On tap in Annapolis — battle over beer

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This article is part of The Daily Record's coverage leading up to the Annapolis Summit, an event that marks the start of Maryland's legislative session.

Read articles in the series:
Jan. 7: State budget | Jan. 1: Online harassment, gun control, cellphone tracking and more | Dec. 24: Sexual misconduct in Annapolis? | Dec. 17: Legalized sports betting? | Dec. 10: Health exchange woes | Dec. 3: Battle over beer | Nov. 26: Baltimore’s violence, online bullying, parental rights

Listen to podcast episodes from the Marc Steiner Show:
Jan. 10: Annapolis Summit - full audio recordings | Jan. 5: Bail reform | Dec. 25: The budget | Dec. 22: Sports betting | Dec. 22: Health Care | Dec. 18: 'Beer Wars' | Dec. 4: Baltimore violence

There’s a beer brawl brewing in Annapolis.

A proposal by Comptroller Peter Franchot promises the likelihood of a second consecutive year for beer and the state’s growing local brewing industry to become one of the most contentious issues of the 90-day legislative session that begins in roughly a month.

Some in the local brewing industry express concerns that the bill will become stuck in a political quagmire of special interests and perhaps the legislature’s disdain for the comptroller. Others are concerned lawmakers see them as a collection of guys making beer in a garage rather than a burgeoning manufacturing industry.

The comptroller’s focus on the issue, as well as his hot and cold relationship with legislative leaders from his own party, could make the debate over changes to the liquor laws even more contentious than usual. Franchot said passage of legislation he calls “common sense” should not come down to a popularity contest.

Members of the licensed beverage industry that Franchot oversees are hesitant to speak out. They note the comptroller’s effective use of the bully pulpit on issues such as post-Labor Day school starts and air conditioning in classrooms.

“I am tremendously loyal to the craft brewers,” Franchot said. “These are young families that are risking everything and I believe not only in their product but their work ethic and the commitment they’ve made to the state of Maryland. I don’t believe the state of Maryland is meeting its commitment so I will be a tenacious advocate. I’m a high-energy elected official who happens to think that we’ve gone way too far in the direction of protectionism and we need to level the playing field.”

In November, Franchot released details of a 12-point proposal that he said will become his top legislative priority in the 2018 General Assembly Session. The comptroller said his goal is to remove artificial and arbitrary limits that unfairly constrain independent brewers “who chafe under the operating hours and other restrictions under which they have to operate.”

“It’s a funny thing,” Franchot said. “It’s called capitalism and free enterprise and freedom for small businesses, many of whom have moved to Maryland and risked what small savings they have. … The idea that we treat them like children and dole out some allowance to them if they behave themselves, really? We’re saying to adults in their 30s and 40s who have risked everything to open their breweries, ‘Gee, prove it to us that you need it.”

2017 legislation

But some lawmakers and representatives of the state’s powerful liquor lobby say sweeping changes sought by Franchot could be a tough sell on the heels of changes made less than a year ago.

Republican Gov. Larry Hogan allowed the bill to become law without his signature. In a letter to lawmakers, he cited concerns that the new law would be detrimental to the growing craft brewing industry “hampering the economic growth, job creation, and tax revenue it produces.” He urged lawmakers to make changes in 2018.

“I don’t know what’s doable right now and what’s not,” said Del. Dereck E. Davis, D-Prince George’s and chairman of the House Economics Matters Committee, adding that he had not yet seen a copy of a bill. “It sounds like some of these things (Franchot) is proposing can be pretty sweeping.”

“Why is this such an issue?” Davis said. “It’s like a false issue. I get it if you start to press up against the barrel limits and the General Assembly has shown itself willing to be flexible.”

Davis said he is not convinced there is a need to make additional changes.

“He’s going to have to get into the weeds and explain why things are harmful,” Davis said.  “It won’t be a lot of bluster and rhetoric,” Davis said. “If he can make the case then we will absolutely make that change and recommend it to the members.”

Davis said the whole issue is being driven by Franchot but that the comptroller’s sometimes strained relations with lawmakers, including members of his own party, won’t prevent the bill from receiving a full hearing.

