Prohibition-era distribution regulations are archaic, brewers claim, but the Legislature may soon tap into a solution

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Obstructing the Flow

 

Enforcement of a state law prohibiting breweries from donating beer to nonprofits, festivals and special events has become an issue in South Carolina.

“For nonprofits used to donations, this is a game-changer, and potentially a dire one,” said Brook Bristow, a South Carolina-based lawyer who primarily counsels companies in the alcohol industry on business and employment laws, as well as on compliance, licensing and intellectual property.

Breweries have been donating beer directly to those groups and causes they believe in, not knowing it is illegal because it circumvents the wholesale layer in the state’s three-tier system, according to Brian Cendrowski, who writes the Untamed Beer blog.

Most states allow for some level of self-distribution or give breweries the ability to directly supply retailers with or without limitation, said Cendrowski. He is co-founder, along with his wife, Nicole, of Fireforge Crafted Beer, a small-batch brewery expected to open in Greenville by next spring.

For South Carolina events, no more donations will be allowed, meaning all beer, wine and liquor will have to be bought from a wholesaler, who bought it from a producer — even for nonprofits, Bristow said.

Producers now will only be able to talk to event attendees about the product and not pour it, he said. That means that only non-producer and non-wholesaler employees can do that.

“This could prove problematic as many volunteers will not have appropriate training for serving alcohol, i.e., they serve someone that has been over-served already,” Bristow said. That could create big liability for events and perhaps increased insurance rates.

“Is it great to go to events and try something new from someone that does it from home as a hobby or is trying to develop it as an in-planning producer? Of course,” Bristow said. “But it is an unlicensed, unregulated and untaxed product. So it’s a no-go.”

A spokesman for the S.C. Law Enforcement Division couldn’t be reached for comment, but SLED spokesman Thom Berry told The Post and Courier in Charleston earlier this year that there has been no change in the laws or enforcement strategy. The growth of SLED’s alcohol unit means “we are more visible to help ensure compliance” with state law, he told the newspaper.

Fireforge Crafted Beer founder Brian Cendrowski.
Fireforge Crafted Beer
founder Brian Cendrowski.

Restrictions on getting product to market

 

South Carolina’s three-tier system includes the producer, the wholesaler and the retailer. The state has carried the system for some time, but the most recent incarnations of the laws that are on the books come from the 1990s, Bristow said.

In practice, a producer makes alcohol and then sells it to a wholesaler, Bristow said. The wholesaler then picks up the alcohol, stores it at his or her facility and then sells it and delivers it to a retailer when an order is received.

The retailer then sells it to consumers when they come to the store. In its purest form, producers can only sell to wholesalers, wholesalers can only sell to retailers and retailers can only sell to consumers, Bristow said.

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There are certain exceptions, but the system was adopted after Prohibition and created to control consumption.

Russell Farr, president of Greenco Beverage Company in Greenville, said his company has remedied the situation by offering smaller breweries a temporary distribution agreement through which products will be properly taxed and sent through a three-tier system so the breweries can provide samples of their products at festivals. That way, the breweries can determine “if they want to even go to the expense of renting a building, buying equipment or even having a product that the consumer will come back and buy before they go to the trouble and the expenditure of opening a brewery,” Farr said.

“If you’re a production brewer, you have to go through a distributor for market. That’s the law,” said Farr, whose family-owned company is one of the area’s largest beverage distributors. “I’m all for getting product to market, and it shouldn’t be restricted.”

There is an important safety issue for state officials to consider as well, Farr said.

“In South Carolina, before a beer is introduced in the market, it must be tested by the state to insure that the ABV [alcohol by volume] is correct, the contents are accurate and the label is not offensive along with other requirements,” he said. “You can’t just brew beer in your kitchen in anticipation of opening up a brewery and then take it to a festival and have people consume it and expect no liability from it, especially if it’s in violation of a state law that was enacted to ensure public safety.”

 

Solutions from the Statehouse

 

Among state lawmakers, many are familiar with the issue and are eager to lend support to find a legislative solution when the next session begins in January, Bristow said.

“At this point, we’re not certain who the main sponsors of the legislation will be,” he said, but he anticipates support from Democrats and Republicans. “Beer is one of those issues that crosses party lines.”

“The specific special event law itself is indeed archaic, but is part of a much larger regulatory scheme, which is beneficial,” Bristow said. “The goal is to protect the public and retailers from undue influence from any producer, big or small. One unfortunate and unforeseen consequence of that was that nonprofit events are now being treated the exact same way as a for-profit liquor store.”

William Timmons, a Republican who defeated state Sen. Mike Fair in the GOP primary this year and is headed to the Legislature, said he doesn’t yet know how the issue should be addressed.

He is pro-business and anti-government regulation, and “if a business wants to give something away, I do find it a bit unreasonable that government would tell them that they cannot do that,” Timmons said.

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Ideally, a proposed legislative remedy would allow suppliers of beer, wine and spirits to donate product to nonprofits without penalty, while also allowing them to go back to what they were accustomed to doing at special events, by providing equipment and having pouring privileges, Bristow said. Most likely, the donation portion will be limited to nonprofits, but the pouring privileges will be extended to all events.

“Nothing has been hashed out on whether the donations will continue to flow through the distribution channels or whether donations can be made directly, and nothing has been determined on whether nonlicensed suppliers and home brewers and vintners will be able to pour product again,” he said.

Blame for the new enforcement protocols shouldn’t be placed on producers, as they are just acting for worthy causes, Bristow said.

“The blame shouldn’t be placed on SLED, as they are just doing their job, which is enforcing what the law says,” he said. “The blame shouldn’t be placed on wholesalers, as they want to donate, too, and the law is the law and they will have to abide by it — and now, do more work because of it. The blame shouldn’t be put on DOR [Department of Revenue], as their interpretation of the law isn’t completely without basis, and you’d do the same thing if you were in their position.”

Bristow added, “The blame should be put on both years of inconsistent enforcement of alcohol laws and on laws that are in big need of modernization to accommodate an evolving Palmetto State — and certainly there are plenty of those laws in the South Carolina code in many industries that could use some help.”

 


Tiers in my Beer: S.C.’s Three-Tier System

 

Tier 1: Brewery

Supplier manufactures the product.
Tax dollars collected: Federal excise taxes

Tier 2: Wholesaler

Distributor is usually a local family business that complies with state and local laws.
Tax dollars collected: Applicable state and local taxes, federal income tax, state and local income taxes, state and local license fees.

Tier 3: Retailer

Includes both on-premise (e.g., restaurants, bars, taverns) and off-premise (e.g., groceries, convenience stores, package goods stores) establishments where licensed alcohol beverages are purchased to be consumed by the public.
Tax dollars collected: state sales tax, local sales taxes, state and local license fees.

Source: South Carolina Beer Wholesalers Association


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