“Mo Money Mo Problems:” How the Post-Mortem Right of Publicity Affects Craft Brewers

  1. Introduction

I once went to a taproom with an array of eighty self-serve beer taps. It was initially difficult to pick a beer from the eighty options. But soon, one caught my eye: North Coast Brewing Company’s “Brother Thelonious Belgian Style Abbey Ale.” The beer cleverly invoked the name of legendary jazz pianist Thelonious Monk and prominently featured him on the label with a snifter of ale. Being a fan of Thelonious Monk, picking a beer became an easy choice.

A Nielsen Holdings study affirms my taproom experience, finding sixty-six percent of American craft beer buyers believe a beer’s label—instead of reputation or price—is “extremely” important for grabbing their attention. In a crowded market with limited shelf space, a standout label is a great way to distinguish the beer and promote sales. And what better way is there to bring in customers than putting a famous person on the label? The practice is astonishingly common; for example, a quick web search presents dozens of The Notorious B.I.G. inspired beers (e.g. Notorious H.O.P, Notorious P.O.G., Notorious B.I.G., Hoppy Smalls, Big Poppa).

But a brewer using the name and likeness of a deceased celebrity presents right of publicity issues that outweigh the commercial benefits. The right of publicity is the “right of a person whose identity has commercial value . . . to control the commercial use of that identity.” See Waits v. Frito-Lay, Inc., 498 F.2d 1093, 1098 (9th Cir.1992). Celebrities have a property interest in their identities because their identities are “valuable in the promotion of products” and “unauthorized commercial exploitation” of their identities threatens their rights. White v. Samsung Electronics America, Inc., 971 F.2d 1395, 1398 (9th Cir. 1992). California has a common law version and a statutory version of the doctrine. The common law version does not survive death, but the statutory version applies post-mortem.

It is imperative that craft brewers understand the post-mortem right of publicity and tread lightly with deceased celebrity-based beer brands. When brewers ignore the right of publicity, they expose themselves to legal and financial costs associated with the misappropriation of a celebrity’s name and likeness. For example, North Coast Brewing Company recently had to settle for an undisclosed amount with Thelonious Monk, Jr. because it misappropriated the name and likeness of Thelonious Monk, Sr. on “Brother Thelonious” merchandise. Furthermore, if a brewer manages to defend their brand as a parody, other brewers are free to riff on the brand’s name and label. Guest Lecture with Mike Kanach, Intellectual Property Partner, Gordon, Rees, Scully & Mansukhani (June 27, 2020). As a result, other brewers can capture the initial market advantage of the celebrity-based beer. While there are technically ways to avoid harm when using a celebrity’s name and likeness, the best practice is to not have a dead celebrity-based beer because the financial risks are significant.

The Right of Publicity: California Civil Code § 3334.1 and The First Amendment

California Civil Code § 3334.1 provides that users of a deceased personality’s name or likeness for commercial purposes without prior consent are liable to the holder of the decedent’s right of publicity for damages resulting from that unconsented use. See Cal. Civ. Code § 3334.1. However, there are defenses under the First Amendment to the right of publicity. See Comedy III Productions, Inc. v. Gary Saderup, Inc. 25 Cal. 4th 387, 405–07 (2001).

  1. The Statutory Right of Publicity

California Civil Code § 3334.1 makes users of a “deceased personality[’s]” name or likeness on products, or in advertising or sales, liable for $750 or any damages the use causes—including lost profits—if they use the name or likeness without consent of the decedent’s estate. Cal. Civ. Code § 3334.1(a), (c). The injured party measures lost profits with the gross revenue attributable to the use of the personality. Cal. Civ. Code § 3334.1(a). The statute defines “deceased personality” as a person whose “name, voice, signature, photograph, or likeness has commercial value at the time of his or her death, or because of his or her death.” Cal. Civ. Code § 3334.1(h). The use of the decedent’s name or likeness must be “directly connected” to a commercial purpose. Cal. Civ. Code § 3334.1(k).

