For the second time in as many years, a 20-year-old “secret agreement” between Anheuser-Busch and a North Carolina wholesaler is being highlighted as a key piece of evidence as Tar Heel State brewers look to change a decades-old distribution law. The document, first reported last year by NC media, is part of a franchise agreement between AB and Raleigh-based R. A. Jeffreys that encouraged the distributor to give priority to Anheuser-Busch products above others, which itself would be illegal under a 1989 state law, says a lawyer representing North Carolina breweries suing the state.
According to the Charlotte Business Journal, ABC Commission Administrator Bob Hamilton agreed in the assessment. Last year, distributors noted that “the kind of favoritism suggested in the 1997 franchise agreement is barred by a 2012 state law involving franchisers,” according to the Charlotte Observer.
It all surrounds an ongoing fight to overturn a state law that prohibits self-distribution when a business surpasses 25,000 barrels of production. Two Charlotte-area breweries, NoDa Brewing and Olde Mecklenburg, have helped lead the legal battle for their in-state peers.
WHY IT MATTERS
Across the country, Prohibition-era laws created to support the three-tier system continue to come under fire, with North Carolina one of the most prominent examples. The argument made by the state’s breweries is based on capitalistic ideals and free markets typically championed by Republicans, but even with numbers high enough to give them a veto-proof majority in the State Legislature, the GOP-held State House is yet to offer relief to these growing companies.
For the breweries, being forced to give up distribution rights after 25,000 barrels is often cited as forcing the layoff of staff and downsizing delivery equipment, punishments for businesses that are simply trying to grow and meet customer demand. NoDa and Olde Mecklenburg have both repeatedly said they would not grow beyond the cap as a way to keep full control over their business. Olde Mecklenburg has even gone as far as continually putting on hold a $10 million expansion until the law is changed—a project that could create about 100 new jobs.
As with other issues around changing laws, the threat of money has often been pointed at as a challenge for North Carolina brewers to come out on top. In 2016, the North Carolina Beer and Wine Wholesalers Association and individual distributors donated $53,000 to 16 of 26 House members on a committee that oversees state alcohol law. According to an an analysis by Duham’s INDY Week, the committee’s co-chair, republican Jamie Boles ($14,250), received the most of that total, and GOP House majority leader John Bell ($11,500) got the second-most among committee members. In all, the state’s Wholesalers Association and individual companies contributed $1.5 million to republican and democratic committees and candidates from 2013 to 2016.
Because of this, lawyers representing NC breweries are now seeking communications between state legislators, lobbyists, and distributor companies as part of the lawsuit's discovery process. They're also asking for state alcohol commission records covering agreements between wholesalers and big brewers, which points to the AB agreement from 1997.
That communication, more than two decades old, wasn’t out of the ordinary for the time. It came a year after Anheuser-Busch had launched its “100% Share of Mind” campaign in which then-chairman August Busch III pushed the idea that partner wholesalers “must exert [their] undivided attention and total efforts on Anheuser-Busch products.” As Tom Acitelli pointed out in coverage of the announcement, it was never made clear what threat AB was making toward wholesalers who didn't fall in line, though the potential of losing brands from the world’s largest brewer was certainly an incentive to pay attention to such a request.
In 1997, the same year as the NC "secret agreement" in question, Anheuser-Busch was the subject of a Justice Department investigation over antitrust behavior. In July of that year, a collection of lawsuits were consolidated into a U.S. District Court in San Jose, hoping to prove AB's request was forcing unfair advantages for the brewing behemoth. It was ended with no legal action. A similar attempt was made in 2015 in which AB InBev reportedly offered up to $1.5 million to distributors if 98% of their SKUs sold were from the company's portfolio of macro and craft offerings. That was dropped in 2016 after another inquiry by the Department of Justice.
In mid-May, a state Superior Court judge decided not to dismiss the legal action from North Carolina's breweries, which is now being reviewed by state Attorney General Josh Stein. And that means the timeline for how all these current legal issues can be resolved—and in the case of Olde Mecklenburg, when their expansion can happen and new jobs can be created—is yet to be determined.