Is Maryland Trying to Punish Craft Breweries?

By Adam Pagnucco.

Craft breweries have been growing rapidly in Maryland and elsewhere, forever changing the beer business.  Maryland scored a huge win a couple months ago when Diageo announced their intention to open a $50 million Guinness brewery in Baltimore County, creating a tourist attraction and dozens of jobs.  Best of all, unlike many employers, Diageo is not asking for one thin dime of public subsidy to come to the state.  But instead of welcoming the new facility with open arms, the House of Delegates reacted by making it harder for Diageo to do business here, as well as many other breweries in Maryland.

The debacle began when Diageo asked for a change in state law to allow them to sell 5,000 barrels of beer at a restaurant and tap room on the brewery site.  (Maryland’s current limit of 500 barrels is by far the lowest in the nation; the second-lowest state, North Carolina, has a limit of 25,000 barrels.)  Other brewers sought a limit of 4,000 barrels in on-site sales for their own operations and five different bills followed.  HB 1283 was the one that passed the House of Delegates and did three main things.

  1. It increased the on-site sales limit to 2,000 barrels. Breweries could apply to the Comptroller for permission to sell another 1,000 barrels on-site, but they would have to go through a distributor to do so.  That means the brewery would have to brew its own beer, then turn it over to a distributor, then receive it back from that distributor and of course pay the distributor a fee for its service.  Guess who ultimately pays that fee?  That’s right, you the customer!
  1. It established closing times for tap rooms of 9 PM during the week and 10 PM on weekends, down from local closing times ranging from midnight to 2 AM.
  1. It limited tap room sales to beer brewed on-site only. This repeals a long-standing practice in which brewery tap rooms supplement their own products with contract beer brewed for them by other breweries.  Such contract beer sales are major sources of revenue for some craft brewers and make tap rooms more attractive to customers.

Brewers characterized the combination of changes as “one step forward and two steps back” and predicted layoffs and business losses.  Why would the House pass such a bill?

One of the biggest opponents of liberalizing rules on craft breweries is the Maryland State Licensed Beverage Association, which represents restaurants and small alcohol retailers.  The group is particularly influential in Annapolis as its PAC has contributed over $180,000 to state politicians since 2005.  The association sees craft brewers as competition for its members.  From a zero-sum perspective, every pint purchased in a brewery tap room is a pint not purchased in a restaurant or package store.  But that view doesn’t recognize the synergies between these types of establishments as well as their differences.  Diageo’s brewery has the potential to be a major tourist facility, bolstering the entire local economy.  And if a consumer purchases a new product at the Diageo site and likes it, he or she will be motivated to buy that same product at restaurants and stores.  That means more business for everyone.

Some brewers would prefer that HB 1283 simply die in the Senate because of the problems it would cause, but it’s not so simple.  If the bill dies, the state’s current on-site sales limit of 500 barrels would stay in place.  That could cause Diageo to cancel its project, costing Baltimore County a $50 million tourist attraction that other states would kill to get.  Think of the impact that would have on the industry’s perception of Maryland.  If we lose Diageo, what other major brewer would ever relocate here?

Maryland has a number of anti-competitive laws on alcohol, including the much-loathed prohibitions on sales in most grocery stores and Montgomery County’s dysfunctional liquor monopoly.  The last thing we need is even more of these laws, especially if it causes us to lose a major employer and gives us a national black eye.  HB 1283 must be fixed.  Cheers to the State Senate if they can get it done.