CKE Attorneys Attend Craft Brewers Conference in Nashville

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From April 30 to May 3, 2018, attorneys Evan Pitchford and Zach Page of Conkle, Kremer & Engel attended the Brewers Association’s Craft Brewers Conference in Nashville, Tennessee.  The Conference, with nearly 15,000 attendees, is the premier trade show, educational, and networking event for the craft brewing industry.  At the Conference, Mr. Pitchford and Mr. Page participated in numerous business and legal affairs seminars and conferred with brewery operators and executives, suppliers, attorneys, accountants, and consultants from California and across the country.

While the main theme of the Conference was solidarity and cooperation between independent craft brewers and their networks, prominent legal and business issues discussed among attendees often focused on the increasingly crowded space of the craft beer market.  This increasing competition has resulted in intellectual property conflicts and disputes (for example, regarding trademarks for brewery names or branding for particular beers) that craft brewers need to plan around when starting their business and expanding their portfolios.  CK&E has attorneys like Mr. Page and Mr. Pitchford who are experienced in assisting clients in selecting, registering, and enforcing trademarks and trade dress in many consumer product industries.

Another hot business topic concerned distribution models for small breweries.  In several states (including California), self-distribution is available for small breweries (California allows for self-distribution regardless of volume), but as our previous blog noted, oftentimes a small brewery reaches a point where it cannot handle its own distribution and must seek out a distributor.  And, of course, in many other states, self-distribution is not permitted at all, necessitating the involvement of a distributor when a brewery wishes to sell draught beer or package their products.  Many small breweries are concerned not only with the myriad choices of distributors, but also with finding a distributor that is the right fit and will actively promote their portfolio, and with the often restrictive laws that are involved in manufacturer-distribution relationships.  Breweries should certainly be choosy about their distributors when possible, and in many jurisdictions there are an array of potential contractual provisions (for example, regarding sales goals, chain vs. independent accounts or other account stratification, marketing, plans for brand growth, audits, etc.) that can help shape a distributor relationship before it starts.  It pays to consider and discuss as many contractual parameters as possible before signing a distribution agreement.

Additional hot topics at the Craft Brewers Conference included new Tax and Trade Bureau funding for enforcement, government regulations of taprooms and brewpubs, off-premise sales, and licenses for short-term out-of-state sales (e.g. for festivals or competitions).  As the craft brewing industry continues to grow in footprint and sophistication, look for business and legal issues to be pushed even further to the forefront of the discussion.

Contact Conkle, Kremer & Engel for assistance with your brewery business or distribution needs.

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The “Fourth Tier” of Beer: Internet Sales and Direct-to-Consumer Delivery

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In previous posts, we discussed the background of the three-tier system of alcohol sales in the United States – manufacturer (or importer), distributor, and retailer.  For the beer consumer, historically this has meant purchasing beer immediately, in person, at a restaurant, bar or liquor store.  Each state has its own licensing requirements and operational rules for such brick-and-mortar sites selling beer.  But with the ubiquity and borderless nature of the internet, what some call the “fourth tier” of craft beer sales is rapidly taking root.  Following models previously used in the wine industry, several beer delivery websites and cell phone apps are now available, with the proprietors often providing “services” to otherwise licensed beer sellers (i.e. not taking legal possession of or selling the products themselves, but instead acting as service-providers to the licensed sellers).  For regional brands without an expansive distribution footprint, and for the craft beer lovers who seek out those regional beers, this is a promising development.

States have begun to reshape their policies and laws to accommodate this relatively new direct-to-consumer beer delivery conduit.  As can be expected in this early developmental stage, there is a wide range of permitted activity among the different states.  The most permissive regulations in a small number of states allow suppliers, both in-state and out-of-state, to make unlimited shipments for consumers’ personal use.  Other states require suppliers to obtain a simple permit in order to ship beer direct to consumers.  Certain states only permit direct-to-consumer shipments from in-state breweries, along with outbound shipments to out-of-state consumers.  Some states allow outbound shipments to other states but no in-state shipments whatsoever.  Several states prohibit direct-to-consumer shipments of beer altogether.  Perhaps needless to say, potential international sales present an entirely different set of complications.

In California, beer (not wine, which is treated differently) can be sold directly to consumers via the internet with certain restrictions.  These restrictions are not directed at the internet as a sales medium per se – instead, the restrictions stem more from the historical requirements placed on importation and off-premises alcohol retailers.  (See, e.g., California Business and Professions Code §§ 23661 and 23671.)  With respect to retail sales, the seller must already be licensed to sell beer in California by “traditional” means.  First, the seller must have a licensed brick-and-mortar location in California.  Second, the seller must keep their inventory at that particular location (i.e. no shipments directly from the seller’s suppliers).  Third, the seller has to sell (or at least be able to sell) products at that location itself and not solely online – in other words, the seller must have a real in-person sales facility, not just a warehouse to service internet sales.  (See 4 California Code of Regulations § 27.)  With respect to sales directly from California-based beer manufacturers, the California ABC has determined that “as a matter of policy,” beer manufacturers are permitted to make online sales of beer to consumers.  (See Form ABC-409.)  It remains to be seen, however, if California will continue to allow beer delivery websites and apps to operate under the auspices of “services” or if additional requirements will be imposed on such providers.  (It’s also worth noting that the U.S. Postal Service will not transport alcohol – that must be done through a private carrier.)

It is easy to see that anyone wishing to distribute beer by online sales, especially across state lines, can quickly put themselves at risk of regulatory or legal issues.  If you are a brewery, retailer, or beer delivery service that wishes to engage in internet or other direct-to-consumer sales, it is advisable to contact qualified counsel for assistance before beginning or expanding such service.

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