United States: NJ Craft Breweries Under Influence Of Tour Requirement

Most American craft breweries know how difficult it can be to get their beer in front of the consumer, especially in light of crowded tap lists and tight shelf space at bars and retailers. In addition to these omnipresent concerns, New Jersey craft breweries are subject to two regulatory burdens that once again are up for debate in Trenton: providing mandatory tours to patrons before serving them a pint and submitting current price lists to regulators on a monthly basis.

Brewers, wholesalers and regulators alike are now hotly debating Assembly Bill 2196, which would remove the tour requirement and soften the rules on current price lists for small alcohol manufacturers.

New Jersey's craft breweries are governed by Title 33 of the New Jersey Revised Statutes and Title 13, Chapter 2, of the New Jersey Administrative Code. As alcohol manufacturers, New Jersey breweries must obtain a Class A manufacturer's license from the Department of Law and Public Safety's Division of Alcoholic Beverage Control. According to the New Jersey Brewers Association, 83 of the state's 98 craft breweries hold limited brewery licenses, and as a result may produce no more than 300,000 barrels of beer annually. 

More importantly, Section 33:1-10(1b) provides that limited brewery licensees are entitled to sell beer "at retail to consumers on the licensed premises of the brewery for consumption on the premises, but only in connection with a tour of the brewery, or for consumption off the premises."

This so-called tour requirement, which was first made law in 2012 as a trade-off to allow craft breweries to serve beer for on-site consumption in quantities over and above 4-ounce samples, is notorious among New Jersey brewers and beer enthusiasts alike.

"Since 2012, it's probably been the No. 1 issue that brewers in New Jersey have brought to my attention," said Eric Orlando, vice president of Kaufman Zita Group and executive director of the newly formed Brewers Guild of New Jersey. "If you're a small business and just getting off the ground, the possibility of a $1,000 fine or suspension of your license for even a relatively short period of time can kill your business." 

The tour requirement can also be a logistical nightmare for new brewery owners who may be hypersensitive to the consequences of noncompliance, as they often dedicate staff or themselves to ensure patrons are properly given a tour before tasting.

For customers, the tour requirement can be an annoyance, especially if they have taken the tour in the past, and even more so if they have visited more than one New Jersey brewery in a single day. Much to their chagrin, regular customers must also receive a tour.

Opponents of A2196 argue that removing the tour requirement is contrary to the purpose of the three-tier system of alcohol regulation and distribution and would give brewers an unfair advantage in the New Jersey alcohol industry. "Craft brewers already have special privileges.  They are manufacturers, wholesalers and retailers — they have a foot in all three tiers," said Michael Halfacre, executive director of the Beer Wholesalers' Association of New Jersey and a former director of the ABC. 

The ability to operate in all three tiers of the system is unique to craft breweries. New Jersey wineries, for example, must "grow and cultivate grapes or fruit" on at least 3 acres of land in order to obtain a plenary or farm winery license under NJRS 33:1-10.

"As a tradeoff, brewers must give a tour and can't serve food. It is not a retail license with the privilege to manufacture — it is a manufacturing license with the privilege to retail. The tour allows brewers to build their brand and it serves a purpose in defining the craft beer niche" continued Halfacre.

In practice, the tour requirement receives varied compliance. The term "tour" as it is used in Section 33:1-10(1b) is not defined anywhere in the statute. As a result, New Jersey breweries "have essentially been self-regulating," said Halfacre, and the ABC has found it difficult to enforce a requirement that is not defined. Some breweries treat tours as an exciting and integral part of their marketing strategy. Newer and smaller breweries, however, will often provide illustrated note cards or even brief oral presentations summarizing the brewing process to meet the tour requirement. 

There is good news on the horizon for both New Jersey craft brewers and beer enthusiasts, however. A2196, first introduced in the New Jersey Assembly on Jan. 29 and referred to the Assembly Agriculture and Natural Resources Committee, would remove the tour requirement. On Feb. 1, the committee unanimously voted in favor of the bill and recommended it for a second reading before the full assembly.

Far less apparent to consumers, but perhaps more important to breweries, A2196 also would soften regulations regarding the submission of current price lists to ABC. A "Current Price List," commonly known as a "CPL," is a list of prices and terms of sale which each entity licensed to sell alcoholic beverages to retailers in New Jersey — including a limited brewery licensee — is required to maintain and file monthly with ABC. The monthly filing must be made by the 15th day of each month with the prices in effect for the entire calendar month that follows.

To beer enthusiasts, this requirement may seem mundane, but brewers know that noncompliance can have serious consequences. A brewery may not sell to any retailer and a retailer may not accept delivery of anything listed on a CPL upon terms other than those set forth on the brewery's CPL. More importantly, the ABC only accepts CPLs by mail, which means late delivery of the CPL can hold up beer sales.

A2196 would amend the current CPL regime by allowing "[a]ny licensee or registrant authorized to sell an alcoholic beverage to retailers" in New Jersey — this includes limited brewery licensees— to petition ABC to allow the brewery to file a CPL on an annual basis so long as they sell less than 60 stock-keeping units per month. Proponents of this change stress that this would greatly reduce paperwork for small New Jersey craft breweries.

Opponents argue that removing the monthly CPL requirement would be contrary to the regulation's anti-price-discrimination purpose. "The CPL is an enforcement mechanism to ensure that all suppliers sell to retailers at the same price. If you're the ABC, and a CPL isn't filed regularly, then how do you know what prices are being sold where?" said Halfacre. 

With the recent unanimous committee vote in favor of A2196, brewers are optimistic for a political win this legislative session. However, the bill still has a long way to go through the legislative process. New Jersey's brewers will have a long fight ahead before giving tours (or not) on their own terms and having less paperwork so that they can get back to doing what they do best — brewing great beer.

Dave Edmonds practices in the area of corporate law at Duane Morris LLP.

Copyright NJBIZ. Reprinted by permission.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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