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Maryland's Reform on Tap Task Force Comes to an End

This past spring saw the emergence of a contentious legislative fight in Maryland over HB 1283 between brewers on one side and their counterparts in the three tier system, wholesalers and retailers, on the other. In its original form, HB 1283 would have brought new restrictions on craft breweries in Maryland that could have severely harmed the craft beer industry in the state. Thankfully, due to public outcry, the worst aspects of the bill were able to be modified in the Senate before final passage (via a backroom negotiation between the Brewers Association of Maryland (BAM) and the Maryland State Licensed Beverage Association (MSLBA)). In the aftermath of these events, including some odd side-lining of the Committee Chairmen who oversee alcohol regulation, Comptroller Franchot announced the formation of the Reform on Tap Task Force, whose goal would be to push for reform of Maryland’s beer laws. The Comptroller announced his findings at the final Task Force meeting today in Annapolis. In lieu of its conclusion, DCBeer decided to interview the various participants and stakeholders of the Task Force and get their perspective on its work and what comes next.

Carly Ogden, co-founder of Attaboy Beer, explained what HB 1283 meant for her business:

We were already closing at 10PM, and aren’t expecting to move beyond selling 2,000 barrels out of our taproom, so there wasn’t an immediate impact. However, we are a small brewery. Why should our larger Maryland breweries employing many more people be held to these same limits? Other states have much better laws; there is no reason for the protectionist viewpoint of Maryland.

She went on to explain that her and her husband moved to Maryland from California, where the model for craft breweries is much more liberal, “adopting that model in Maryland would help local suppliers, job growth, and tax revenue.” Carly decided to participate in the Task Force because of her vision for Frederick, which is hopefully to help [the City] evolve into another beer tourist destination like Asheville, NC. She believes that bills like HB 1283, and other restrictions, will cause breweries to decide to not start-up in Maryland, and points to Flying Dog’s announcement that they will no longer move forward with their large expansion because of the bill and the atmosphere around beer regulation in the state. Given what the wholesalers and retailers association did last legislative session, Carly says, “It’s tough to sit here and find value in the three tier system, but [at any rate] it should be voluntary.

Throughout the summer, Carly was one of the more vocal Task Force participants on the brewer’s side of the table. Part of that had to do with Attaboy being a newer brewery that currently self distributes. “There was chatter [about] some breweries being threatened by their wholesalers,” so Carly felt the need to speak up more on their behalf. Despite the many sessions of the Task Force, which covered issues such as tap room limits, self-distribution, beer franchise law, contract brewing, and more, there didn’t appear to be any forward progress in reaching greater understanding or compromise among the Task Force participants. Nonetheless, Attaboy argues there was value in the process because it helped the public to really understand the beer industry and created publicity to support changes. In Carly’s mind, those changes will include an end to barrel limits for tap room sales and self-distribution and a move of operating hours back to local jurisdiction control. “That will benefit the most Marylanders. Local beer dollars go right back into our communities. I have no doubt that [these changes] will happen. We don’t need to ask the distributors or retailers for permission to change things. The information is now out there, the legislature will make this right.”

Leslie Schaller of Bond Distributing pushed back against the idea that the Reform on Tap Task Force was a truly representative effort (at least from the start), explaining that: “Inclusion of the wholesalers was an 11th hour decision. The four wholesalers were included prior to the launch, after the Comptroller’s Office realized the 2nd tier had been omitted. In the interest of  legitimacy and transparency to the process, the inclusion of the wholesaler tier was essential.” This oversight, along with Comptroller Franchot’s rather outspoken comments about the HB 1283 process, lead the wholesalers to believe that their primary imperative during the Task Force meetings was to “highlight the value of the  three tier system, given its proven benefit since the inception post-Prohibition and explain the value that distributors brought to not only the breweries but to the retailers and consumers as well. Many craft brewers [clearly] understand the value which the distributors bring to market, but others might not be as aware. Each tier brings some level of intrinsic of value to the beer market.” During the Task Force meetings, a number of breweries spoke quite glowingly about Bond and other distributors at the table, but they also explained that reforms were necessary to address bad actors in the tier. In contrast to Carly’s comments above, Leslie suggests that multiple craft breweries do have reservations about this reform process, but are not comfortable speaking out against their fellow members.

