Heartland Brewers Battling Against Government Overreach

In between running a growing business and serving on the Nebraska Brewers Guild, Kim Kavulak, co-owner of Nebraska Brewing Co., is battling against the repeal of a reform passed just last year.

The 2016 legislation was a collaborative effort among multiple alcohol-related industries, resulting in the defeat of 83 years of special-interest regulations stemming from prohibition. The game-changing reform opened markets for local brewers, granted property rights absent since 1920, and — more importantly — spurred innovation and job growth across Nebraska.

One year later, brewers are scrambling to save last year’s reform from a bill drafted in secrecy between wholesalers and the very same state legislator who sponsored last year’s free-enterprise bill.

LB1105, sponsored by Sen. Tyson Larson passed 45-2 in 2016. A major part of the bill allowed breweries to operate up to five total retail locations per license, moving beer between their locations without a distributor. If a brewery brewed more than 20,000 barrels of beer a year, the law let breweries keep ownership of their retail locations, where in the past all retail or brewpub locations would need to be closed or sold, destroying dozens of jobs in the process.

Although the change may seem trivial, in the world of alcohol regulations brewers face some of the most arcane regulations, governing nearly every step from production to bringing beer to market. Even the smallest reform in licensing or securing property rights could be a game changer for brewers trying to expand their businesses and keeping up with demand ahead of the competition.

Should the recently introduced LB632 become law, Nebraska brewers would once again be in danger of losing business and sacrificing jobs in the face of stifling regulations. It would mean halted growth and having to rethink hiring expectations, perhaps even layoffs. The bill would create capricious hurdles for how beer could be distributed and sold in the Cornhusker State.

“We were completely caught off guard,” Kavulak said. “We had no notice any legislation was going to be brought up this year. Neither the Brewers Guild or the state Liquor Control Commission were consulted.”

“Come January 18, the last day to introduce legislation, we face a legal battle with disastrous consequences for small brewers across the state,” he added.

Adding to the surprise, neither Sen. Larson nor the state Wholesaler Association would speak to the Brewers Guild for weeks after multiple requests for clarification.

“We had no idea why he would do this, and still have no idea for the motivation behind this complete turnaround by Sen. Larson.” Kavulak added. “Last year, brewers brought together wholesalers, the state Liquor Control Commission, and legislators to the table to negotiate the unopposed reform. Now, without notice we find ourselves shocked that an unopposed bill would be slated for repeal one year later. This bill threatens dozens of brewers growth so we all felt compelled to take action.”

Wholesalers across the country have deep lobbying roots and deep pockets to oppose any free market-oriented regulation. Typically, wholesalers draft and support legislation that forces brewers to use wholesaler services law. Brewers and wholesalers are fighting over basic private property rights in North CarolinaTexas, and Florida.

The laws that small brewers are trying to have repealed are the same laws large corporations such as Budweiser, Miller and Coors have used since prohibition to squelch competition. The excuses are many but supporters of these prohibition era regulations will cite safety concerns, health issues, and “fairness.” However, these laws have nothing to do with any those issues and everything to do with lobbying to create a state-sanctioned monopoly at the expense of entrepreneurs, consumers and economic opportunity.

Brewers like Kim Kavulak say they only want to pursue their craft free from coercion. These entrepreneurs are only looking to sell a quality product while creating a responsible and lively culture around our beloved brews. Kavulak has enough on her plate as a small business owner without having to battle against billion-dollar companies using politics at the expense of others.

Be on the lookout for KillTheBill events in Nebraska, but odds are no matter where you live local brewers are brewing up a battle for liberty and may soon need your support too!

To hear the interview on the “Free To Brew” podcast with Kim Kavulak click here.

(Colum first printed at Opportunity Lives)

Expanding Liberty in South Carolina

Brook Brostow played a major role in liberalizing the South Carolina Pub Laws. Bringing about huge momentum of new and local breweries dotting South Carolina now. Who ever imagined being able to drink beer at the brewery that made it!? South Carolina Still has a long way to go but the evidence is already there, more Liberty equals more opportunity!

Bristow Beverage Law

A Brave New Market for Startups

Local Raleigh attorney John R. Szymankiewicz of the Beer Law Center, joins the show! Tune in to find out first and foremost the annunciation of his name. Once that is clear we dive into what a startup brewery has to contend with regarding regulations and hindrances in the market and how a creative and knowledgeable attorney plays a pivotal role in success in this highly regulated industry.

