As the man in charge of Maryland’s finances, Comptroller Peter Franchot should know a gold mine when he sees one.
And he sees a motherlode in Maryland’s craft beer industry.
“We’re talking about an industry that has a total economic impact of $632 million annually, supports more than 6,500 jobs, generates $228 million in wages and $5 million in state and local revenues,” he said, speaking in November at a meeting of the Reform on Tap Task Force he commissioned in April.
All that, he said, is “despite statutory and regulatory impediments that have made it harder for this industry to do business in this state.”
In fact, he noted, Virginia’s governor and secretary of commerce have exploited that fact in making a not-so-subtle pitch to woo some of the best performing breweries away from Maryland.
Now, Franchot is championing new legislation to roll back some of the most detrimental regulations that hamstring craft beer production in the state — and make it impossible for the industry to realize its full potential here.
Dubbed the Reform on Tap Act of 2018, Franchot’s legislative package picks up where brewery advocates left off in challenging the provisions of House Bill 1283 this spring.
“Suffice to say, the language in HB 1283 is cumbersome, and it left a crippling effect on the ability of the startup brewer to get into the business through contract brewing,” said Maryland Assistant Comptroller Len Foxwell. “The Reform on Tap Act conversely will eliminate those arbitrary and hostile restrictions.”
Before considering the merits of the Reform on Tap Act or the failings of HB 1283, it’s important to have an understanding of just how Maryland’s regulatory landscape came to be so unfriendly to brewers.
Current state beer laws are more or less encumbered by a collection of tweaks and remedial responses enacted during the decades following the repeal of Prohibition. In those days, with small breweries on the wane, many regulations were essentially written to protect the interests of beer wholesalers and distributors in their relationships with brewing behemoths, like Anheuser-Busch and Miller.
But is the landscape really that unfriendly?
Look no further than Flying Dog Brewery, in Frederick, for that answer. As part of the immediate aftermath of HB 1283, “Flying Dog recently announced that it was putting on permanent hold its plans to construct a $54 million production facility,” Foxwell said.
A new, 150,000-square-foot main brewery and an 8,000-square-foot farm brewery would have increased Flying Dog’s production capabilities by a range of 500% to 700%.
In a release, Flying Dog CEO Jim Caruso said, “We need a playing field that’s fair to brewers, wholesalers and retailers. I look at it for what it is. For us, it is not viable to invest $60 million in a brewery.”
Leveling the Field
Based on input from eight public task force meetings held across the state, the Reform on Tap Act aims to further develop the state’s craft beer industry as a source of jobs, economic investment, destination tourism and tax revenue.
According to Jeff Kelly, director of the Comptroller’s Field Enforcement Division, Maryland brewers enjoy few of the advantages taken for granted by brewers in surrounding states and the District of Columbia.
Maryland law limits annual production to 2,000 barrels for Class 6 pub breweries, 22,500 barrels for Class 7 microbreweries and 15,000 barrels for Class 8 farm breweries. No such restrictions exist in Delaware, Pennsylvania or the District of Columbia, although Virginia also limits farm breweries to 15,000 barrels.
In Maryland, tap room sales are limited to 4,000 barrels annually in Class 7 microbreweries, while Class 5 production breweries may sell only 2,000 barrels, with the option of purchasing an additional 1,000 barrels back from their wholesalers at marked-up prices. Again, no such limits exist in surrounding jurisdictions.
While franchise laws in other states require only a 30-day notice to terminate an agreement with a distributor, Maryland brewers must wait 180 days.
The Reform on Tap Act proposes removing all limits on Maryland beer production, tap room sales and take-home sales. It also guarantees the issuance of Class B or D beer licenses to microbreweries upon request, lets local jurisdictions set guidelines for tap room opening hours, allows smaller brewers to self-distribute, eliminates franchise law requirements and removes restrictions on contract brewing.
“With the rise of the small and independent craft brewers in the marketplace, we are now experiencing the reverse, unintended consequence of franchise laws,” Foxwell said. “That is, to handcuff the craft brewer to the distributor no matter how poorly, hypothetically, the distributor performs.”
Sharing the Wealth
Randy Marriner, owner and founder of Manor Hill Brewing Co., in Ellicott City, served on the comptroller’s task force and is among those who are convinced that the state would be doing itself a huge favor by abandoning its tight regulation of the craft brewing industry.
A recent Board of Revenue Estimates report found that for every $20,000 of revenue generated in a Maryland brewery operation, $47,000 in wages, 1.36 jobs and $132,405 in economic output was created in return, he said.
“Right now, our state has the reputation of ‘the state with limits,’” Marriner said. “It is the state where Ballast Point [Brewing] did not locate, Flying Dog did not expand [and] where state limits had to be raised for Guinness to even show up.”
As for any argument that the Reform on Tap Act poses a threat to distributors and retailers, “literally every brewer on our task force who currently relies on distributors indicated that they would continue to use distributors … because they value the services and the caliber of the service their distributors provide,” Foxwell said.
Retailer Joe Pietro, owner of Hair of the Dog Wine & Spirits, in Easton (in Talbot County), said the surge in demand for Maryland products has resulted in a doubling of the space his store dedicates to locally produced spirits, wine and beer.
“I have customers routinely coming in to purchase Maryland craft beers, solely because they’ve tasted them at a local brewery or somewhere in the state,” he said. “They stay around and want to talk about other Maryland products that we sell. It’s in our interest that breweries continue to grow, expand and let their entrepreneurial spirit develop. As they grow and profit, we’ll all profit by it.”