When a brewer uses a deceased personality on its beer’s label or brand name without consent from the decedent’s estate, it risks financial and legal costs from the misappropriation of the celebrity’s identity. For example, a brewer uses The Notorious B.I.G.’s name or likeness on it’s beer label or as the beer’s name without asking for permission from The Notorious B.I.G.’s estate which then sues the brewer under § 3334.1. These uses qualify as an unconsented use of Biggie’s personality that is directly connected to a commercial use because the name or likeness is on the product itself and promotes sale of the beer. The brewer would have to halt production and sales of the beer and may have to dump any remaining beer at the end of the lawsuit. Furthermore, a brewer using The Notorious B.I.G. on a beer’s label or brand name would cause his estate damages. The damages include gross revenue attributable to the use of The Notorious B.I.G.’s name or likeness and any noneconomic damages. The prevailing party receives attorney’s fees and costs, so if the brewer loses the case, it must pay these costs in addition to its own attorney’s fees. As a result, it is easy to see how a brewer could financially suffer through its unconsented use of a dead celebrity’s identity because lost profits, noneconomic damages, dumping the beer, attorney’s fees and costs add up to substantial sums of money. Most brewers in this scenario can only survive by settling the case, but even settlements can set brewers back considerably.

The Ninth Circuit has held that § 3334.1 only applies to people domiciled in California at the time of death. See Cairns v. Franklin Mint Co., 292 F.3d 1139, 1147, 1149 (9th Cir. 2002). In Cairns, an American mint produced coins with Princess Diana on them, and the Princess’s estate sued the mint under § 3334.1. Id. at 1144. The Court explained British law on the right of publicity applied instead of § 3334.1 because the right of publicity is a personal property right and California law makes personal property rights dependent on the law of the plaintiff’s domicile unless another law provides otherwise. Id. at 1149. Thus, Princess Diana’s estate could not recover damages because Great Britain—her domicile—did not recognize the post-mortem right. Id. at 1149. However, one court recently reframed the law, suggesting there is a claim under § 3334.1 if the decedent’s domicile at the time of death recognizes the post-mortem right of publicity. See Bravado Int’l Grp. Merchandising Servs. v. Gear Launch, Inc., 2018 WL 6017035, 9 (C.D. Cal. 2018).

Under Cairns, using a dead celebrity’s image is outside the scope of § 3334.1 if the celebrity’s domicile was not California when they died. Cairns, 292 F.3d at 1149. However, a celebrity’s estate may have a claim under the Bravadointerpretation of § 3334.1 if the celebrity’s domicile at the time of death offers a post-mortem right of publicity. See Bravado Int’l Grp. Merchandising Servs., 2018 WL 6017035 at 9. Continuing our Notorious B.I.G. example, New York law on the right of publicity would govern under Cairns, while § 3334.1 may apply under the more recent Bravado holding. Given the Bravado holding, a shift in the law is possible, so brewers must be careful when using a dead celebrity’s identity without consent even if they died domiciled outside of California. Otherwise, brewers expose themselves to liability and might divest themselves of their profits.

  1. The First Amendment Defense

Brewers may avoid financial ruin under a First Amendment defense after using a dead celebrity’s personality for a beer brand or label without consent. Because the statute does not exempt beer brands or labels, celebrity-based beers may only receive protection as a parody. To qualify as a parody, the beer brand or label must contain “significant transformative elements” beyond celebrity likeness or its “value . . . [must] not derive primarily from the celebrity’s fame.” See Comedy III Productions, Inc., 25 Cal. 4th at 407 (2001).

“Transformative elements” hinge on whether the work “adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” Comedy III Productions, Inc., 25 Cal. 4th at 404. In Comedy III, an artist sketched The Three Stooges and sold merchandise bearing their image, causing the owner of their rights of publicity to sue for misappropriation of their identities. Id. at 407. The Court held that the work was not transformative because it literally resembled the Stooges rather than transforming their images into something more than celebrity likeness. Id. at 409. The Court explained that the focus is on whether the defendant transforms the celebrity’s likeness such that it becomes the defendant’s own creative expression. Id. at 406. Thus, the artist could not claim his work was transformative because he simply “[created] a conventional portrait of a celebrity so as to commercially exploit” the celebrity’s fame. Id. at 408. Conversely, in ETW Corp. v. Jireh Publishing, Inc., the Sixth Circuit held that a painting commemorating Tiger Woods’s victory at the Augusta Masters Tournament was transformative because the work did not simply depict Woods but combined other images “to describe, in artistic form, a historic event in sports history and convey a message about the significance of Woods’s achievement.” See ETW Corp. v. Jireh Publishing, Inc., 332 F.3d 915, 938 (6th Cir. 2003).

