Craft breweries file suit against state barrel limit

Complaint filed one week after failed negotiations with distributors

Eamon Queeney—North State Journal
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RALEIGH — After several failed attempts at finding compromise through legislation and private negotiations, North Carolina craft breweries have turned to the courts to resolve state limits that that they say are a constitutional infringement on their businesses.Craft Freedom, along with founding Charlotte-based brewing companies NoDa and Olde Mecklenburg (OMB), filed a complaint in Wake County Superior Court on Monday challenging a current law that requires brewers to use a third-party distributor if they exceed a 25,000 annual barrel limit.The motion argues that the law, “punishes craft breweries for their own success by forcing them to hand over the rights to distribute their own beer.”The barrel limit was established in 2003, prior to the craft beer boom in North Carolina. Today, the state hosts more than 200 breweries, many of which were established in the last several years.NoDa and OMB say that they have been forced to ignore demand and restrict sales in order to avoid losing meaningful control over company sales, brand and distribution.”It seems that the principles of free markets and reducing regulations on small businesses has fallen on deaf ears by those who claim to value it the most,” said Craft Freedom in a statement Monday morning. The organization represents dozens of independent breweries across the state.The N.C. Beer and Wine Wholesalers Association (NBWA), however, has lobbied hard against the measure, claiming that a three-tier distribution system helps ensure fair pricing and variety in stores. NBWA argues that craft brewers actually benefit from the system by not having to invest in expensive trucks, warehouses and sales teams.But supporters of the Craft Freedom movement say the decision to use a distributor should be a personal business choice, not a government mandate.Last month, after strong push-back from wholesalers, the General Assembly gutted a piece of legislation that would have raised the annual limit from 25,000 to 200,000. After the compromise fell through, NoDa and Olde Mecklenburg founders expressed that while they hoped to avoid it, legal action might be on the table.Rep. John Bradford (R-Mecklenburg), who’s home district would benefit from a proposed $10 million OMB expansion, said brewers met privately with NBWA representative Tim Kent last Monday in one last attempt to reach a compromise on industry reforms.Bradford said he did not attend the meeting but that he personally delivered the offer from brewers to Kent prior to the sit-down, asking for the annual limit to be raised to 60,000 — a major step back from the 200,000 limit originally proposed in House Bill 500 in April.After the meeting, brewers told Bradford they had negotiated down to a 50,000-barrel cap with exemptions for beer sold at tap rooms and out of state. Brewers left feeling good about the discussion, but the NBWA board later rejected the most vital term: raising the limit, a decision Bradford said is just plain dumb.”They are playing Russian roulette with a loaded gun,” said Bradford. “A lawsuit will cost brewers time and money, but they have everything to gain. If I’m a distributor, I’d want to recognize what is at risk.”Exactly one week later, brewers filed suit, retaining judicial heavyweight Bob Orr as primary council.”After many years of going down the legislative path, we’re left with no other option to protect our business than through the court system,” tweeted NoDa Brewing Company following the announcement.The Craft Freedom movement has significant support from nonprofit, free-market organizations including the Civitas Institute and the National Federation of Independent Businesses. Grover Norquist, president of Americans for Tax Reform, has called the cap a “glaring example of harmful regulation that inflicts economic harm while serving no purpose other than pure protectionism.”Bradford said he hopes this lawsuit will bring wholesalers back to the table, as they should realize brewers are not bluffing.”I’d tell the distributors to take a long, hard look at this complaint,” said Bradford. “The keys to the kingdom lie in the oligopoly, and if that is ruled unconstitutional, their whole business model is at risk — they could lose everything.”