ME Increases Self-Distribution Limits and Adjusts Liquor Franchise Laws for Craft Breweries and Wineries

On July 2, 2019, ME Governor Janet T. Mills signed into law L.D. 1761, entitled “An Act to Assist Small Beer Manufacturers and Small Hard Cider Manufacturers,” which makes the following, significant changes to ME’s liquor laws:

Increases Self-Distribution Limit for “Small Breweries” to 30,000 Barrels of Beer:

The bill changes the legal definition of “small brewery” to mean an in-state brewery that produces up to 30,000 barrels (i.e., 930,000 gallons) of beer annually. The earlier legal definition of “small brewery” meant an in-state brewery that produced up to only 1,612 barrels (i.e., 50,000 gallons) of beer annually. This change represents an increase of 28,388 barrels (i.e., 880,028 gallons) of beer annually.

The state liquor laws allow an in-state brewery that holds a state small brewery license to sell and distribute its beer products directly to on-premises and off-premises retail accounts throughout the state (e.g., bars, restaurants, bottle shops, grocery stores, etc.) without first requiring the brewery to sell its beer products to one or more distributors (who would then resell and distribute the brewery’s beer products to the same retail accounts). These limited privileges are typically referred to as “self-distribution” rights.

In summary, the bill’s change to the legal definition of “small brewery” increases the self-distribution limit for in-state breweries that hold a state small brewery license to 30,000 barrels of beer annually. In effect, it increases the number of in-state breweries that may meet the new legal definition of “small brewery,” apply for, and hold, a state small brewery license, and self-distribute their beer products directly to on-premises and off-premises retail accounts throughout the state.

Expands Self-Distribution Limit for “Small Wineries” to 1,612 Barrels of Wine and 3,000 Barrels of Hard Cider:

Similarly, the bill changes the legal definition of “small winery” to mean an in-state winery that produces:

(a)  up to 1,612 barrels (i.e., 50,000 gallons) of wine annually, and

(b)  up to 3,000 barrels (i.e., 93,000 gallons) of hard cider annually.

The earlier legal definition of “small winery” meant an in-state winery that produced up to only 1,612 barrels wine or hard cider annually.  It did not make any distinction between the production of wine or hard cider.

As of the date of this legal alert, there is no state small hard cidery or hard cidery license. Instead, state small winery and winery licenses allow a licensee to produce wine and hard cider—even though the state liquor laws define “wine” and “hard cider” separately. Like an in-state brewery that holds a state small brewery license, an in-state winery that holds a state small winery license also receives limited “self-distribution” rights.

Accordingly, the bill’s change to the legal definition of “small winery” expands the self-distribution limit for in-state wineries that hold a state small winery license to 1,612 barrels of wine annually and 3,000 barrels of hard cider annually. The bill effectively increases the number of in-state wineries that may meet the new legal definition of “small winery,” apply for, and hold, a state small winery license, and sell and self-distribute their wine and hard cider products directly to on-premises and off-premises retail accounts throughout the state.

Significant Changes to ME’s Alcoholic Beverage “Franchise” Laws:

Lastly, the bill makes significant changes to ME’s alcoholic beverage “franchise” laws, which are listed as follows:

(a)  New Legal Term – “Small Beer Manufacturer” – It creates the new legal term of “small beer manufacturer,” which means (i) an in-state brewery that holds a state small brewery license, or (ii) among other things, an out-of-state brewery that holds a state certificate of approval and produces up to 30,000 barrels of beer annually.

(b)  New Legal Term – “Small Hard Cider Manufacturer” – It also creates the new legal term of “small hard cider manufacturer,” which means (i) an in-state winery that holds a state small winery license, or (ii) among other things, an out-of-state winery or hard cidery that holds a state certificate of approval and produces up to 3,000 barrels of hard cider annually.

(c)  Shortens Cure Period from 90 Days to 30 Days for Small Beer Manufacturers and Small Hard Cider Manufacturers – If a small beer manufacturer or a small hard cider manufacturer intends to terminate its distribution relationship with one of its in-state distributors, then the manufacturer must provide the distributor with written notice of the reason(s) for the termination and give the distributor at least 30 days (rather than 90 days) from the date of that written notice to remedy the reasons for the termination to the manufacturer’s reasonable satisfaction.

(d)  Limits Dollar Amount of “Reasonable Compensation” upon Termination “without Cause” by Small Beer Manufacturers and Small Hard Cider Manufacturers – The bill, most notably, provides that, if (i) a small beer manufacturer or small hard cider manufacturer, among other things, terminates its distribution relationship with one of its in-state distributors without “good cause,” which would require the manufacturer to pay to the distributor “reasonable compensation” for the fair market value of the distributor’s business with respect to the manufacturer’s products, and (ii) during the 12-month period immediately preceding the date on which the manufacturer terminates the distribution relationship, the total number of case equivalents of the manufacturer’s products that were distributed by the distributor (A) was less than 10,000 case equivalents, and (B) represented 3% or less of the total number of case equivalents of all other manufacturers’ products that were distributed by the distributor, then the maximum dollar amount of “reasonable compensation” that the manufacturer must pay to the distributor is limited as follows:

(i) 1x Multiple of Gross Profits if Sales are Down. If, during the 12-month period immediately preceding the date on which the manufacturer terminates the distribution relationship, the distributor’s total gross profits with respect to the manufacturer’s products were equal to or less than the distributor’s total gross profits with respect to the manufacturer’s products during the earlier 12-month period, then the maximum dollar amount of “reasonable compensation” will be limited to one (1) times the distributor’s total gross profits with respect to the manufacturer’s products during the 12-month period immediately preceding the date on which the manufacturer terminates the distribution relationship.

(ii) 2x Multiple of Gross Profits if Sales are Up. If, on the other hand, during the 12-month period immediately preceding the date on which the manufacturer terminates the distribution relationship, the distributor’s total gross profits with respect to the manufacturer’s products were greater than the distributor’s total gross profits with respect to the manufacturer’s products during the earlier 12-month period, then the maximum dollar amount of “reasonable compensation” will be limited to two (2) times the distributor’s total gross profits with respect to the manufacturer’s products during the 12-month period immediately preceding the date on which the manufacturer terminates the distribution relationship.

(e)  Shortens Arbitration Process to 45 Days for Disputes over “Reasonable Compensation” – If any manufacturer (rather than only a small beer manufacturer or a small hard cider manufacturer) and one of its distributors disagree as to the dollar amount of “reasonable compensation” and the parties submit the matter to arbitration, then the bill further shortens the arbitration process by requiring the arbitrator to issue a decision on the matter within 45 days from the date on which the matter is submitted to arbitration. The earlier version of the statute did not limit the duration of the arbitration process.

The bill makes several other substantive changes to ME’s alcoholic beverage “franchise” laws as well.

For more information about L.D. 1761 and its impact on the state liquor laws, please contact John Moran. Learn more about our Food and Beverage Practice Group.