However, a court is unlikely to consider most celebrity-based beer brands and labels to be transformative because their names and artwork are not clearly making a commentary or critique. For example, one Biggie-inspired beer—simply called “Notorious B.I.G.”—provides no commentary and instead copies the rapper’s name. Another example is a beer called “Label Us Notorious”—a lyric from The Notorious B.I.G.—featuring a silhouette image of The Notorious B.I.G. behind a microphone. It is unclear if this beer qualifies as a parody because its artwork does not “transform” Biggie’s image beyond his likeness. Rather, it appears the brewery is simply pulling from the original source to benefit off of the celebrity’s likeness. Furthermore, the commentary provided is not readily apparent other than the brewer touting its notoriety. As a result, the beer brand likely commercially exploits The Notorious B.I.G.’s identity. However, if a brewer made a brand or label that is a distinct expression depicting more than The Notorious B.I.G.’s likeness and conveying a significant message, the brewer may prevail. In short, if a brewer is going to parody a celebrity without permission, they not only should expect a lawsuit, but also, they should be good at parodying in a transformative manner.

If a brewer successfully defends their beer as a parody, the brewer will avoid financial loss associated with the lawsuit because the losing party must cover the brewer’s costs. However, the brewer risks other losses because it is unclear if the brewer has intellectual property protections in the brand and label since the beer brand is a riff on existing intellectual property. (Guest Lecture with Mike Kanach.) In theory, a brewer should receive protection since it made a sufficiently expressive and new mark, but protections remain uncertain which allows others to copy the parody. (Guest Lecture with Mike Kanach.)

III. How Craft Brewers Can Avoid Issues with the Right of Publicity

Craft brewers can avoid liability from the right of publicity if they sufficiently parody the celebrity. However, parody does not avoid the issue but invites it. Instead of leaning on parody, brewers often blatantly appropriate the name and likeness of celebrities in “one-off runs” and sell small batches of beer from their taprooms over a short period of time. Typically, the beer is gone and the sale is over before the brewer receives a cease and desist letter. Serving small amounts of beer exclusively in the taproom allows brewers to market it as a limited-edition offer. Additionally, serving beers from the taproom often involves no artwork invoking the likeness of the celebrity, and if it does it can simply be a parody or rework. Furthermore, the profits generated in these one-offs are miniscule in comparison to continuous sales, which reduces the incentive of filing a lawsuit because the gross revenue does not outweigh the costs of a lawsuit. In that sense, it really is “Mo Money Mo Problems.”

Even so, one-off runs are not advisable because stealing other’s intellectual property is financially and legally risky and ethically questionable. Brewers should not make this behavior a regular practice because continuous appropriation of other’s property makes right of publicity holders and courts less likely to be forgiving in future litigation. Rather, if a brewer seeks to use the name and likeness of a dead celebrity, it would be prudent for the brewer to reach out to the holder of the celebrity’s right of publicity and enter into a licensing agreement to avoid future lawsuits. Still, an agreement does not guarantee zero right of publicity issues; for example, North Coast had an agreement with Thelonious Monk, Jr. before their lawsuit regarding “Brother Thelonious Abbey Ale.” Instead, the best way to avoid issues is to simply not appropriate the name and likeness of a dead celebrity at all. By not using a deceased personality, brewers entirely avoid any potential issues associated with the post-mortem right of publicity.