Leslie is more sanguine about whether the Task Force was a worthwhile endeavor, arguing that, “It was an interesting foray. The distributors were honored to have been included in an exercise representing thousands of Marylanders employed by Maryland's beer distributors and retailers…I’m not sure that Franchot knew the Pandora’s box he was opening when he put this together. Up to and when his recommendations come out, being fully aware of what they [are likely to be], we shall see. Franchot has no ability to enact  legislative change but certainly hopes to effectuate and promulgate his agenda.” Bond was not willing to further comment on what it (or the other wholesalers) believes the purpose of the Task Force was, but having attended many of the meetings, I can tell you that the wholesaler personnel in the audience were deeply skeptical of the process. Leslie declined to offer any specific reforms that the wholesalers might be alright with but stated that, “[We can have] conversations on a myriad of subjects. The wholesalers have previously been willing to change limits for self-distribution; we are not obstinate. There are probably a whole host of topics we can have conversations about.” Looking at the changes in the market, with greater segmentation among craft breweries and a decline in macro beer sales, Leslie disagreed that there needed to be changes in the regulatory structure:

That is not necessarily required. There is not some finite limit on the number of wholesalers that can open and come to market. Others can apply for a license, acquire a truck and some storage space, and go into business. My family started Bond 68 years ago with just a single truck. Three different times in Bond’s history we were close to closing, but [we]pushed through. The barrier to entry from a regulatory perspective is not daunting.

Bond also provided some historical perspective on why the distribution tier has consolidated so much in Maryland, explaining that, “The wholesaler consolidation happened because as breweries consolidated they wanted larger partners with greater scale, so several single brewery distributors found it difficult to survive. Some of the recent exits are driven by the realities of the craft breweries. With macros losing market share, and scale being spread out, some distributors have to work harder in the craft segment and decide to leave.” Thankfully, “neither legacy Miller Brewing Company, nor legacy Coors Brewing Company, had put pressure on their distributors to remain singularly-focused, unlike AB-InBev had historically, which allowed those wholesalers to grow.” This helps to explain Bond’s current strong position in their market. The wholesalers don’t have any specific legislative priorities in place for the 2018 Maryland legislative session and are looking to see what recommendations Comptroller Franchot releases.

Kevin Atticks, Executive Director of the Brewers Association of Maryland (BAM), considers the Task Force to be "a good first step in reaching a consensus on how to grow this important manufacturing sector. The Comptroller’s Task Force, for the first time, commissioned a report on the economic impact of this Maryland industry. The work of the highly respected Maryland Board of Revenue Estimates (BRE) is particularly useful.” In a report to the Task Force, the BRE found that for every $20,000 in revenue generated by Maryland’s craft brewers, 1.36 state jobs and an additional $47,410 in wages and $132,000 in economic output are created. “This has been a hidden success story up to now,” said Atticks.  “BAM believes the issue now is how to build on the growth that has occurred and how Maryland can catch up to its neighboring states that are experiencing even higher rates of growth and higher economic activity from their craft brewers.”

Just like in other sectors of the economy, states compete to attract new jobs and new private sector investment in their brewing industry. Throughout the Task Force meetings several participants, most notably Liz Murphy of Naptown Pint, has made it clear that Virginia is actively recruiting existing and startup breweries in Maryland.  Atticks explained that, "the BRE indicates that Maryland lags behind its neighboring states not only in the number and size of breweries, but also in the amount of domestically produced beer sold to Maryland customers. The amount of Maryland beer produced could grow 400 percent if Marylanders had the same access to their local beer that citizens in neighboring states enjoy."  

