BRUNSWICK — A new law expanding what it means to be a “small brewer” and allowing breweries more flexibility in their distribution is one of the “most important pieces of legislation in the (brewing) industry,” according to Mattie Daughtry, Brunswick House Representative and co-founder of Moderation Brewing

The new law changes the definition of a small craft brewer from a company with an annual production of 1,600 barrels (31 gallons per barrel) to 30,000 barrels a year, a jump that, while seemingly extreme, brings the definition of “small” more in line with modern times, said Sean Sullivan, Executive Director of the Maine Brewers Guild.  The 1,600 barrels was “crazy low,” he said, and 30,000 is “still modest” when compared to the federal definition of a small brewer, which is 60,000 barrels, or almost 1.9 million gallons of beer.

This law will not impact large breweries like Allagash Brewing in Portland, which Sullivan estimates probably produces about 80,000 barrels per year, but it means more opportunities for newer operations like Black Pug Brewing and Moderation, which Moderation co-founder Philip Welsh said is probably producing about 200 to 400 barrels annually.

To understand why the law needed to be updated, Sullivan said to look back to the 1970s when there were only a handful of breweries, like Miller and Budweiser, in the United States and none in Maine. To get the beers into stores and bars, each state had a number of what Sullivan called “mom and pop distributors,” who would buy the beer and then sell it to the establishments. The brewery would ask that the distributors paint its logo on their trucks and get them into about 50 more bars. They would, but then the brewer would increase the price of the beer, meaning the distributor would either have to dramatically increase the selling price for the buyer, or back out and lose all the money they invested in branding their equipment, and the brewer would find another distributor who would do what they asked and just adjust their business model.

So, the distributors sat down and decided it wasn’t right for big brewers to have all this control, Sullivan said, and petitioned the lawmakers for protection. The law made it so that once a brewery got to a certain size (50,000 gallons per year), they had to sell through a distributor. If the brewer wanted to break the contract, both parties had to agree and the brewers had to pay the distributor a large sum determined by combining gross profits, time, worth, and other factors.

The laws existed to protect the small distributors who were getting strong-armed by large beer companies.

Now, decades later, the script has flipped and America’s craft beer industry has exploded. In Maine alone there are 149 craft breweries and 115 unique brands, Sullivan said. Most of these breweries are places like Moderation, which are run by just a handful of people, and it’s the distributors who are worth millions. Distributors have a number of different beers to sell and if a restaurant only has a spot for one IPA, brewers have to hope it’s theirs that the distributor chooses to offer.

“The relationships between brewers and distributors are really crucial,” Sullivan said, but the “intention of this is to provide options” for the brewers who may want to take those sales into their own hands.

Any brewer that made over 1,600 barrels per year did not have the option to self-distribute under the old law, and if they wanted to break their contract, ran the risk of going bankrupt.

Smaller breweries could self-distribute, but as their beers became more popular and they began to grow and exceed that cap, they then had to pay a middle man between the brewer and the bar, meaning that they had to make more beer in order to make up for lost money.

“The laws that were on the books haven’t kept up with the changing industry,” Sullivan said.

Some brewers were choosing to keep their companies small, at just below 1,600 barrels per year because they wanted to retain the option to self distribute; something Sullivan said was “restricting the economic potential of our brewers.”

And beer’s impact on Maine’s economy is only growing.

According to an economic impact study by the University of Maine and the Maine Brewers’ Guild, the industry contributed more than $260 million to the state’s economy in 2017 and employed almost 2,000 Mainers. Between 2016 and 2018 alone, 19 new breweries sprouted in the state. The Midcoast has Moderation Brewing, Flight Deck and Black Pug, as well as Bath Brewing Co., Maine Beer Co., Sea Dog, Stars and Stripes Brewing and Gritty McDuff’s, to name a few, and Daughtry said she knows of two more in Bath that are still in the planning stages. Christie Mahaffey, co-founder of Foundation Brewing in Portland said this spring that industry officials are predicting 10% growth this year and another 15% in 2020.

With the new law, which was adopted July 2, all the existing rights of small brewers transfer to the other brewers who were previously too large to be considered “small.”

Under the new law, the payout system is also simplified. If a brewer chooses to break a contract, if sales were up in the last calendar year, the brewery has to pay the distributor two years of gross profits. If sales were down, they pay a year.

This is something Massachusetts has been trying to pass for 10 years, Sullivan said, and it is “an awesome testament to our industry and the spirit of doing business in our state” that it passed in the first year of trying.

The distributors “care about craft beer,” he said.

Cheryl Timberlake represented the Maine Beer and Wine Distributors Association during the hearing process and testified in support of the amendments to the bill.

“The manufacturers are our partners,” she said. “We want to preserve and protect the system that provides a safeguard for an open, accountable and transparent marketplace. A system that allows for product diversity and consumer choice by encouraging distributors to invest in capital and labor in the creation of new markets for craft and the expansion of markets for existing products. If a supplier wants to change its distributor relationship, there is a mechanism in place to allow that to happen. Products are released and traded to accommodate these requests. We stand with our Maine Craft Breweries to acknowledge their need for flexibility,” she said.

For many breweries, having a distributor is the preferred way to go. Maine Beer Company, which produced about 12,000 barrels last year and will likely produce about 16,000 this year, changed status from a brewer to a “small brewer” under the new definition, but according to Anne Marisic, Marketing & Event Manager, it will not change how they do business.

But for Moderation, which has just started to self-distribute, it changes the way they can think about growth and the amount of beer they want to brew. It also lets them figure out which method of distribution will work best for them in the long run, Daughtry said.

“It allows brewers to determine their own futures.”

hlaclaire@timesrecord.com

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