  1. Conclusion

Right of publicity challenges outweigh the commercial benefits of using a deceased personality in beer brands and labels. If brewers ignore the post-mortem right of publicity, they risk financial harm because the statutory right of publicity prevents future sales and redeems lost profits, noneconomic damages, attorney’s fees, and costs. There are ways to avoid this fallout through parody, but just because a brewer can defend a brand in a lawsuit does not mean it should because parody allows other brewers to riff on the brand, diluting the commercial advantage of the initial parodist. Furthermore, brewers may limit production and sell the celebrity-based beers only in their taproom as a one-off run to disincentivize a lawsuit because a one-off small batch sale limits the profits that the estate could recover. However, this behavior still exposes craft brewers to legal challenges from often well-financed owners of a post-mortem right of publicity. Brewers can avoid issues from the unconsented use of a deceased personality by contacting the holder of the right of publicity and making a written licensing agreement to use the name and likeness of the celebrity on the beer and associated merchandise. But this can sometimes devolve into legal battles that can also harm brewers and divest them of profits. Thus, the best way to avoid issues is by simply not having a dead celebrity-based beer brand at all.

Aloha everyone. As per my custom, below is an unedited  paper written by Tracy Dudick (a rockstar evening student at McGeorge) during my last Craft Beer Law class. This paper examines the sometimes complex relationship between craft beer and legal cannabis.  While there are some similar studies out there, Ms. Dudick provides some great insights and ideas.  See below

Craft Beer and Cannabis Can Coexist

There has been a shift in consumer choice and what is considered culturally acceptable when it comes to legal intoxication. Where nights that used to be filled with a case of domestic beer and joints of a friend’s uncle’s marijuana, now involve a twelve pack of local craft beer and a stop by the neighborhood dispensary. Even more recently with the coronavirus pandemic, the cannabis industry has reached a new level of legitimacy – as cannabis, as a whole, was deemed an “essential” part of life nationwide.

As the cannabis industry continues on the road to legalization, it has been predicted legal marijuana usage could adversely impact the demand for alcohol. However, data suggests legalization in the short term has not affected craft beer sales. In fact, these fears are predominately felt by Big Beer and further pushed through media outlets to create hesitation among the alcohol industry to support marijuana legalization.[1] Despite this rising fear, it seems local craft breweries and some of the world’s largest macro-breweries are leaning into the cannabis industry. At this point, there is no reason to think cannabis and craft beer cannot peacefully coexist, or even support one another.

  1. Craft Beer and Cannabis Can Coexist.

As a preliminary note, marijuana and hops are cousins in the plant world. Cannabis and craft beer are both products of counterculture – where craft brewers have fought for their place in the beer industry, cannabis continues on a slow and uncertain road to legalization. Unlike craft beer, the marijuana industry’s approach to start-up cultivation is considerably more difficult because of higher entrance barriers and stricter regulations.[2] Specifically, the federal government remains marijuana’s most prominent barrier to reaching its full potential. While craft beer is successful at navigating regulatory hurdles, the industry still faces blockades from all levels of government that hinder its true growth.

When the craft brewing industry emerged, the focus departed from America’s typical macro lager and shifted to traditional styles from Europe.[3] This departure led to craft brewers competing to make stronger beers, which subsequently led to greater consumer choice. The craft beer industry’s ability for innovation allows them to offer new products that give consumers choices they previously did not know existed, thus uncovering preferences they did not even know they had. Alike, cannabis innovation can come from anywhere – a grower in their garage or a corporate lab.

According to BDS Analytics, a cannabis market research company, 54% of cannabis users drink beer; however, about half of the cannabis consumers who drank alcohol do not view the two products appropriate for the same occasion.[4] In fact, over a sixth month study, BDS found only 13% of cannabis consumers said they paired marijuana with craft beer. Nevertheless, 68% of cannabis users said their consumption of craft beer stayed the same.[5] Therefore, the evidence suggests the craft beer drinker is not substituting craft beer for a cannabis product – but rather consumes different products at different times.

However, this is not necessarily true in Canada, where marijuana has been fully legal nationwide since October 2018.[6] According to analysts at Wall Street’s Cowen and Co., they believe Canadians are smoking more marijuana than drinking beer because beer sales dropped off by nearly 6.8% in March 2019, which at the time, was the most significant hit in over two years.[7] Moreover, analysts directly connect Canada’s fading interest in beer to the country’s move to legalize marijuana.[8] However, it begs the question if this data considers the considerable change in the beer market in Canada – where mass-marketed, light-bodied lager are on the decline and craft beer is on a rise. Can one really blame it on the weed?

