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Senate of Pennsylvania
Session of 2013 - 2014 Regular Session

MEMORANDUM

Posted:	June 17, 2013 01:05 PM
From:	Senator John C. Rafferty, Jr. and Sen. Joseph B. Scarnati, III, Sen. David G. Argall
To:	All Senate members
Subject:	Beer Franchise Reform

In the near future we plan to introduce legislation to amend the Liquor Code. Our legislation would strengthen the three-tier beer distribution system while allowing protections for malt and brewed beverage manufacturers and wholesalers. In May of 2005, the United States Supreme Court ruled in Granholm v. Heald that states cannot treat in-state wineries different than out-of-state wineries in regards to distribution and regulation of wine. This means, that states must amend their liquor laws in order to provide for the equal treatment of in-state alcohol manufacturers and out-of-state alcohol manufacturers. Under the current Liquor Code, in-state malt and brewed beverage manufacturers are treated differently from out-of-state manufacturers in many ways. One major difference is that in-state manufacturers are permitted to distribute their product outside of the three-tier distribution system. This is one example of a major difference which must be remedied as a result of the U.S. Supreme Court’s decision in Granholm. Thus, we will introduce legislation that protects the Commonwealth’s three-tier system by amending the Liquor Code to do the following: Eliminate all distinctions between in-state brewers and out-of-state brewers, so that all rules apply equally to all United States brewers; and, Allow all manufacturers to self-distribute up to 75,000 barrels of product in Pennsylvania. This 75,000 barrel mark is consistent with the Federal definition of small brewery in the Tax Code. In addition, our legislation will allow manufacturers to terminate their contract with a malt and brewed beverage wholesaler so long as the manufacturer represents less than 20% of the volume of the wholesaler’s house; and, so long as the wholesaler receives the fair market value for the brand. Currently, malt and brewed beverage manufacturers enter into contracts with a wholesaler for the life of the product. These life-long agreements don’t take into account changes in the industry or changes to a particular brand. This is why our legislation seeks to require re-negotiation of these contracts in good faith every five years. This will allow both the manufacturers and the wholesalers to adapt their business relationship to an ever-growing and changing industry. Our legislation will grant malt and brewed beverage manufacturers the right to consent to any wholesaler to wholesaler transaction so long as the manufacturer does not unnecessarily withhold consent to such a transaction. When these transactions occur between wholesalers, our legislation will allow the manufacturers to be paid 10% of the transaction equal to brand rights. Finally, this legislation will allow wholesalers to sell their interests in their businesses to family members for estate planning purposes. It will also loosen the Pennsylvania citizenship requirements; and, removes requirements that wholesaler territories must be contiguous. These are all provisions that will allow the wholesalers to continue to grow a successful business model.

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