Members of BAM have been discussing the need for reform with legislators throughout the Task Force process. Atticks did state that, “There is great energy among many legislators to evolve the laws.” Not being privy to what the Comptroller is about to propose, BAM is discussing with its members what reforms are top priority and whether to re-introduce the 2017 Brewery Modernization Bill. BAM has retained the firm of Rifkin, Weiner, Livingston LLC to represent them before the Maryland legislature during the 2018 session. Kevin noted that Maryland beer fans will play a crucial role in Maryland’s ongoing reform efforts. “Get connected with BAM on Facebook and via Marylandbeer.org to keep informed about the effort to expand Maryland breweries and produce and sell more Maryland beer. In the meantime, keep supporting local beer one pint, can, or crowler at a time."

Len Foxwell, Chief of Staff to Comptroller Franchot, is decidedly more enthusiastic about what the Task Force process has accomplished than the other participants and stakeholders, claiming that, “As a result of what has occurred this summer [and fall], we will be able to introduce model legislation that will pass. If we do this right, breweries will be able to make more beer, distributors will be able to deliver more beer, and retailers will be able to see more beer…all three tiers will benefit.” The Comptroller is set to introduce his findings this Wednesday, which will be an aggregation of all the presentations that occurred during the Task Force meetings and include a comparative analysis of Maryland laws versus those of its neighbors. Those findings will be followed up later on this month, when Comptroller Franchot will introduce the Reform on Tap Act of 2018. In the best case scenario, the bill will pass in 2018. However, the Comptroller’s Office is realistic that the more likely scenario “is that the bill doesn’t pass, and then it becomes an issue in the 2018 State race.”  Foxwell encourages Maryland beer fans to “continue to participate in the Task Force process. [The meetings] are open to the public and will be livestreamed on Facebook. Once legislation is introduced, contact your state representative. These are good jobs, rebuilding manufacturing, good for tourism.”

On the topic of introducing legislation, during the course of my research, a number of staffers who support reform and work for local Maryland politicians have expressed skepticism about Comptroller Franchot being the face of that effort. Franchot remains deeply unpopular among members of the Maryland legislature, and there is a lot of concern that while the Comptroller’s Office may genuinely support the Maryland craft industry, Franchot’s efforts have more to do with raising his political profile in the state. Len responded defiantly to these criticisms:

While Comptroller Franchot was Maryland’s leading vote-getter in the 2014 statewide elections…this movement isn’t about him.  Nor is it about the Annapolis bosses and the usual game of politics-as-usual.

This movement has everything to do with raising public awareness of the extraordinary contributions that Maryland’s craft brewers make to our state...It has everything to do with changing Maryland’s dysfunctional beer laws that protect corporate monopolies while giving our state a national reputation for being hostile to this innovative industry.  A reputation that led Flying Dog to halt its plans for a major expansion in Frederick County.  A reputation that has relegated Maryland to dead last in our region in the size and growth of our craft beer industry, and has encouraged Virginia’s governor to actively recruit Maryland’s brewers to cross the Potomac.

[We need to build] a fresh new approach that will make Maryland the leading state in the nation for locally-sourced craft beer, with the community and economic benefits that will result from our success.  Given the opportunities and the stakes, Comptroller Franchot believes this will be a leading issue – if not THE leading issue – in the 2018 Maryland General Assembly.

For those readers who have been following along with this issue, I thank you for taking the time to focus on the topic of beer reform law. I know that this isn’t as exciting as discussing the latest jooce bomb or barrel-aged reserve release, but regulations are important to the business of craft beer. There are a number of headwinds facing the national and local craft beer industry right now, but the one that dedicated beer fans can have the most impact on is the legal regime under which craft breweries have to operate. In the coming weeks, we will provide coverage and analysis of the beer reform bill(s) being introduced in Maryland. Please stay tuned, and make sure to let your legislators know how you feel about this issue.

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