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Thursday, February 15, 2018

A Beer War Is Brewing in Maryland

Despite last year's baby steps toward easing legal restrictions on brewers, Maryland delegates are threatening to undo it all and make it even harder for small breweries.

“Maryland Welcomes You: We’re Open for Business” may need to be amended to “We’re Open for Cronyism.”

The 60+ craft brewers based in Maryland might be the most recent group of entrepreneurs to learn this lesson. After House Bill 1283 was passed in a compromise last year, many craft brewers were optimistic. The bill expanded production limits and permitted contract brewing, although it limited taproom hours.

The Brewers Association of Maryland (BAM) felt this compromise was a step in the right direction. As Lauren Cohen of Baltimore Magazine originally reported:

“Despite these improvements, BAM believes there is much more to be done to transform Maryland law to support local craft brewers,” [Executive Director Kevin] Atticks said. “We accept this bill passed by the Senate as a step toward making Maryland friendlier to our industry with the understanding that BAM will continue to support existing, new, and prospective Maryland brewers.”

One year later, it appears that optimism may have been in vain. Delegate Dereck Davis and Delegate Talmadge Branch have introduced House Bill 1052 with the purpose of repealing HB 1283. Davis and Branch claim they are responding to the criticism of the previous bill and seek to right a wrong. The delegates have decided to start the process over completely with the repeal.

Well, maybe not completely.

Different Rules for Different Businesses

This is where the story becomes quite curious. The new bill will reduce output for all brewers except for one: the new Guinness Brewery being built in southwest Baltimore. Furthermore, there has yet to be any public support of this from Maryland Brewers. What was supposed to be a step forward for them is being transformed into two steps back.

Flying Dog has halted its $54 million expansion project in Maryland. HB 1052 most notably includes restrictions in production, restrictions on the ability or manner of sale, and restrictions on public engagement. This is all with the exception of brewers producing over 1,000,000 barrels a year (i.e. Guinness). The proposed bill limits production to 500 barrels (previously 2,000) a year for on-site tastings, promotional events, and tours.

Furthermore, an individual must be engaged with an event in order to consume any samples. Should more beer be necessary before the year ends, brewers must buy their own beer back from wholesalers at market price.

It is no surprise this has many of the industry leaders worried. Flying Dog has halted its $54 million expansion project in Maryland “because of regulatory and legislative issues that relate to all breweries in Maryland,” according to CEO Jim Caruso. In addition, Union Craft Brewing has expressed similar sentiments in regard to their new expansion. Adam Benesch, one of the company’s founders, said, “[Regulatory uncertainty] is what holds us back from being able to go full force and grow as fast as we can.”

Can’t Afford to Be a Cartel

Legislative restrictions have long been a way to turn an industry into a legal cartel. The restrictions act as the method of enforcement so agents do not cheat at the expense of other members. With all members restricted, the market is faced with a shortage, and, thus, prices are artificially high to the benefit of the cartel members.

Franchot has carved out a plan to continue the progress brewers had hoped to begin in 2017. However, while such restrictions are often lobbied for by industries, the craft beer industry in Maryland has a fatal obstacle preventing them from enjoying such benefits: size. Many are simply too small to be able to afford to cut production. When operating at the margin, firms cannot afford to reduce production.

Luckily, craft brewers do have someone on their side: Comptroller Peter Franchot. Regarded as the regulator who listens, Franchot has carved out a plan to continue the progress brewers had hoped to begin in 2017. This includes removing all limits on beer production, repealing the buy-back provision, removing the take-home sale limits, allowing self-distribution, and adjudicating rules on taproom operating hours to the local jurisdictions in which they operate.

Franchot has made it clear he wants Maryland’s breweries to be free to do what they do best.  

Although some Marylanders feel that “Guinness is buying back market shares through legislation,” the company has denied any involvement in HB 1052 in a recent press release. Cronyism or not, Delegates Branch and Davis have taken a perplexing stance with little evidence to support their claims. As Maryland continues to be ranked among the least economically free states, it is important for Marylanders to make their voice heard and seek to understand just what is happening in the state’s capital.

Marylanders may find contact information for their local representatives here. The decision on HB 1052 will be made February 23, 2018.

  • Nicholas Anthony is the Manager of the Cato Institute's Center for Monetary and Financial Alternatives.Originally from Baltimore, Maryland, he received a Bachelor's Degree in Economics and Business Administration from Towson University, and a Master's Degree in Economics from George Mason University.