I emailed Senator Stargel today after reading her opinion piece that appeared in a number of Florida publications:

Senator Stargel,

I read your opinion piece on SB 1714 this morning and wanted to reach out in response. I certainly appreciate your opinion and the fact that you took the time to attempt to clarify certain information making its way around the media and internet right now. I also appreciate that you have worked hard on this bill and have made efforts to find a compromise. I don’t believe any compromise was ever necessary because I don’t believe there ever should have been any such legislation that would add more regulations to Florida’s beer industry. I would like to go through your piece and reply to your arguments.

 

STARGEL: It’s clear the three-tier system, purposefully instituted after Prohibition, must be preserved to prevent: predatory practices that would eliminate competition, opaque or illicit distribution channels, tax evasion, over-promotion and excessive consumption.

RESPONSE: Purposely instituted after Prohibition doesn’t mean much for today. Today is 80 years later. Should televisions be black and white today because that’s what they were many years ago? It’s not right and it is intellectually dishonest to claim that something is “clear” only to avoid providing any legitimate reasons to back that claim up. “Clear”, “must”, “eliminate”, “predatory”, “evasion”, and “excessive consumption” are all excellent and strong terms that may be used to create fear in those who are also less knowledgeable about this industry. To borrow use of the word “clear”, I would suggest it is rather clear that there are better ways to do things. Those ways include informed conversation, informed debate, use of common sense and a consideration of relevant context. Florida is lucky enough to be able to look across the country and see numerous examples of how the craft beer industry operates in other states and the impact that the regulations (and exceptions to those regulations) in other states have had.  That information is out there. That information would drive an informed discussion of what is best for Florida. Someone (a lot more than someone) has already done the work. The process and the results of what has occurred in other states could serve as a study of what is right and even what might be wrong. They made it easier (for us to understand how things work and for us to discover best practices). The legislation as currently drafted would only make things more difficult.

 

STARGEL: Now, to answer the most frequently asked question: Why is the three-tier system necessary in the 21st century? The three-tier is the backbone of societal protections against the rampant alcoholism of the 1920s. When beer was deregulated in the 1970s, we again experienced the effects of undercutting the three-tier system. In states where beer is unregulated, the per capita production is significantly higher. Higher beer production and higher consumption go hand-in-hand. As a social conservative, this is why I believe we need to keep regulations on alcoholic beverages in place and not have unregulated beer widely available in the marketplace. Social issues greatly impact economic issues, and we must seek a balance on both.

RESPONSE: Higher beer production and higher consumption do not go hand-in-hand. This is an assumption based on another assumption with context locked outside of the door. This statement makes it relatively clear that the purpose here is to cause less production of beer in the State of Florida. In return, that will (you assume) create less consumption. There will be less drunk people. There will be less accidents that alcohol may play some role in. The problem is, as you have noted again and again, there are three tiers. Those tiers include distributors and vendors. If there is less beer brewed in Florida, vendors will continue to stock their shelves with products that are supplied by distributors. Those products will just come from somewhere else. Instead, Floridians will be supporting businesses in other states. If Cigar City Brewing shut down tomorrow, you could not go to Publix and just find empty shelves where there was once beer. The fact that more than 90% of the beer consumed in Florida is brewed by companies located outside of Florida makes it a logical conclusion that the cause and effect that you have proposed is simply false. Perhaps we should consider placing restrictions on beer manufacturers from other states sending their product into Florida. That is generally the product that Florida’s consumers are drinking. Right? Granted, that would create constitutionality issues and is not offered as a serious conclusion, but that makes more sense than the claim that higher production within a state leads to higher consumption in that state.

Also, you have used the term unregulated quite a bit. That is a misnomer. The term “unregulated” refers to something that is “not controlled or supervised by regulations or laws.” Even where breweries in Florida may supply beer directly to consumers in a taproom, that beer is most definitely regulated. The state still requires certain reports to be filed, it requires certain labeling practices, it requires brand registration and, quite notably, it requires the payment of excise taxes. That beer can be considered a lot of things before it can properly be considered unregulated.

