Maine brewers and wholesalers are pushing a bill to loosen the state’s 40-year-old beer distribution laws that they say are stifling growth and forcing small breweries into rigid contracts.

“The industry is changing; the time has come for us to look at these laws and see if they really allow this business to be regulated in a way that responds to all stakeholders,” said Sean Sullivan, executive director of the Maine Brewers’ Guild.

Under Maine’s “franchise laws,” small breweries that produce less than 50,000 gallons of beer – about 1,600 barrels – can distribute their own product. But breweries that surpass that threshold must contract with a distributor. State law makes it difficult and costly to get out of those agreements.

The problem is that 1,600 barrels is an extremely low threshold for breweries growing as fast as those in Maine. With wholesale costs ranging from 20 percent to 40 percent, a contract can cut into a brewery’s margins just as it starts to become profitable.

To avoid those costs, some Maine brewers are purposefully limiting production so they can continue to self-distribute.

The laws were established in 1979 as a way to protect small Maine distributors from unfair contracts foisted on them by huge national beer companies, Sullivan said.

Back then, Maine didn’t have a single independent brewery. Now it has more than 140 brewing companies offering a galaxy of beer styles. In that climate, the state’s antiquated laws don’t work for local brewers or distributors.

“We have added 100 breweries in Maine in the last five years,” Sullivan said. “As it often is, the laws are slow to catch up.”

A bill supported by the guild and the Maine Beer and Wine Distributors, L.D. 1761, would change the law by allowing small breweries to produce up to 30,000 barrels a year – about 930,000 gallons – before having to get a wholesale contract. The measure is before the Legislature’s Veterans and Legal Affairs Committee.

Bruce Nadeau, owner of Stars & Stripes Brewing Co. in Freeport, poses at the brewery’s bar on Wednesday. Nadeau favors a bill that would increase the amount of beer a brewery can self-distribute. Gregory Rec/Staff Photographer

That increase is massive, but Maine’s homegrown industry is still tiny compared with national breweries. In 2017, Anheuser-Busch sold almost 481,000 barrels of beer in Maine, more than all the state’s craft breweries put together, according to state data.

The bill also would make it easier for small breweries to get out of contracts by setting standards for compensation to distributors if a brewery is less than 3 percent of their business.

More than two dozen brewers and distributors spoke in favor of the bill at a public hearing last week. Most brewers said they were not opposed to distribution contracts and expected to sign with a wholesaler at some point, but want flexibility to run a business on their own terms.

“It is really about choice, it is about the brewery having the choice to decide when using a distributor makes sense for them,” Michael Rankin, CEO of Definitive Brewing on Industrial Way in Portland, said in an interview.

Definitive opened last year, and brewed about 1,400 barrels. From the start, Rankin planned to keep production below the cutoff and keep self-distributing until he’s ready to sign a wholesaling contract.

Gordon Jones, a brewer at Goodfire Brewing Co., checks one of the boilers while working in Portland on Thursday. Derek Davis/Staff Photographer

It’s a tactic Maine brewers have been using for years in order to build a brand and client base and reinvest revenue they would otherwise have to pay to a distributor, Rankin said.

“There are other breweries that have purposefully halted their growth so they could keep their ability to self-distribute,” he said.

Maine’s craft beer industry had a direct economic impact of $168 million and employed almost 2,000 people in 2017, according to a report from the Maine Brewers’ Guild and the University of Maine.

Twenty of Maine’s breweries were above the current state brewing threshold last year and another 10 brewed between 1,000 and 1,500 barrels, according to state beer production data.

Goodfire Brewing Co., based in a small warehouse in Portland’s East Bayside, is running into the same problem.

Goodfire brewed almost 1,200 barrels in 2018, its first full year of production, and is set to exceed 1,600 barrels by next year, operations manager Kelly Scharf said.

Kelly Scharf, operations manager at Goodfire Brewing Co., supports changes to state law that would allow Maine brewers to produce much more beer before having to sign agreements with distribution companies. If the bill doesn’t pass, she expects the company will slow its growth to avoid signing a distribution deal. Derek Davis/Staff Photographer

If the bill doesn’t pass, she expects the company will slow its growth to avoid signing a distribution deal. In its current location, the brewery can’t scale up to meet the demand it expects with wider distribution.

“We want to sign with someone, but we have to wait for a time that is appropriate for the business,” Scharf said.

Barrel caps for self-distribution are a fairly common issue for state legislatures to debate, said Paul Gatza, senior vice president of the Professional Brewing Division at the Brewers Association, a national trade group.

North Carolina, Tennessee and Florida also are considering barrel limitations this year, Gatza said.

Distributors are required under a three-tier state system for alcohol sales enacted after Prohibition to create middlemen between producers and consumers.

In testimony submitted to the Legislature, Maine Beer and Wine Distributors lobbyist Cheryl Timberlake said wholesalers believe Maine’s franchise laws work but negotiated a compromise with brewers to “preserve and protect the system that provides a safeguard for an open, accountable and transparent marketplace.”

Jim O’Brien, president of Vacationland Distributors, a niche company in Westbrook, said that far from losing him business, changing the laws will make Maine’s beer industry stronger.

“This bigger cap, it gives breweries more runway to become more stable businesses, to make much more stable partners for us,” O’Brien said.

“We see it as making Maine breweries stronger, which is why we got into this business in the first place.”

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CORRECTION: This story was updated at 1:30 p.m. on May 31, 2019, to correct that it’s the state that has a three-tiered system for alcohol sales.