Law Offices of John P. Connell, P.C.: Under Massachusetts law, G.L. c. 138, sec. 25E, a brewer, winery or distillery cannot terminate a Massachusetts wholesaler that has carried and distributed that manufacturer’s brand absent “good cause,” which can be difficult to prove. (See our related Article “Legal Issues Involved When Alcoholic Beverage Suppliers Attempt to Terminate Brand Shipments to Wholesalers in Massachusetts.”)
This “franchise law” was enacted decades ago to protect wholesalers that promote and ultimately build up a brand’s strength through their own marketing efforts and costs, and it has rarely been amended. As most manufacturers and wholesalers do not have written contracts defining the length of their contractual arrangements, the “franchise law” was designed to protect the equity invested by wholesalers once a brand has become established enough that it has become attractive to other wholesalers. This law, however, has been confining for those manufacturers that want to move their brand away from a wholesaler that is perceived as neglecting the brand and its promotion in bars, restaurants and liquor stores.
The Massachusetts “franchise law” is now again under reconsideration as the industry evolves with multiple new craft brewers and small distilleries coming on line, and as wholesalers continue to consolidate. Against this backdrop, craft brewers are seeking to have the Massachusetts “franchise law” amended so that small breweries can terminate an underperforming wholesaler and move their brands to a distributor that can promise better sales results. As usual, however, when it comes to writing the law to accommodate competing business interests, the devil lays in the details.
In the 2012 legislative session, craft brewers were able to round-up 60 legislative co-sponsors for a bill that would allow small brewers the right to terminate a wholesaler relationship provided that the brewery made up less than twenty percent of that wholesaler’s business and produced less than 6 million barrels of beer a year. New York passed a similar law last year, but with a strong wholesaler lobbying effort against the Massachusetts bill, our legislative session failed to pass this amendment to Section 25E.
Vowing a better effort this year to change the law, Rob Martin, the founder of Ipswich Ale Brewery, said brewers have agreed to remove one of two qualifying factors used to classify small brewers. According to Martin, Rep. Alice Peisch (D-Wellesley) plans to re-file legislation this session to create a carve-out for small brewers to allow them to move their brands to another wholesaler without showing cause as long as the wholesaler is compensated fair-market value for the loss of business – a suggested amendment to Section 25E that has been sought for years by all wineries, distilleries and breweries distributing within Massachusetts.
“The industry itself over the past year is continuing to consolidate on the distribution side. Every week in the trade magazines you see wholesale buying out other wholesalers so the bill is becoming more imperative for us,” Martin said, adding that brewers met over the summer with “key legislators” and received positive responses. “So I think we’ll have more momentum than we had last time around,” he said. Stay tuned!
© Law Offices of John P. Connell, P.C., 2013.