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07.01.21

Massachusetts ABCC Section 25E½ decision affects brewery distribution agreements

BY Anthony V. Bova II

The Massachusetts Alcoholic Beverages Control Commission (the “Commission”) recently issued an important decision on an issue of first impression: does the Commonwealth's new small-brewer exception to its alcoholic beverage wholesaler franchise protection law apply retroactively to wholesale distribution agreements in place prior to the exception’s enactment? The Commission determined in Night Shift Distributing, LLC v. Loverboy, Inc. (June 23, 2021) that provisions of the new law, M.G.L. c. 138, § 25E½ (“§ 25E½”), do alter existing brewer distribution agreements and give the law retroactive effect. As a result, small brewers have gained more power to break free from their existing wholesale distribution agreements if they choose.

In January 2021, Massachusetts became one of the latest states to alter their alcoholic beverage wholesaler franchise protection laws to allow a defined class of craft breweries to terminate their wholesale distribution agreements without “good cause.” Ordinarily, a good-cause showing is required before an alcoholic beverage supplier can terminate its wholesaler relationship in Massachusetts (as is the case in many so-called “franchise” states). This requirement protects wholesalers; the good-cause standard can be extremely difficult for a supplier (such as a brewery) to meet. A small brewer with little bargaining power is often locked into its existing wholesale distribution agreement indefinitely, regardless of whether the agreement is best for its business. Removing the good-cause requirement shifts some bargaining power back to breweries.

The Commission’s Night Shift decision gives more power to breweries, who may terminate pre-existing wholesale agreements using § 25E½. The Commission noted that although statutes generally are “prospective in their operation”—particularly where they affect contractual terms—they can be given retroactive effect in industries subject to “pervasive regulation” like the alcohol industry. The Commission inferred retroactive intent from the language of the Act creating § 25E½, too.

This is an impactful decision for Massachusetts wholesalers and craft breweries, who should review their existing distribution agreements to determine whether § 25E½ will alter their relationship. Retailers should also be aware. Small breweries can now change wholesalers with ease, meaning retailers may need to seek out new wholesale distribution partners in order to continue purchasing favored brands. As craft brewing continues to gain popularity in the United States, wholesalers and small producers nationwide should expect similar changes to their own regulatory structure, particularly in franchise states.

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Anthony V. Bova II

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