 

STARGEL: Most importantly, this legislation would preserve and protect the critical three-tier system, while ensuring the expanding craft brewery industry is in full legal operation, not in a gray area.

RESPONSE: The three-tier system is preserved by common sense and reality. Brewers are not going to bypass the distribution tier. They all realize they need each other. Distributors have nothing to distribute without brewers. Brewers are not going to buy fleets of trucks to get their product into more locations. It isn’t feasible. The three-tier system would continue to operate even with less regulation (the opposite of what you are seeking). Again, look to the rest of the country. The industry is thriving and a majority of the country allows at least some form of limited self-distribution (a far cry from where Florida is). While local brewers may bring their own product next door and down the street, they would rely upon a distributor to go beyond that point. By that time, a brewer is more likely to have built up its own reputation. That would be a plus for the distributor, which would have less work to do as far as marketing is concerned. If people are already aware of a product and its quality, it will be an easier sell. Again, the three-tier system is protected as things stand and it would be protected if there was less regulation than we have today. Instead, you are seeking to add more regulation that isn’t even necessary to do what it is purported to accomplish.

I provided just a few examples previously when I reached out to a couple of Senators. I was disappointed that those Senators never replied. I was disappointed they did not take this information into consideration when seeking further context of SB 1714 and the way that the industry operates. These examples include the following states that allow breweries to sell their beer directly to vendors:

– The state of Washington allows a licensed microbrewery to “also act as a distributor and/or retailer for beer and strong beer of its own production.” A microbrewery in Washington is defined as one with “production of less than sixty thousand barrels of malt liquor, including strong beer, per year.”

– Maryland allows a brewery that produces up to 22,500 barrels to distribute up to 3,000 barrels of its own beer annually.

– In Montana, a brewer who manufactures less than 60,000 barrels of beer a year can distribute up to 10,000 barrels a year of its own beer directly to retailers.

– New Hampshire brewers that don’t manufacture more than 15,000 barrels per year can distribute up to 5,000 barrels per year directly to retailers.

– In Arizona, a brewery can self-distribute up to 3,000 barrels of its beer per year to retailers.

– Craft brewers in Illinois can self-distribute up to 7,500 barrels of beer to retail licensees each year.

These states (JOINED BY MORE THAN 30 OTHERS) provide limited exceptions to the three tier system. While the exceptions they provide are limited in nature, they are in the majority when self-distribution is concerned. The result? States that allow self-distribution were the top five states in craft beer economic impact per capita for 2012 (based on statistics released by the Brewers Association in December of 2013). In each of these examples, the distributors are not left out. As I mentioned earlier, they are necessary, whether it is mandatory or not. While breweries generally self-distributed on an extremely local scale, they relied upon their relationships with their distributors to bring their product to more locations further beyond their breweries.

On the opposite end of that spectrum was Florida. Florida ranked last in economic impact per capita, followed by Alabama, Mississippi and South Carolina. Those states are among the small portion that does not allow self-distribution. The craft beer industry could (and should) have a much greater economic impact on the State of Florida but it is being held back (now I would say “pushed” rather than “held”).

 

STARGEL: Currently, craft brewers operate under a tourism exemption. This exemption allows a brewer (1st tier) to sell beer to a customer as a vendor (3rd tier). This exemption was originally intended to allow theme parks to sell beer to park visitors. However, craft breweries have been issued licenses under this exemption, without having to prove their tourism aspect. Thus, they are operating outside the context of current law.