“Anyone still getting rattled by the things he says or does, they need to get over it,” Davis said. “The things he says can sometimes be unfair. He loves to put out these images of deals being done in smoke-filled back rooms, but he was in one of those rooms when he was a legislator and he knows there’s no mysteries back there.”

Franchot, the state’s top liquor regulator, said his goal is to undo some of the restrictive provisions in state law, including some passed earlier this year as part of House Bill 1283. A vast majority of the focus will be on small local brewing operations, including:

• Removing limits for taproom sales and take-home sales, including the removal of requirements that purchasers take a tour each time they buy up to a case of beer.
• Unlimited self-distribution for brewers producing less than 300,000 barrels while larger commercial operations would still be subject to those requirements.
• Lifting restrictions on contract-brewing sales at taprooms that brew products for other companies.
• Repealing a “buy-back” provision that requires some breweries to sell their product to distributors and then re-purchase it in order to sell it to the public. The process is more than a paper transaction and requires the distributor to take physical possession of the beer and then return it to the brewer, Franchot said.
• Eliminating state restrictions on hours of operation for taprooms operated by local brewers. That decision would be left to local governments, under Franchot’s proposal.

A growing industry

Franchot said lawmakers would do well to support the brewers, whom he says represent a sustainable manufacturing industry that employs Maryland residents and can revitalize areas around the state.

“It’s popular with millennials and creates a renaissance for down-and-out communities around the state almost overnight,” Franchot said. “These are areas that tend to be abandoned sites. I tell them, ‘Get a brewery and put it in an abandoned building. The beer is good and that’s an added value.’”

Craft brewing is an $800 million industry in Maryland and is growing an annual rate of about 15 percent in the state, about 3 percent slower than the national average, according to a report produced by the Board of Revenue Estimates, which is housed in the Office of the Comptroller. Additionally, Maryland is a net importer of craft beers, something Franchot believes can be flipped.

Franchot said that legislation enacted this year to open the door for Baltimore County to land a Guinness brewery limits the growth and expansion of microbreweries in the state while protecting legacy taverns, bars and distributors.

Flying Dog recently decided not to expand its operations in the state, and Escondido, California-based Stone Brewing bypassed Maryland to locate a new East Coast operation in Virginia, Franchot said. Additionally, Virginia Gov. Terry McAuliffe is seeking to lure brewers from other states to relocate to Virginia, Franchot said.

Maryland’s alcohol laws, a three-tier system where manufacturers sell to distributors who in turn sell to retailers, dates back to the post-Prohibition era. It is seen by some, including Franchot, as antiquated and in need of revision.

‘My guys weren’t happy’

But others are wary of the effect of potential changes in the coming year.

“My guys weren’t happy with (HB) 1283,” said Jack Milani, owner of Monahan’s Pub in Woodlawn and co-chair of the Maryland State Licensed Beverage Association. “It took a long time to get everyone to agree to that.”

Milani declined to assess Franchot’s proposals, saying he had yet to see a formal bill. Even so, he questioned the need to make changes, such as removing the limits on the amount of beer that can be sold on-site. Prior to this year, the limit was 500 barrels.

Flying Dog Brewery was producing about half that, according to Milani.

“No one so far has been up against that 500-barrel limit,” said Milani.

Following the passage of HB 1283, small brewing operations could sell up to 2,000 barrels. Operations that also had a restaurant could sell up to 4,000 with a provision to increase that to 6,000 barrels.

“Two-thousand barrels is more than 500 cases per week in sales,” said Milani. “That’s a lot. That would be like (sales) at the stadium.

Many of the changes sought by Franchot and the local beer industry are seen as potentially disruptive in the same way Amazon and Uber or Lyft have been disruptive to the retail and cab industries, respectively.

“We still don’t know what the full effect of 1283 is,” Milani said. “I think we’d be very cautious to make changes before we know that.”

Davis, who chairs the House committee through which such legislation must pass, questioned the timing of the issue. Prior to the passage of House Bill 1283 earlier this year, no one was complaining about the issues that the industry and Franchot now raise.

“If it hadn’t been for what we did this year, we wouldn’t even be talking about this,” Davis said. “No one was complaining to the legislature about it.”

Next Monday: Health care issues may arise in 2018.