A state House bill that would raise the self-distribution cap for craft brewers in North Carolina cleared its second and likely final committee hurdle in the Senate this morning.

House Bill 363, titled “Craft Beer Distribution & Modernization Act,” has 48 primary and cosponsors. The bill cleared the House by a 104-8 vote on April 16.

The Senate Rules and Operations committee recommended the bill to the Senate floor. The bill had gotten the approval of the Commerce and Insurance committee Wednesday.

The bill is on the agenda for Monday's 2 p.m. Senate floor session.

“This bill represents finding common ground” between the craft beer breweries and the state’s beer wholesalers, said Rep. David Lewis, R-Harnett, and the bill’s author.

“This resolves issues that the General Assembly has been wrestling with for at least a dozen years.”

The key elements of the bill are:

  • Allowing a craft brewery to obtain a malt beverage wholesaler permit to annually sell, deliver and ship at wholesale up to 50,000 barrels that it makes to unaffiliated retail permit holders.
  • Raising from 25,000 to 100,000 the number of barrels of malt beverages per year that a craft brewery can produce and sell to consumers at the brewery and to wholesalers, retailers and exporters without having to go through a distribution contract with a wholesaler.

The 25,000 barrel cap currently represents the maximum production level before craft brewers must enter the distribution contract.

Tim Kent, executive director of N.C. Beer & Wine Wholesalers Association, said the bill represents “a win-win for all parties concerned.”

“Consumers will continue to enjoy the benefits of a highly competitive marketplace with the availability of thousands of malt beverage products, all of which is made possible by the three-tier system ... that maintains the safe, equitable and efficient distribution of a wide variety of products to 18,000 retail establishments throughout the state.”

Production caps

Similar language to raise the self-distribution cap, in that instance from 25,000 to 200,000 barrels, was included in the initial version of House Bill 500, which cleared the House in April 2017.

That ABC Omnibus bill was amended by the Senate in June 2018 to remove the production cap segment and include non-ABC elements before it cleared the Senate.

After a conference committee reached agreement on the language, Gov. Roy Cooper allowed the bill become law without his signature.

Craft brewers said the language in HB500 was removed at the request of the state’s beer wholesalers.

The removal of the self-distribution cap language drew criticism from small- to mid-sized craft breweries for limiting their ability to expand into new markets and add production jobs.

Mitch Kokai, policy analyst with Libertarian think tank John Locke Foundation, said Tuesday that HB363 “is likely to pass because it represents a compromise between the craft brewers and the distributors.”

“Craft brewers and beer distributors have been fighting in court over state restrictions forcing brewers to contract with a distributor once their operations reach an arbitrary production threshold,” Kokai said.

“The craft brewers’ lawsuit appears to have made a substantial impact on the distributors’ willingness to cut a deal.”

Some analysts said in 2018 that the small- to mid-size craft breweries might have had more success in the Senate if they had been willing to reduce how much they want to raise the production cap.

Senate Bill 313, co-introduced in 2017 by co-primary sponsor Sen. Joyce Krawiec, R-Forsyth, would have raised the barrel production cap to 103,091.

The bill was never heard in the Senate Rules and Operations committee.

“Local breweries are limited on how much of their product they can self-distribute currently,” Krawiec said.

“This bill will expand that amount and enable our local breweries to have a more even playing field. This should allow those breweries to grow and compete.”

Kokai said “the best solution would be to scrap the state restrictions completely. Allow the brewers to decide for themselves if and when they want to work with an outside distributor.”

“This compromise measure will allow the state’s largest craft brewers to continue growing without being forced into a distribution deal they don’t want.

“Meanwhile, distributors will continue to benefit from the state regulation structure,” Kokai said.

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rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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