Maybe not. Bob Pease, president and CEO of the Brewers Association, believes the brewing sector is only getting bigger in states that have legalized marijuana – specifically in Colorado, California and Washington. For example, Colorado was one of the first states to legalize marijuana for recreational use and beer sales have not shown any signs of being in jeopardy.[9] In fact, Colorado broke a beer sales state record last year – consuming 1.6 million more gallons of beer than the same month in 2018.[10] A major reason for this boost was lifting the state restrictions – where beer had a 3.2 percent ABV cap on beer sold in retail outlets. Notably, the Colorado cannabis industry recently broke a sales record in March 2019 – further supporting the argument that craft beer and marijuana can live together in harmony.[11]

Furthermore, this arbitrary fear pushed into the media of legal marijuana negatively affecting the beer industry is predominately Big Beer’s fear. In the past decade, Americans have experienced a change in taste regarding food and drink – with farm to fork menus, craft cocktails, and craft beer at the forefront of this change.[12] When Big Beer faced a drastic decrease in the market share, they began to unfairly influence the marketplace by purchasing ownership interest in craft breweries in order to penetrate the market and recover its lost market share.[13] Just like craft beer, Big beer also likely views legalization of marijuana a threat to its market place. Big beer has and continues to lobby against the legalization for fear of a competitive threat.[14] Therefore, it makes sense Big Beer would push against legalization for fear of losing anything more than they already have.

2.  Does Co-Existence Include the Combination?

Now that we have established the growing industries can co-exist in the world of legal intoxication, but can they be combined? In 2017, alcohol infused with hemp or cannabis became a new phenomenon and craft beer circumvented regulatory hurdles and federal prohibition by making a beer that only had cannabinoids and does not contain THC – the psychoactive property of cannabis.[15] But as of 2019, infused beverages only made up a mere 2 to 3 percent of total sales – indicating the possibility that consumers do not want to consume their cannabis the same way they consume beer.

However, the coronavirus pandemic has also impacted consumption behavior recently. As of April 2020, cannabis infused beverage sales have increased by 14%, which is a big jump for the category. The change in consumer sales is seemingly based on the fact the virus attacks the respiratory system, so consumers prefer to eat or drink their cannabis instead of smoking or vaping it.[16] Despite the recent jump in consumption of infused drinks, it is still unclear whether consumers are demanding the infusion of craft beer and cannabis – but that has not stopped Big Beer from investing.

Although most of Big Beer lives in fear of legalization, the large alcohol craft beer acquirers are taking a more progressive approach. Specifically, Big Beer has invested significant money in the cannabis industry, partnering with large legal marijuana producers to invest in cannabis beverage ventures.[17] For example, in 2018, Molson Coors took a controlling stake in a joint venture with a licensed pot producer in Canada. Anheuser-Busch InBev put $50 million toward a similar joint venture with the British Columbia-based Tilray. Lagunitas, now owned by Heineken already sells a hop-flavored, pot-infused sparkling water at marijuana dispensaries, in partnership with Sonoma’s CannaCraft. Constellation Brands, which includes Corona and Modelo, threw down nearly $4 billion — the biggest investment in the history of marijuana — on a 38 percent share in the largest Canadian marijuana producer.[18] For a market player to actively lobby against legalization, these investments beg questions of Big Beer’s intent. Most likely, the reality is Big Beer is trying to break into the market to help increase the slow, steady decline from the past couple decades. However, the logistics of doing this at a commercial level are nearly absurd, as the regulation at state and federal levels are uncertain and unclear. Thus, craft beer should not be concerned with Big Beer’s overwhelming investment. The newly formed relationship between cannabis and Big Beer seems comparable to a business executive marrying a trophy spouse – where appearances seem fun but even if it works, it will most likely be short lived. As legalization continues to change the regulatory environments in states, and eventually the federal government, the production of cannabis-infused beer is on the rise, but it will take time to see if they are here to stay.

