A Synopsis of Maryland's Brewery Self-Distribution Laws
Seemingly since the advent of the three-tier system, smaller craft breweries have been trying to find a way to efficiently distribute their product without having to engage in the often burdensome and one-sided wholesale distribution agreements that feature many statutorily-imposed provisions, which weigh heavily in favor of the distributor. Alas, Maryland has provided many smaller craft breweries with a way to achieve this goal through relatively newly enacted legislation, providing such breweries with self-distribution rights.
This article will address how and when micro-breweries are permitted to self-distribute craft beer in Maryland. In Maryland, as in most other parts of the United States, there exists a three-tier distribution model for alcohol. In most instances, a manufacturer of alcohol is prohibited from selling the alcohol straight to a retailer or end-consumer. Rather, the manufacturer must engage a wholesale distributor to sell and distribute its product to retailers who ultimately sell the alcohol to consumers. This is a model that was established in the days after the repeal of Prohibition in an effort to regulate and oversee the sale and consumption of alcohol. Currently, however, under Maryland law, a Class 7 micro-brewery may be able to avoid this often onerous process in the distribution of its beer by obtaining a Class 7 limited beer wholesaler’s license from the State. Such a license may now be issued to the holder of a Class 7 micro-brewery license that produces, in the aggregate from all of its locations, no more than 22,500 barrels of beer annually. As an aside, the Class 7 limited beer wholesaler’s license is also available to holders of a Class 5 manufacturer’s license and a Class 8 farm brewery license that produce, in the aggregate from all of its locations, not more than 22,500 barrels of beer annually. The Class 7 limited beer wholesaler’s license authorizes the license holder to sell and deliver its own beer produced at the license holder’s premises to: (i) a holder of a retail license that is authorized to acquire beer from a wholesaler; and (ii) a holder of a permit that is authorized to acquire beer from a wholesaler, provided the license holder, under either (i) or (ii) does not distribute more than 3,000 barrels of its own beer annually. The fee for this license is a mere $50 as of the time of this article. Additionally, the license holder may use an additional location for the warehousing, sale, and delivery of its beer upon a payment of a $50 fee for each additional location; provided, however, that such activities are approved by the Comptroller following submission of a separate application for each location. Furthermore, the manufacturer can use its own vehicle to deliver the alcohol to retailers. The manufacturer may also lease a vehicle, such as a rental truck, to deliver the alcohol as a vehicle leased by the manufacturer would also be deemed to be in its control. A third option for micro-breweries that don’t have the manpower or the time to self-deliver their beer, is to hire a third party delivery service that is properly permitted to deliver the beer on their behalf. The ability to self-distribute beer is especially valuable to those micro-breweries that wish to distribute their beer throughout counties like Montgomery County. Montgomery County remains one of the few “liquor control” counties in the country. Its law mandates that (except as permitted under the self-distribution exception), all alcohol pass through its County-run dispensaries before being distributed to retailers and sold to end-consumers. This creates yet another layer of regulation and cost to the traditional three-tier alcohol distribution model. Under the self-distribution laws, qualifying micro-breweries can sell and deliver their own beer to a county liquor dispensary or any retailer in Montgomery County. In summary, provided the manufacturer is in compliance with the regulations cited above to be issued a Class 7 license, a Maryland Class 7 micro-brewery, would be permitted to self-distribute its beer throughout the State of Maryland. Although it would be even more beneficial for the micro-breweries to not be as limited in the amount of beer that they can self-distribute annually, it seems clear that the relatively recent implementation of the self-distribution laws in Maryland is a boon for the micro-brew industry and has greatly contributed to its exponential growth across the State. Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.