June 27, 2017

June 26, 2017

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Hops on the 'Bus: ABC Omnibus Legislation (HB 500)

House Bill 500 ("HB500"), pending in the North Carolina General Assembly, is a new bill of particular interest to the booming brewing industry in North Carolina.  Scheduled for its first vote in the Committee on Alcoholic Beverage Control tomorrow, April 11th, HB500 addresses a host of lingering inconsistencies and practical difficulties faced by North Carolina brewing industry members.  As currently written, HB500 covers the following:

Section 1 - Crowlers.  A "crowler" is a combination of "can" and "growler"—typically, consisting of a 32 ounce aluminum can that is filled to order.  Currently, the North Carolina Alcoholic Beverage Control Commission ("ABC Commission") only permits a crowler to be filled in the manufacturing area of a brewery as it is not "resealable."  In other words, crowlers are not permitted to be filled in an ABC licensed retail area.  HB 500 would remove the requirement that growlers be "resealable," which would permit a retail permit holder to then fill crowlers.  [Note: Oskar Blues, in the meantime, has developed a new top for crowlers that allows them to be resealed.]

Section 2 - Non-Contiguous Warehouses.  Under current state law, off-site storage of alcohol is not allowed for retail or commercial permittees.  This conflicts with federal law.  HB500, if approved, would reconcile this inconsistency and expressly permit off-site storage of alcohol.  Breweries, in particular, continue to grow at a rapid rate and often simply run out of space.  By allowing off-site storage, North Carolina producers would have more flexibility for growth, and would not be forced to move locations or open a second production location simply because the business has run out of space.

Section 3 - Elimination of "Food Menu" Requirement.  Under the current law, a retail permit holder that plans to sell wine (which, in North Carolina, also means cider) on the premises has to provide the ABC Commission with a written menu of prepared foods.  If approved, HB500 would allow a brewery, bottle shop, or any other retail permit holder to obtain an On-Premises Unfortified Wine permit without providing a "food menu." 

Section 4 - Tastings During Brewery Tours.  Breweries have been providing samples of product to tour visitors for as long as breweries have been in North Carolina.  There has always been a question, however, of whether that was permitted and, if so, under what provision it would be allowed.  HB500 would expressly permit a brewery to give products, either paid or complimentary, to a tour participant or any other visitor to the brewery.

Section 5 - Sensory Analysis.  It is common sense that a brewer has to analyze and monitor the product they are brewing.  Under current law, there is question as to whether this is legal.  HB500 would make it clear that a brewery can provide sensory analysis of its product in the commercially permitted portion of the premises (i.e., the brewery).

Section 6 - Homebrewing Competitions.  Homebrewing is popular in North Carolina. So are homebrewing competitions. HB500 makes it clear that a homebrewer can make, possess, and transport wines and malt beverages for the individual's own use, the use of their family, guests, organized affairs, exhibitions, or competitions where feedback can be provided.  The prohibition on selling homebrew, directly or indirectly, would remain in place. 

Section 7 - Breweries, Retail Taprooms and Associated Retail Locations.  North Carolina law prohibits a brewery from giving anything of value (such as money, services, equipment, furniture, fixtures, etc.) to an alcoholic beverage retailer in North Carolina.  But, North Carolina also allows a brewery to have retail locations. Under current law, there is confusion in the nature of this relationship.  HB500 would revise the law to make clear that the prohibition against a brewery giving anything of value to a "retailer" does not include a brewery’s own onsite taproom or its permitted additional offsite retail locations.

Section 8 - Brewery Taprooms to Sell Other Alcoholic Beverages.  HB500 would (finally) make it clear that a brewery may sell any alcoholic beverage at its onsite taproom that is approved in North Carolina, after receiving the appropriate retail permit.  In other words, if the proposed clarification passes, a brewery taproom would not be limited to only selling the brewery's own products.

Section 9 - Multi State Breweries.  Some breweries have production facilities in multiple states—for example, New Belgium Brewing, Oskar Blues, and Sierra Nevada are located in North Carolina and other jurisdictions.  Currently, an in-state brewery can receive beer from an out-of-state brewery, but only for transshipment to wholesalers in other states.  HB500 would revise the law to allow a brewery to receive beer from an out-of-state brewery for ultimate shipment to a wholesaler within or outside of the state.

Section 10 - Farm Breweries.  In another cleanup provision, HB500 would achieve parity between farm wineries and farm breweries with respect to sales at the production location.  A farm brewery could sell beer for on- or off-premises consumption at the brewery, regardless of any local law.  In order to qualify for the exemption, the brewery would have to produce agricultural products, such as barley or other grains, hops, or fruit, used by the brewery in the production of beer.

Section 11 - Self Distribution Cap Increase to 200,000 bbl.  The pending bills would increase the self-distribution cap from 25,000 bbl to 100,000 bbl.  HB500 takes this as step further, and proposes to increase the cap to 200,000 bbl.

Section 12 - Small Brewery Termination Rights.  Under current law, a "small brewery" may terminate a franchise (distribution relationship) upon five (5) days' notice to the wholesaler.  In addition, the terminating small brewery is required to pay the wholesaler the "fair market value" of the franchise.  Determinations of fair market value can be unpredictable, timely, and costly.  HB500 would eliminate the five (5) days' notice requirement.  It also expressly allows the parties to predetermine, contractually, the fair market value of the franchise.  Finally, this section provides that if the parties cannot determine fair compensation within twelve (12) months, the parties must submit the dispute to arbitration.  These changes would not impact the ability of any size brewery to terminate a distribution relationship for good cause.

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About this Author

Derek Allen, Ward and Smith Law Firm, Alcoholic Beverage and Land Use Attorney

Derek leads the Alcoholic Beverage Law, Real Estate Development, and Zoning and Land Use practices.  He has extensive experience with craft breweries ranging in size from small startups to those with national distribution. His practice includes representation of craft breweries, wineries, and distilleries in a wide range of permitting, regulatory, and trade issues.  Derek has experience in all aspects of civil litigation, including depositions, hearings, mediations, arbitrations, jury trials, and appeals. He advises clients and litigates cases involving all forms...

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