Craft brewer freedom: Ohio Craft Brewer Freedom Act seeks to exempt craft brewers from restrictive franchise law
Senator Andrew Brenner recently introduced the Ohio Craft Brewer Freedom Act – a law intended to allow small craft brewers to negotiate with distributors outside of the constrains of the Ohio Alcoholic Beverages Franchise Act. The Ohio Alcohol Franchise law, passed in 1974, was originally intended to protect a beer producer from unfair termination with a large wholesaler. See, e.g., R.C. § 1333.82. However, in practice – and particularly given the rise of the craft brewery movement over the last fifteen years – the franchise law has restricted the ability small craft brewers (and other small alcohol producers) to terminate an unfavorable contract with a wholesaler or fairly negotiate a new one.
Ohio has over 430 independently owned craft breweries that could be impacted by this law. Section 1333.84 of the Ohio Alcohol Franchise Law prohibits any manufacturer or distributor from “fail[ing] to act in good faith or without just cause in acting or purporting to act under the terms of a franchise or in cancelling or failing to renew a franchise,” among other requirements. "Just cause” is not defined in the law, leaving room for interpretation and disagreement, and often leaving the negotiating power the hands of large wholesaler. The Ohio Craft Brewer Freedom Act would exempt craft brewers that produce 250,000 bottles of beer or less from the law, freeing them to negotiate distribution contracts with wholesalers outside of the constrains of the law that is meant for larger business. Senator Brenner said of the law, “This bill is about small business owners having the freedom and flexibility to make the best decisions for their employees, brewery and customers.” The changes to the act are not extensive; the current law defines a “manufacturer” as “a person, whether located in this state or elsewhere, that manufactures or supplies alcoholic beverages to distributors in this state,” and the amendment would change the definition of manufacturer to exclude any person producing less than two hundred fifty thousand barrels of beer a year. See S.B. 138.
This bill and the advocacy efforts by Ohio’s craft brewers follow an extensive report in 2022 published by the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau on competition in the alcohol industry, which was a result of President Biden’s July 2021 Executive Order “Promoting Competition in the American Economy.” The executive order encouraged the Treasury Department to assess any unlawful trade practices in the alcohol industry, including any anticompetitive practices or patterns of consolidation. The report notes that while almost all states have franchise laws for beer, the franchise laws “often restrain competition by imposing restrictions on the ability of a producer to switch distributors, by, for example, barring a producer from terminating or declining to renew a contract with a distributor without “good cause” or “for cause,”[1] like Ohio’s current Alcohol Franchise Law. As the Treasury Department notes, requiring proof of “good cause” to leave a current wholesaler contract “reduces this competitive pressure by making it very challenging for suppliers to leave their current distributors. . . leading to higher consumer prices.” While the Ohio Craft Brewers Freedom Act focuses solely on craft brewers and does not include wine or spirits, it is likely the first step toward encouraging more healthy competition in the alcohol industry in Ohio.
[1] https://home.treasury.gov/system/files/136/Competition-Report.pdf
