Craft Brewers Sue For the Right to Distribute Own Product

A law in NC says once they've sold more than 25,000 barrels in a year, they're required to give up pricing and sales control of their products to a wholesaler.

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RALEIGH, N.C. (AP) — Once a North Carolina brewer sells about enough beer to fill an Olympic-size swimming pool in any given year, state law says it must hand over distribution to another company. Attorneys for two growing craft breweries argued Tuesday that's unconstitutional.

Lawyers for Olde Mecklenburg Brewery and Noda Brewing Co. filed a lawsuit in 2017 after failing for years to get state legislators to change the beer distribution law — a change opposed by beer wholesalers who represent one of the state's most powerful political interest groups.

The Charlotte breweries claim the law is unconstitutional because once they've sold more than 25,000 barrels in a year, they're required to give up pricing and sales control of their products to middlemen for virtually as long as their beers are brewed. Brewers hitting that limit must sell everything to a wholesaler, which then sells to stores or taverns.

"This is an economic protectionism scheme designed to enrich one private party at the expense of another; a private party that contributes millions of dollars in campaign contributions to this General Assembly," attorney Andrew Erteschik said.

The political-action committee affiliated with the North Carolina Beer & Wine Wholesalers Association gave more than $500,000 to political candidates of both parties and the parties themselves in the five years prior to this election year, according to state campaign finance records. Executives of the state's roughly two dozen wholesalers gave more.

Officers of the wholesalers group, one of the state's oldest trade associations, did not respond to messages seeking comment.

Erteschik said the law violates constitutional provisions allowing people to enjoy the fruit of their labors by barring breweries that become successful from choosing whether to keep delivering their own beer through their own networks or making a business decision to outsource that work to others.

A state attorney defending the law said if the lawsuit isn't dismissed, a special panel of three judges should examine the constitutional challenge to the overall beer distribution law, not just how it applies to a few breweries. State Justice Department attorney Matthew Tulchin also said alcoholic beverage and gambling businesses are in industries in which extra regulations are reasonable in order to protect broader community values.

Superior Court Judge Allen Baddour said he would consider the arguments and rule later.

North Carolina's three-tier system of beer sales was created after Prohibition in the 1930s, in part to keep big breweries from limiting competition and consumer choice by locking up distribution. Since then, major breweries and in-state wholesalers have gotten vastly bigger through consolidation.

The law positions distributors to serve the growing craft beer market while overall sales have been flat for a generation. A new generation of brewers innovating with hops, malt and unexpected flavors like basil have been growing. Craft beer had 12 percent of the U.S. beer market in 2016, according to the Brewers Association, a Colorado-based trade group.