THIS week we jump back into the world of alcoholic beverage regulation, Chapter 18B of the North Carolina General Statutes. The foregoing topic is relevant for a couple of reasons. Number one, the recent growth of craft beer and spirits has not only given consumers an almost incomprehensible variety to choose from, but that same consumer demand has created transparent and abounding economic opportunity in the investment and retail segments of the industry. Second, we as a firm market an ability to deliver “innovative” solutions for our clients. It is rare that an industry as heavily regulated as alcohol concedes opportunity for attorneys to match our clients’ clever ideas with some creative thinking of our own.
But alas, where our laws were designed to regulate business relationships in a competitive economy, North Carolina’s legislature, perhaps with remarkable foresight, also outlined certain relief valves to preserve the incentives of a collaborative economy. Because a couple of our previous posts have noted the inherently collaborative nature of craft-inspired businesses, we feel it necessary to highlight when these two concepts intersect.
Today we look specifically at N.C.G.S. § 18B-1116, affectionately regarded as one of North Carolina’s “tied house” provisions. In context of the three-tier framework—manufacturer, wholesaler, retailer—section (a) prohibits, among other things, a manufacturer or wholesaler from taking a financial interest in a retailer. For reference:
“§ 18B-1116. Exclusive Outlets Prohibited.
(a) Prohibitions. – It shall be unlawful for any manufacturer, bottler, or wholesaler of any alcoholic beverages, or for any officer, director, or affiliate thereof, either directly or indirectly to:
(2) Have any direct or indirect financial interest in the business of any alcoholic beverage retailer in this State or in the premises where the business of any alcoholic beverage retailer in this State is conducted . . .” (Emphasis added)
This limitation on existing industry members’ potential investments in retailers can be traced to a well-founded government concern for maintaining a fair competitive marketplace and preventing exclusive distributive outlets leading to unearned monopolies. And that’s easy to understand. Big beer has recently made headlines across the country behind the rollout of its wholesaler incentive program. It is thus reasonably foreseeable that an alcoholic beverage manufacturer with millions of expendable incentive dollars might allocate them to retailers, too, in an effort to suffocate competition at the point of sale.
However, very few industry members (craft brewers, for example) have the resources capable of disrupting fair commercial competition, let alone the inclination to do so. These same industry members, though, are the ones responsible for identifying collaborative opportunity, conceiving innovative ideas, and ultimately enhancing public welfare by strengthening local economy.
When such a scenario exists that involves a manufacturer or wholesaler taking an interest in a retailer, how does an industry member get around the § 18B-1116 limitation?
Simply stated: by asking.
Subsection (b) of § 18B-1116 articulates the power of the North Carolina Alcoholic Beverage Control Commission to grant a petitioning party an exemption from the tied house prohibition referenced above. In making its determination, “the Commission [considers] the public welfare, the quantity and value of articles involved, established trade customs not contrary to the public interest, and the purposes” of the section as a whole.
At a time when the conversation around North Carolina ABC regulation is dominated by proposed change, § 18B-1116(b) is a legislative respite for growing local businesses. It recognizes the importance local entrepreneurs play in the collaborative economy. It also provides the Commission with the ability to allow successful business owners and/or investors to continue facilitating that growth, without being confined to one tier in particular or forcing their exit from one tier to pursue an interest in another. So long as the petitioning party can properly the show to the Commission the factors above, members of local alcoholic beverage manufacturers and distributors can gain limited exempted status under the statute to also revitalize and innovate within a retail business setting.
If you are a business owner or investor in the alcoholic beverage space with concerns about your legal status under § 18B-1116, or clever ideas about how to influence this collaborative economy, reach out to a North Carolina attorney. Of course, Carolina Craft Legal would be happy to speak with you about your ideas to brainstorm efficient and effective ways toward achieving exempted status.
Until next week. Cheers!