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..