First, any discussion of beer distribution in the United States must begin with the repeal of prohibition and the states’ implementation of the “three-tier” system, which was discussed in a previous post. The three-tier system generally requires beer producers to sell to wholesalers who in turn sell to retailers (comprised of both on-sale establishments like pubs and off-sale establishments like bottle shops). The chief purpose of this layered approach is to limit beer producers’ control over and promotion of the retail sale of their products. While this structure has its roots in the temperance movement, the three-tier system has had the effect in recent decades of allowing smaller craft breweries to flourish due to its inherent checks on monopolization. However, as the number of beer brands proliferates, wholesalers and retailers cannot realistically be expected to carry all such brands, and self-distribution for many brands is the only effective way to bring product to market.
Fortunately, within the three-tier system, the states are permitted their own sets of rules. While many states require the manufacturer, the wholesale, and the retailer to be completely independent of one another with no common ownership (and therefore permit no self-distribution), other states blur the three-tier system by allowing for retailers to buy beer directly from manufacturers, and some states allow for a beer manufacturer to own its own legally-distinct distribution company. About half of states currently set an upper threshold on self-distribution (i.e. up to a certain annual barrel production level), with a smaller number allowing self-distribution regardless of capacity.
California is currently one of the more generous self-distribution states, allowing licensed California retailers to purchase alcoholic beverages for resale from licensed California beer wholesalers or manufacturers regardless of the production level. (See, e.g., Cal. Bus. & Prof. Code §§ 23357, 23402, 23388.) The California rules also permit the brewer (with the appropriate licenses and permits) to sell packaged beer from the brewery premises (including growler fills), to operate taprooms and brewpubs (with certain production requirements), and/or to sell at farmers markets (again, with several restrictions). While these rules have their nuances, they allow breweries in California to establish their brand(s) and get their business off the ground without having to rely on third-party involvement.
Conkle, Kremer & Engel attorneys have experience representing both breweries and distributors. If you are launching a brewery in California, looking to expand your brand’s sales through self-distribution or with a third-party distributor, or in a distribution-related dispute, contact Conkle, Kremer & Engel for assistance with those and other beer industry-related issues.