Thanks to Elliot Ginsburg & Erin Conway for their contribution. Elliot and Erin are associates at the law firm W. Michael Garner, P.A. (www.franchisedealerlaw.com). W. Michael Garner, P.A. specializes in franchise, dealer, and distribution law, and the firm has also done legal work for breweries. As we see a proliferation of taprooms in Minnesota, I think one of our next steps needs to involve addressing how brewpubs in the state have grown and evolved. Read on for a legal perspective on brewpub distribution. Cheers!

By Elliot Ginsburg[1] and Erin Conway[2]

Introduction

Generally, states divide the alcohol industry into three tiers: manufacturing, distribution, and retail.  Historically, this was done to prevent large manufacturers from vertically and horizontally integrating, thereby reducing competition and choice, and increasing price.[3]  If brewers could own wholesalers, for example, they could push out competing brewers and increase prices artificially.  The three-tier system was also embraced by many states to encourage moderate consumption and an orderly collection of tax revenue.[4]  The key to the three-tier system is that no business operating in any one tier can have an interest in a business in any other tier.[5]

While some argue that the three-tier system is antiquated and no longer serves a purpose,[6] presumably, the three-tier system is not going anywhere for the foreseeable future.

Brewpubs, however, do not fit neatly into any one tier.  Brewpubs operate as manufacturers in the sense that they brew beer for off-site consumption, and they also operate as retailers in the sense that they sell beer directly to consumers.[7]  In some states, brewpubs can distribute their brews through wholesalers to other retail facilities[8] but many states allow brewpubs to sell beer only on-site for on-premises or off-premises consumption.  Minnesota, for example, allows brewpubs to sell beer only on-site for either on-site consumption, or off-site consumption in growlers or large bottles.[9]  Thus, Minnesota brewpubs are more like retailers than traditional “production brewers.”  Production brewers produce beer and self-distribute or sell their brews to wholesalers who then sell to liquor stores and bars to sell to consumers.

Minnesota brewpubs, including Minneapolis Town Hall Brewery and Fitger’s Brewhouse, tried to pass a law in 2011 to allow brewpubs to distribute their beers through wholesalers.  The Minnesota Beer Wholesalers Association (the “MBWA”) opposed this legislation for reasons discussed below and the bill did not make it out of committee.

The question that this article addresses is whether brewpubs in Minnesota can find a way to distribute their brews through wholesalers, while maintaining the integrity of the three-tier system and allaying the MBWA’s concerns.