Pennsylvania currently operates under a three-tier beer distribution system which has been in place since the end of Prohibition. The first tier is made up of brewers who are restricted to selling their beer to wholesale distributors, the second tier, who sell the products to stores, restaurants, and bars, the retailers on the third tier, who then sell the beer to the rest of us. Under current Pennsylvania law, wholesalers on the second tier are protected by franchise laws, which permit the wholesale distributors to maintain a monopoly over beer distribution in Pennsylvania. For example, say you have a brewery in the Commonwealth and you decide you want your beer sold in ABC Restaurant, but the wholesaler, Wholesaler #1, doesn’t want to sell your beer to ABC Restaurant. You find another distributor, Wholesaler #2, who is willing to selling your beer to ABC Restaurant. So, you just sell your beer to Wholesaler #2, right? No, can’t do that. This is because your contract with Wholesaler #1 is exclusive and lifelong, and where and to whom your beer is sold to is not up to you. It’s the wholesalers, and not the brewery, who decide which stores, restaurants and bars are permitted to sell certain types of beer. Feel like there’s no hope left?
Enter House Bill 1666, introduced by Pennsylvania State Representative Mike Tobash. House Bill 1666 seeks to reform these antiquated franchise laws and allow brewers to end impractical lifelong contracts and permit more new brewers to enter into the marketplace. While the proposed law does not ask for the eradication of franchise laws, it does require brewers and wholesalers to renegotiate their contracts every five (5) years, and permits brewers to terminate their contract with the wholesaler with or without cause, depending on the circumstances. The Bill also seeks to put a cap of seventy-five thousand (75,000) barrels on the amount of beer that a Pennsylvania-based brewery can distribute on its own. If approved by the House Liquor Control Committee, the bill will move to the House floor for vote.
For more information on Stark & Stark’s Beer & Spirits Group, please click here.