-Profit To Advocate For First Amendment Rights.” Brew Studs, 11 May 2016, wearebrewstuds.com/stories/news/craft-beer-flying-dog-brewery-establishes-non-profit-advocate-first-amendment-rights/.

 

Many people lament big beer purchasing former craft breweries and folding them into the global collective. The reasons behind the aversion vary from person to person. I like to play a game whereby I send out a friend or a family member and ask that person to bring back some “craft beer” from the grocery store. Inevitably, that person brings back a Golden Road or a Saint Archer with a smile on his or her face like “see, I got ur craft beer.” I thank them politely and usually drink one with him or her (I wouldn’t want to be rude). Another fun game I play with my alcohol-free Research Assistant (shout out Paige) is I take a photo of the “craft beer” section of a retailer and ask her to pick out which of the breweries represented in the photo are actually independent. Inevitably, it’s very hard for a non-beer geek to pick out beer that is truly craft—i.e, truly independent.

So consumer confusion is one thing. It exists. It is real. It costs independent beer money. But that is not the main problem with Big Beer’s saltation into the craft world. The bigger problem has to do with price. This is where the starve out strategy comes into play. So when Big Beer buys a former craft brewery, one of the benefits is that Big Beer can brew that “same” beer (many folks would argue that the quality and flavor goes down) for significantly less cost than a true independent craft brewery could. What that means is that a former craft brewery (take Wicked Weed for example) might have been able to sell a half barrel for $190 dollars to see a minimal profit (depending on the ingredients and beer style, of course), but with the production efficiency and backing of Big Beer, that similar beer can now sell for $180 per half barrel (maybe even $170). Profits be damned.

That is the game, my friends. Big Beer can afford to sell its “craft beer” at a loss in perpetuity. And it plans to. Why would Big Beer do that, you ask? It’s actually kind of simple. Sell “like” beer at a loss for as long as it takes until an independent neighbor closes, then another, then another. Once the playing field is empty, guess what will be left: Elysian, 10 Barrel, Wicked Weed—all “craft” beer right? Big Beer is in this for the long game. Independent beer is a pesky mosquito to be swatted or starved out. Then things can return to normal.

If you don’t believe me, take Big Beer’s word for it. Recently, an AB-InBev spokesperson said during an interview that “I think the term [craft] will be gone in a couple years’ time.” Be wary, my friends. It’s so easy not to know who made your beer. Big Beer is hoping, actually it knows, that most people won’t care or won’t bother verifying. That’s the point. Don’t trust. Verify (Sorry Ronald).

And maybe it isn’t a bad thing that the term “craft” is (might be?) dead. Maybe it is time that independent brewers not even bother with that label—after all, it has been bought and/or stolen. Maybe independent craft brewers should just say “we are a brewery.” That might take some of the ammo away from Big Beer’s attempts to be something it is not. But then again, maybe that is playing into Big Beer’s hands. Maybe it desperately wants that term to go away. That way, it wouldn’t have to starve anybody out. And it could start making money on each half barrel tomorrow.

Let me know what you think. Cheers.

Alcoholic beverage control agencies across the U.S. prohibit inducements. That is, a brewery can’t “induce” a patron to buy a beer through means of solicitation, payment, free goods, or other things of value. For example, California Business & Professions Code section 24200.5(b) requires mandatory license revocation if a brewer allows “any persons to solicit or encourage others, directly or indirectly to buy drinks in the licensed premises under any commission, percentage, salary, or other profit-sharing plan, scheme, or conspiracy.” (Emphases added). There are other anti-inducement laws and regulations out there. Simple enough, right?

Not really. Independent craft beer is a community-minded lot. Brewers, patrons, hangers-on like me—we all tend to be down with various social causes. And as a whole, we are a very caring community. Most independent breweries donate beer to causes including such things as children’s causes, cancer research, and the list goes way on. Brewers: don’t do it until you are well-versed on the laws surrounding donations. Grass roots activities are one of the things that make this community so incredible.

