Direct Sales to Consumers Exempt From Beer Franchise Laws? Pa.L.C.B. Opines on Contract Brewing Arrangement Providing Beer to Couplet
Recently, the Pa.L.C.B. published a legal opinion on the use of contract brewed beer by a couplet. A couplet is a manufacturing license (such as a G license for a brewery) that is used in conjunction with a brew pub (GP) license or a restaurant (R) license on a property owned/leased by the same entity. The main inquiry was whether a brewery in New York and a brewery/restaurant couplet in Pennsylvania, which is a wholly-owned subsidiary of the New York brewery, can enter a contract brewing relationship where the New York brewery manufactures the beer and then sells it at the couplet establishment in Pennsylvania.
The Pa.L.C.B. answered in the affirmative. First, the Pa.L.C.B. opined that the relationship must be governed and operate as a contract brewing relationship, regardless of the common-ownership. The brewery at the couplet location may receive and store beer from the New York brewery, and may sell the beer to consumers or give it to its restaurant/brew pub premises to sell to consumers, because there is not a sale between the two premises involved in the couplet. These direct sales to a consumer do not have to pass through a wholesaler, but if the beer is sold to a licensee, it would have to go through a wholesaler. This requirement is not especially onerous, because couplets already cannot self-distribute beer in Pennsylvania under the Liquor Code. The Pa.L.C.B. did affirm franchise laws providing that contract brewed beer from outside of Pennsylvania cannot be sold to licensees by a stand-alone brewery unless it is through a wholesaler. The opinion further also states that a couplet location must manufacture 250 barrels per year, and that requirement cannot be outsourced to a contract brewer.
Potentially, this legal opinion has some far-reaching effects. Does this opinion support the proposition that all brewery-to-consumer sales are exempt from beer franchise laws? Beer franchise laws require breweries, especially out-of-state breweries, to sell their beer through wholesalers that have exclusive territories. This is very important, because as the beer industry changes, we are seeing a lot of interest from breweries with locations in multiple states in producing at one main production facility and importing to brewery/restaurants in other states solely for the purpose of selling to consumers. This opinion gives the brewing industry a way around going through wholesalers to get beer brewed out-of-state to other locations in Pennsylvania and to the consumer.