Kentucky Breweries Fighting for Right to Self Distribute Beer
The three tier-system was instituted after the fall of Prohibition as a means to prevent monopolies and corruption from engulfing the craft beer industry. However as the beer industry has flourished in the modern era, many states have recognized that the institution of distribution isn’t completely black and white. As it currently stands, 39 states across the U.S. have made it possible for breweries to sell their own beer directly to licensed retailers, bars and restaurants. This has allowed thousands of small independent breweries across the country the opportunity to grow more quickly with greater access to market. Kentucky is not currently one of those states.
However, Kentucky breweries have introduced legislation to change that. The Kentucky Guild of Brewers and its brewery members introduced Senate Bill 15 to the Senate to Committee on Committees on Feb. 3, 2021. The proposed legislation advocates for two things. First, it would allow brewers to self-distribute up to an annual total of 2,500 barrels per year. Second, it addresses the unfair contractual relationships between the distributors and craft breweries.
The summary of SB 15 states:
Amend KRS 243.157 to allow a microbrewer to sell and deliver up to 2,500 barrels of product to any retail licensee and to require a microbrewer to report self-distribution to the distributor; create a new section of KRS Chapter 244 to set forth terms of contracts between microbrewers and distributors; provide severability clause; APPROPRIATION.
“Kentucky’s microbreweries need help and SB 15 is a huge step in that direction,” Charley Hamilton, board president of the Kentucky Guild of Brewers, said. “With it, we seek to broaden our customer base and make it easier for new breweries to get products to market. The bill also addresses the current imbalance in contract equity between microbreweries and distributors. Making for a more fair relationship moving forward.”
The 80+ craft breweries across the Bluegrass State would greatly benefit from this legislation passing. Kentucky breweries took a hit financially during the COVID-19 shutdowns. Since March, the Kentucky Guild of Brewers says sales are down approximately 40% and profit is down approximately 50% compared to 2019. Self-distribution could aid them in their recovery.
Breweries like Gallant Fox Brewing in Louisville that opened during the pandemic (July 2020) would greatly benefit from self-distribution and improved distributor contracts.
“SB 15 will allow small breweries like Gallant Fox to get our beer into some of your favorite local bars, restaurants and bottle shops, something that would be impossible at our size without the passage of this bill,” Roger Huff, Gallant Fox co-owner and co-brewer said.
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What is holding legislation back from saying “Yes” to Senate Bill 15? Kentucky beer distributors are attempting to block it.
There are currently two statutes that give distributors a clear advantage in the beer market: KRS 244.585 (territory exclusivity) and 244.606 (contract laws).
“Both passed during a time when the distributors had great political influence and prior to the craft brewing industry really coming into existence,” Selznick said. “Now that we have demonstrated our ability to become a viable growth industry here in Kentucky, distributors have been unwilling to give up any of the powers they have.”
Everything favors the distributor, including the difficulty for breweries to get out of a contract with their distributor when it’s under-performing or non-performing.
The Kentucky Beer Wholesalers Association issued a statement regarding Senate Bill 15. While the KBWA supports allowing Kentucky’s craft breweries to self-distribute to retail, bars and restaurants, it needs to address certain provisions related to how they contract with their brewery partners.
Kentucky craft breweries are beneficial to the state and its economic growth. Pre-COVID, Kentucky craft breweries generated an $872 million economic impact and employed over 1,000 workers. In January 2019, Forbes ranked Kentucky as one of the top two states in the country for the largest growth of craft breweries during the past four years with a 43% growth.
Getting Senate Bill 15 passed will take the Kentucky craft beer industry and its breweries to the next level it has been working for.
What’s next for Senate Bill 15?
“The bill has two of the three required readings in the Senate,” Selznick said. “It has been assigned to a committee where it should be heard this week. Once it passes out of the committee, it would go to the full Senate for a floor vote and then on to the House to repeat a similar process. Time is of the most important because Kentucky’s legislative session ends in March.”
If you are a Kentucky resident, you can help your local breweries by contacting your local legislator at (502) 564-8100 and leaving a detailed message. You can also send an email by using the email addresses listed on the General Assembly’s website.