Despite the fear peddled by Big Beer, there is no evidence to suggest craft beer and cannabis cannot co-exist in the world of legal intoxication. As consumer palates evolve and counterculture makes its way into culture, we will likely see more of the two industries working in harmony, rather than in competition. Although the change in consumption may demand more batches of cannabis-themed beer, regulatory uncertainty still remains, particularly with the combining THC with alcoholic beverages. As craft brewers and craft growers continue to advance in their innovations, it seems most reasonable for the two industries to support each other as they combat Big Beer and regulatory barriers.

[1] Hayley Peterson, Yep, Marijuana Legalization is Bad News for Beer Sales, SLATE (Dec. 7, 2016),

http://www.slate.com/blogs/business_insider/2016/12/07/beer_sales_take_a_hit_in

_states_where_marijuana_is_legal.html (“The data indicates that many beer drinkers are swapping their six-packs for marijuana instead”, then later citing that mainstream beer sales are down more than craft beer sales. Id.).

[2] Jim Tankersley, How Pot and Hippie Beer Explain the Future of the American Economy, THE WASH. POST (Nov. 7, 2015), https://www.washingtonpost.com/news/wonk/wp/2015/11/07/in-the-land-ofmicrobrews-and-marijuana/?utm_term=.36889bdcc11c

[3] Newman, Tyler, Escape from the Underground: Lessons to the cannabis industry from craft beer, The Growler (Mar. 27, 2018) https://growlermag.com/escape-from-the-underground-lessons-to-the-cannabis-industry-from-craft-beer/

[4] Kendall, Justin, Beer Institute Examines the Marijuana Industry During Annual Meeting (Jun. 13, 2018)   https://www.brewbound.com/news/beer-institute-examines-marijuana-industry-annual-meeting

[5] Id.

[6] Hauser, Lyle, Canada’s legalization of marijuana offers a blueprint for the U.S. (Mar. 22, 2019) https://www.statnews.com/2019/03/22/canada-legalize-marijuana-lessons-united-states/

[7] Adams, Mike, Is Legal Marijuana Hurting Beer Sales Or Helping Them? (May 21, 2019) https://www.forbes.com/sites/mikeadams/2019/05/21/is-legal-marijuana-hurting-beer-sales-or-helping-them/#6358947f47bd

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] 5 N. DAVEY NEAL, CURRENT AND FUTURE ISSUES FACING LOCAL BREWERS AND VINTNERS (2015), 2015 WL 9875437, at *3.

[13] Eileen Faust, Fast Fact About the Merger of Anheuser-Busch InBev and SABMiller, THE MORNING CALL (Oct. 5, 2016) http://www.mcall.com/business/getsmart/mc-fast-facts-about-anheuser-buschinbev-merger-20161005-story.html; For a full list of craft breweries purchased by AB InBev, see The Cut Off – List of Imposter Craft Beer Brands, BREW STUDS, http://wearebrewstuds.com/craft-beer-cut-off/

[14] Scheherazade Daneshkhu and Lindsay Whipp, US Drinks Industry Ponders Effect of Cannabis Legalization, FINANCIAL TIMES (Nov. 25, 2016) note 105 (specifically citing Boston Beer Company, though calling themselves craft beer, as another Big Beer conglomerate).

[15] Press Release, Malkin Law, Cannabis Infused Alcohol (Feb. 14, 2017), http://www.malkinlawfirm.com/cannabis-infused-alcohol/. While hemp-infused beer is technically legal, the regulations by the federal government are abundant: This adds to the already tedious amount of regulations which brewers must face every day).

[16] Salarizadeh, Cynthia, Cannabis Consumer Behavior Alters With Covid-19 Quarantine: Edibles & Drinks Surge (April 3, 2020) https://www.greenmarketreport.com/cannabis-consumer-behavior-alters-with-covid-19-quarantine-edibles-drinks-surge/

[17] Alicia Wallace, Alcohol Goliath Pours $190M into Canadian Cannabis Company, THE CANNABIST (Oct. 30, 2017), http://www.thecannabist.co/2017/10/30/constellation-marijuana-investmentcanopy/91171/.

[18]Lewis, Amanda Chicago, Big Alcohol is pouring billions into the drinkable marijuana market. But is that how anybody wants to get high? (July 30, 2019) https://www.theverge.com/2019/7/30/18639829/weed-beer-drinkable-marijuana-cannabis-drinks-alcohol

 

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.