Gov. Roy Cooper signs the Craft Beer Distribution & Modernization Act at Raleigh Brewing Co. on May 30.
After 14 years of legislative jockeying and debate, North Carolina’s craft brewers and wholesale distributors finally forged a compromise that will provide the beer-makers greater freedom to grow. Unfortunately, the move will take effect just as the public’s taste for suds appears to have peaked. It’s the marketplace, not regulation, that’s likely to govern craft brewing’s future, industry experts say.
“Overall, beer sales have been down in the last couple of years, but craft brewers have enjoyed a larger slice of the shrinking pie,” says Todd Ford who, with his wife, Suzie, founded Charlotte-based NoDa Brewing Co. in 2011. “We recognize the pie is getting smaller. We’re just dividing it up among ourselves.”
Signed into law in May by Gov. Roy Cooper, the Craft Beer Distribution & Modernization Act enables brewers such as NoDa to distribute as many as 50,000 barrels of beer a year on their own. After that, they’re required to sell through wholesale distributors. Previously, the limit was 25,000.
Under the new law, breweries that produce 50,000 to 100,000 barrels can distribute 50,000 before having to contract with one of the state’s roughly 25 distributors, says Tim Kent, executive director of the N.C. Beer & Wine Wholesalers Association. He calls it a “classic win-win situation for brewers and wholesalers.”
Despite the long-standing 25,000-barrel cap, the Tar Heel craft-brewing industry has exploded from 45 brewers in 2010 to 310 in 2019, says Richard Greene, executive director of the N.C. Craft Brewers Guild. About 12,000 people work in the industry, which has helped revive the downtown areas of several cities across the state.
The dispute that led to the new law has been brewing since 2005. That’s when the first of nine unsuccessful bills was introduced in the N.C. General Assembly, proposing to boost the amount of beer that smaller brewers would distribute on their own. Each bill met strong opposition from wholesalers, who historically have been big campaign contributors to state lawmakers.
While the new law applies to those 310 small brewers, it was largely driven by two concerns that argued the 25,000-barrel cap stunted their growth. NoDa and Olde Mecklenburg Brewery, also in Charlotte, in 2017 formed Craft Freedom, an ad hoc organization to challenge the law’s constitutionally. Olde Mecklenburg founder John Marrino argued the cap left him with “a business with no growth potential.”
Under pressure from state lawmakers to devise a solution to the years-old fight, the wholesalers and Craft Freedom reached a compromise earlier this year. How many brewers will benefit is uncertain. NoDa will produce about 16,000 barrels this year, though its production capacity is much larger.
“We’ve been waiting for this law to pass before we tackle any other larger territories,” Ford says. It employs about 50 people and has sales of “less than $10 million,” he says. “This will give us the ability to make decisions based on what’s right for our business rather than a one-size-fits-all strategy.”
Olde Mecklenburg’s Marrino says he also has waited for the higher cap. According to the Brewers Association, the brewery produced 20,335 barrels last year, off about 5% from the previous year, with sales topping $11 million.
The concept of dictating how much craft brewers can produce before requiring them to use a third-party distributor dates to the 1920s’ Prohibition era. That’s when the temperance movement drove the alcohol business underground, prompting states to create different systems of breweries, middle-men and retailers. By many measures, North Carolina’s plan was less restrictive than most Southern states’, according to industry officials.
Opinions vary on whether the law should exist at all. Some say yes, though reluctantly. “I’m a small-government guy, but where this gets complicated is alcoholic beverages are highly regulated, as they should be,” NoDa’s Ford says.
Adds Kent of the wholesaler group, “Alcohol is a controlled substance like tobacco or pharmaceutical drugs. It’s taxed by both the federal and state governments. We’re not making toothpaste, and if not used properly, it can have adverse effects on public health and safety.”
Others including Bill Sherrill, who founded Whitsett’s Red Oak Brewery in the early 1990s, insist the government shouldn’t tell private brewers how to sell their product. “It’s my beer; why should I have to sign it over to someone else by law?” For years, an electronic sign next to Sherrill’s brewery along Interstate 85 has blasted state lawmakers for inaction.
Some of the state’s most successful brewers use wholesalers and did not press for regulatory changes. “Highland Brewing in Asheville has been in business for 25 years, is the largest hometown brewer in the state along with Foothills [Brewing], located in Winston-Salem, and they’ve always used distributors,” Kent says.
Perhaps the state’s fastest-growing brewer, Catawba Brewing Co. in Morganton, distributes through wholesalers. Its 35,300 barrels last year represented a 94% increase from 2017, according to the Boulder, Colo.-based Brewers Association. Highland, with 46,500 barrels, increased 10% and Foothills, at 41,396, gained 2%.
Nationally, the Brewers Association says overall beer sales have declined five straight years as consumers switch to seltzers, ciders and similar drinks. Tar Heel craft brewers have about 20% market share by volume “and one view is that big beer is going to maintain about 80%,” says Greene of the brewers guild. If craft brewers can boost share to 30%, “there’s plenty of room to grow, and raising the cap will benefit some, though not all our [members].”
Higher self-distribution cap or not, craft beer’s days of rapid expansion in North Carolina seem numbered. That isn’t diminishing industry ambitions, however. “By and large, I’m still bullish on craft brewing,” Ford says.
“The higher cap will allow us to at least have some free-market forces on our product, but growth might be at someone else’s expense now. When we started in 2011, we were the second brewery in Charlotte. Now we’re one of 50 or 60. (About a dozen are in or near the city’s South End neighborhood.) We have to put out a better product and satisfy our customers. They’ll make the decisions on winners and losers, not some arbitrary law.”