RESPONSE: There is no legal gray area here. As far as tourism is concerned, as you admitted previously, you are starting to learn of the tourism aspect associated with the craft beer industry. Just because you are only starting to learn of it does not mean it did not previously exist. A quick google search provides many examples of the tourism related to craft beer industries in many states across the country. A city in Alabama, for example, has a new campaign in which it is seeking to lure even more people to the city using its “growing craft beer and food truck scenes”. http://blog.al.com/breaking/2014/04/huntsville_touts_growing_craft.html.  A Minnesota paper noted two weeks ago that “Tourists will soon flock to the Northland.” http://www.wdio.com/article/stories/s3398268.shtml.  I hope it is not necessary to provide an incredibly long list, but the information is out there with a simple search.

It is relatively insulting to hear that the exemption worked many years for Anheuser Busch at a theme park but cannot work now that Anheuser Busch no longer has such a need for it. These craft breweries do bring tourists. That brings money and jobs to Florida. While there is a claim that the exemption was created only for theme parks, the law is quite clear that it applies to those who impact Florida’s tourist industry. As you have previously said, these breweries do have that impact. I don’t believe it makes sense to discriminate in this fashion against this form of tourism. If we played that game, we could go back and wonder why it ever made sense to have an exception that would allow a brewery to operate in a theme park generally created to entertain children. Do we (did we?) want children associating fun theme park with beer?

Additionally, you note that Florida’s craft breweries have not proven their “tourism aspect”. Craft breweries could prove their “tourism aspect” if necessary. If there is any failing there, it is a failure of the regulators in Florida to seek any such information (if necessary). It is a pretty major misrepresentation to accuse Florida’s breweries of operating outside the context of the law. They are not. Perhaps there should be legislation creating a threshold of what is and is not considered tourism for Florida’s craft breweries. Ultimately, it seems much more (based on your accusation and the “context” you provide) like those charged with regulating Florida’s breweries have not been given proper instruction on how to perform a portion of their job. Again, it’s not a failure on the part of the breweries.

 

STARGEL: The tiers must remain separate, similar to the three branches of government. It does not undermine craft breweries; in fact, it creates a regulatory framework in which the operation of craft breweries is legal and can continue to grow, while providing a safeguard for our three-tier system.

RESPONSE: The three tiers and the three branches of government are incredibly different (except that they are both three). The three points of a triangle must at all times remain separate or it would no longer be a triangle. Again, the regulatory framework in which craft breweries operate already exists. It is highly regulated. For the same reasons discussed above, the three-tier system is already safeguarded and most states have proven that less regulation does not have a negative impact on those safeguards.

 

STARGEL: Now, allow me to state clearly what Senate Bill 1714 does not do. This bill will not put craft breweries out of business.

RESPONSE: Agreed. It should not put any craft breweries out of business. I do worry that you have overlooked what it actually may do, however. I have already spoken with one future brewery owner who is getting ready to make trips outside of Florida to determine whether he should bring his business elsewhere. There is a lot of planning involved in opening a brewery and a lot of money and assets tied up in it. Like most new businesses, it is a big risk. The legislative climate, regardless of what ultimately happens with the bill that you sponsored absolutely may work to drive out businesses from Florida before they ever arrive. This brewer’s potential investors have also suggested that he consider opening in a better location in which he can thrive. The worry is not that this bill will be a killer of today’s business. The worry is that this demonstrates how Florida does and will operate. This shows the way things are most likely to occur in Florida and it shows the way things are very unlikely to go (common sense be damned).  I would be scared to open in a place that might, at any given time, throw extra regulations my way that could potentially hinder the growth of my business. That’s where Florida is now and it threatens to create added anxiety over what will come next. In the end, this is only bad for Florida.

I certainly hope that you take the time to read this and take the time to consider this. I believe that the relevant context of what has occurred (and noticeably, what has not occurred) across the country should serve as an example of what Florida should strive for. The three tier system would be protected and all businesses along the line would be able to flourish. SB 1714 moves us in the opposite direction. Please feel free to contact me any time in the office at 954-842-2021 or by email at raa@komlossylaw.com.

Sincerely,

Ross Appel