For more information about what John and the Beer Law Center can accomplish for your startup brewery go to the website at Beerlawcenter.com

Also follow them on Twitter: @beerlawcenter

The Government Destroyed Another Beneficial Relationship

Breweries and Distributors Are Not at Odds, When Markets Are Voluntary

  • A healthy relationship between adults is no different than a relationship between two businesses.
  • Brewers and distributors are natural companions when left to voluntary means.
  • Government involvement creates adversaries.

Relationships should be built upon voluntary choice, promoting mutual respect and mutually beneficial outcomes. In these unions both parties are better off with each other, than they are alone. Voluntary relationships can create tremendous value to this world, however these only exist when parties are free to associate, finding cooperation at the right time, place, and manner.

If this makes perfect sense in personal relationships, why then is there disconnect when we think about business relationships, such as breweries and distributors? More specifically, the25,000-barrel self-distribution cap involuntarily imposed on local brewers by North Carolina.

North Carolina state law forces brewers to hand over 100 percent of their distribution rights to a third party once they produce 25,000 barrels.

In the voluntary market, breweries oftentimes find themselves in need of distribution services outside of their own capacity. Breweries may be growing too fast for their self-distribution efforts, they may be unfamiliar in a new market, or decide they can cut costs by using a third party.

Other entrepreneurs see this opportunity and offer their expertise in distribution, competing against other distributors to help solve this problem confronting breweries. Oftentimes forgotten, distributors are also competing with the breweries’ right to say “no” should they not benefit and keep distribution in-house in a voluntary market.

Forcing relationships between breweries and distributors makes at least one party in the relationship worse off. But that is exactly what North Carolina has mandated upon brewers via multiple antiquated regulations. Wholesaler and big-beer company lobbyists are using the law to benefit themselves at the expense of smaller brewers and consumers. These groups have framed the debate, pitting what should be two mutually-beneficial parties against each other as adversaries.

Lobbyists and legislators have utilized adversarial tactics to make brewers and distributors look as if they are at war with each other. There really is no other outcome if policy continues to use the strong arm of the government to penalize and take away the rights of brewers to self-distribute their product over 25,000 barrels.

Relationships in which one party benefits only at the expense of the other party are often referred to as “zero-sum” relationships. A zero-sum-game mentality fails to see how both parties actually benefit from voluntary interactions.

Absent coercion, zero-sum relationships rarely if ever exist. If one party were to suffer or be made worse off in a relationship, then it wouldn’t happen or it would quickly end.  Mistakes are made and bad things do happen, though in a voluntary market there are always choices elsewhere.

In addition to self-distribution, there are many other liquor- and beer-related laws needing to be reconsidered. As it stands now, breweries have little to no rights if they make a mistake when forced to pick a distributor. Laws supported by the wholesalers’ union make ending a relationship with a distributor either illegal or so expensive the brewer is forced to maintain the inefficient partnership.

“In a free market, the two industries can benefit tremendously from each other.”

The difficulty when talking about this issue is that no brewer wants to make it look like distributors are not wanted in some capacity. In a free voluntary market, the two industries can benefit tremendously from each other.

However, wholesale union leaders are very happy to make it look like the breweries are the problem. Wholesalers fought raising the alcohol limit cap that passed in 2006. Now they allege brewers at the 25,000 cap are trying to push out smaller brewers and destroy public health all because it is apparently “greedy” to want to sell and market your own creation the way you as a business owner see fit.

It seems hypocritical to insinuate another party as controlling or greedy when in fact it’s wholesalers utilizing the force of the government to push brewers around. And it’s not just in North Carolina. Check out wholesaler claims in Florida, Massachusetts, and Texas in the past few years.

As long as we allow government the power to destroy beneficial relationships, lobbying will go on. It’s time for brewers to get their rights back to choose their own methods of distribution. Then, once the government is out of the way, distributors and brewers can finally find the relationship they are looking for at the right time for both – ensuring our beer is made and distributed by a happy marriage, not one born of cheap political tricks.

Your brewery is successful. Now hand it over!

  • North Carolina state law forces brewers to hand over 100% of their distribution rights to a 3rd party once they produce more than 25,000 barrels
  • This cap hurts a growing industry by artificially favoring the large brewing companies
  • Government has no right to tell businesses how to sell and distribute their products

Can you name an industry that is forced to hand over all sale rights if too many people enjoy its product? That is, punished because it’s too creative, innovative and successful?  In North Carolina, it is the local craft brewing industry being punished with a state law handcuffing its very growth.