But rules are rules—especially in beer. So one thing that has been giving me legal heartburn lately is whether “beer for causes” constitute an “inducement.” That is, people who are committed to certain causes might be likely, indeed way more likely, to purchase beer from a brewery that made a “beer for a cause,” especially if that cause gets a cut of the purchase price or profits (see how Section 24200.5(b) sneaks in?). I know that I have seen a brewery supporting a certain cause and thought to myself that I should hunt that beer down and buy it because I love that cause.

To the point. Is this an inducement? Did the brewery making a beer to support Parkinson’s disease, breast cancer research, or any other given cause induce me to buy that beer? I suppose as a technical matter, that “cause” might sway me to purchase one beer over another. Does that violate the ABC Act or the associated regulations?

I’m not aware of any ABC Board pronouncement on this issue (let me know if there is one). It seems to me that a strict reading of the anti-inducement laws suggests that “beers for a cause” in fact violate those laws and could lead to a fine, suspension, or revocation because they arguably “encourage” purchases and could be described as a “scheme” to sell that beer. I would hope, however, that the ABC would either (1) look the other way for these types of sales, or (2) issue a regulatory advisory or regulation saying that this conduct is just fine. Keep in mind that the ABC and the attendant regulations are what we call a “permissive statute.” That means that if the statute doesn’t say a licensee can do something, that licensee can’t do it. So without express permission, and in the face of statutes like Section 24200.5, are beers for a cause a violation? I don’t know. I hope not.

Cheers. Let me know what you think.

 

With the California legislative cycle coming to a close, California independent craft beer received an unexpected boost from Governor Brown. AB 2573, an Anheuser-Busch sponsored bill, passed the legislature. But last Wednesday (on the first day of the California Craft Brewers Association (“CCBA”) 2018 Summit), Governor Brown vetoed the bill with a nice explanation. More on that later.

AB 2573, as originally introduced, would have allowed a beer manufacturer to give a licensed retailer up to ten cases of glassware per brand every year. The CCBA, through its legislative efforts, was able to amend that bill to basically limit it to five cases per manufacturer per year. Seems innocuous enough, right? Not so much. Imagine if the deepest pockets in the industry were legally allowed to give away expensive glassware to any retail account it wished. Retailers would be flooded with those big, corporate brands’ glassware with the (wink, wink, nod, nod) hope that the retailer would reciprocate by pushing that manufacturer’s products.

Independent brewers cannot keep up with that. A simple Googleization shows that glassware is expensive—ranging from roughly $30.00 to $80.00 per case. And that is without etching or imprinting. The math should be clear. Contrary to popular perception, most craft breweries are operating under pretty tight margins. An expense such as this to keep the goodwill of certain retailers only plays into the hands of those extremely large breweries who can sneeze that kind of money. The rest would have been simply priced out of what would have amounted to little more than legalized pay-to-play. Independent craft beer simply doesn’t need another exception to tied-house. I am aware that some independent craft brewers wouldn’t have cared and might have welcomed the opportunity. But I believe this one could have really hurt some of the little guys and would have taken another bite out of an already exception-heavy tied house structure.

Back to Governor Brown. His explanation as to why he vetoed it is golden: “I also worry that this law creates an economic disadvantage for small beer manufacturers who might not be able to provide free glassware in the same manner as the larger manufacturers.” Right on. It’s nice to see that we have some folks in important government positions that are paying attention.

As a funny aside, I happened to be at the CCBA Summit on Wednesday. One of my craft beer law students, Katie Green, emailed me Governor Brown’s letter vetoing the bill right after it came out–like right after. Shortly after that, I ran into several friends who are important in the craft beer world. But they hadn’t heard yet. I got to break the news and see the happy reactions for the first time. Priceless. Thanks Katie.

Cheers and let me know what you think.