Craft Freedom events held across the state of North Carolina last week turned out opposition to North Carolina’s archaic distribution cap law. The law places a 25,000-barrel cap on self-distribution. Once a brewery produces 25,000 barrels of beer it is forced to hand over 100% of all distribution rights to a third-party distributor.

This cap is anti-competitive from its roots, as it stymies growth for all North Carolina brewers, violates the rights of brewers and beer drinkers, and undermines the freedom of association.

Just what is the distribution cap? Since Prohibition ended in 1933, the federal government left states to largely regulate alcohol on their own with some exceptions. Nearly all states adopted a three-tier distribution system, supported in part by large breweries in the name of tax revenue and safety. This three-tier system forces the producers of beer to use a middleman – or wholesaler/distributor – to deliver their product to a retailer instead of direct sales from brewer to retailer. The pretext was that without it people would drink way too much, small brewers couldn’t reach market and it would be impossible to collect taxes.

The real effect of the system was a huge decline in the number of breweries in the United States, from 766 in 1935 to 89 total in 1978. It was not until the government legalized home brewing in 1978, along with many states adopting brewpub exceptions and increasing or eliminating distribution caps to the three-tier system, that we began to see the surge in micro-brewing. Now the nation boasts 4,000-plus breweries.

As you can imagine, the middlemen must get paid, and in addition federal and state governments collect taxes on both ends of the transaction. Laws requiring third-party distributors impose greater costs on brewers. This money ultimately comes out of beer drinkers’ pockets, while hampering craft brewers from growing and selling more product to people who want it.

Additionally, the law hinders small brewers’ marketing and ability to stand out. A distributor will also carry between 50-150 products from other companies. It is hard enough to build brand loyalty for one product, let alone 100. Getting the word out about your company, your unique story, and why someone should buy your product in the first place may be the toughest part of a business, even on top of the onerous laws and regulations small businesses have to navigate through. If a growing craft beer is forced to be just one of a hundred brands the third-party wholesaler distributes, there is little chance its story will be told. Adding more hurdles to an already competitive market is no way to start and grow a company.

Then there is the question whether a distributor will favor a small, growing company over a giant competitor? Recent news suggests InBev (Budweiser) is financially incentivizing distributors to carry over 98 percent InBev product, then buying up larger craft brewers so local distributors can achieve the 98 percent-plus mark by still offering some type of micro brew but still paying InBev. With limited shelf and tap space available, small brewers are at a disadvantage when they are forced to use a middleman being incentivized by Budweiser. Think they’ll get a fair shot at prime shelf space?

That’s why craft, micro-brewers and customers so strongly oppose North Carolina’s 25,000-barrel distribution cap: They are forced to use a monopolistic system controlled and supported by the state government and large crony corporations. These small businesses have unique products and systems of distribution, they have created unique brand loyalty, and they are growing exponentially due to their success (which was not guaranteed). Their success is in part due to their ability to self-distribute, but once they become somewhat successful, brewers are faced with an arbitrary government-forced cap.

These laws can even hurt small, growing brewers well before the 25,000-barrel cap. Brewers may be forced to make costly growth decisions, opting for lower-capacity equipment instead of growing with the expectation of higher volume.

The owner of Brooklyn Brewery, Steve Hindy, in a 2004 interview with Beverage Industry Magazine stated he did not think he could have competed against the large giants in the Brooklyn market without self-distribution. It is not surprising that large well-known craft brewers originated in states like Colorado, California or Washington that have either no distribution cap or one much higher.

It is the success afforded under self-distribution that promotes growth of the company and the economy in the region. Self-distribution allows brewers to share their story, create brand loyalty, ensure product quality, hear directly from their customers, and be a part of the community wherever that may be.

The law even hurts the state as a whole. North Carolina brewers in general, like Fly Trap in Wilmington, agree that a rising tide lifts all boats, with thriving North Carolina brewers attracting more tourists and name recognition to local cities.

Small breweries create a product and atmosphere that customers enjoy tremendously and therefore pay for gladly, they create value where before there was none, and they utilize innovative and new ways to create a product that 30 years ago we thought could only come in regular and light. It is as a result of all this that we see economic growth and productive jobs in the end.

Government caps on self-distribution of beer harms productivity, creativity, and job growth across the state. Government at any level has no right to interfere with how a small business can sell its product at market, and tend to only create unintended consequences far worse than the original so-called problem. Let the brewers choose their path, not be forced by politicians to conform to a government-sponsored monopoly.