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Scott Elmquist

Friday, October 6, 2017

How Virginia's Laws Struggle to Keep Up With the Booming Craft Beer Industry

Posted By on Fri, Oct 6, 2017 at 1:30 PM

You can find a lot of handy items at Virginia breweries, but there’s one thing you’ll never find: a coupon for beer. Not at a brewery that’s obeying the law, anyway. The Code of Virginia is unambiguous. Offer instantly-redeemable beer coupons, and you’re on the wrong side of the law.

Following this statute and scores of others — collectively known as the Alcoholic Beverage Control Act — is a fact of life for businesses in the state’s growing craft beverage industry. There are laws governing nearly every step of the process, from the moment a recipe flows from a brewer’s mind to the second it quenches someone’s thirst.

Some people within the industry wonder whether it’s time to rewrite the playbook — if not through a major overhaul, then at least tweaks that could better reflect the realities of the 21st century.

Most manufacturers laud recent legislation that has allowed the craft industry to flourish. Since the Virginia legislature’s 2012 passage of the landmark law that allowed sale and consumption on premises at breweries, there’s been a flurry of actions aimed at bolstering the industry. Still, most of the laws that govern craft beer come from an era when society had a different relationship with alcohol.

Travis Hill, chief operating officer of the Virginia Department of Alcoholic Beverage Control, says many of Virginia’s laws regarding alcohol originated in the post-Prohibition era. Nevertheless, he says, they are centered on public safety and promoting fair business practices, which remain important today.

Some of the regulations, rightfully or not, call to mind the stereotypical lawlessness of Prohibition-era alcohol consumption. “The interior lighting shall be sufficient to permit ready discernment of the appearance and conduct of patrons,” reads a statute that seems to be aimed at forbidding seedy speak-easies.

Another statute appears to prevent shady financial relationships that shut out competition. When a manufacturer sells alcohol to a retail establishment, the goods “shall be for cash paid and collected at the time of or prior to delivery.” There are even the traces of Virginia’s now-mostly-repealed blue laws, which restricted business on Sundays. “Persons licensed to sell alcoholic beverages at wholesale shall make no delivery to retail purchasers on Sunday.”

While those in the craft beverage community must navigate nearly all the laws at some point, there are a few sections of the regulations they brush against regularly, according to Porter Hardy, president of Smartmouth Brewing Co. in Norfolk and co-chairman of the Virginia Craft Brewers Guild’s government affairs committee.

“Much of what we’re dealing with is what we can and can’t advertise, and what we can and can’t do together with restaurants,” he says.

People in the industry sometimes have trouble understanding all the intricacies of the law. Even Hardy, who practiced law before switching careers, sometimes needs clarification. “There are consistently times we have to check the statutes and work with the ABC agents,” he says. Hill says the department constantly receives questions about regulations as new business practices and technology change the way people communicate about and consume alcohol. One example is the emerging use of social media.

Advertising regulations make up a large part of the ABC Act, and most of the laws are straightforward, as with a ban on advertising alcohol near schools and playgrounds. But social media hasn’t fit so tidily into the advertising models in place when the laws were crafted. The interpretations that come out of discussions hosted by ABC officials offer some workable — if unconventional — solutions. “If five restaurants sell my mead, I can’t highlight one of those on Facebook and say, ‘Go to this or that restaurant,’” says Glenn Lavender, who owns Silver Hand Meadery in Williamsburg. “But if a restaurant posts that they’re selling it, I’m allowed to re-post that.”

ABC agents have also demonstrated flexibility and creative work-arounds within the letter of the law. A hallmark of Virginia’s ABC Act is the three-tier system. Breweries and distilleries must sell their products to retailers through third parties, called distributors. Manufacturers are not permitted to distribute their own beer. But that doesn’t mean that a brewer’s spouse can’t be a distributor. Aaron Childers owns Pretty Ugly Distribution. Her husband, Shawn, co-owns Big Ugly Brewing Co. in Chesapeake. Pretty Ugly distributes beer made by Big Ugly and several other craft breweries in Hampton Roads.

Childers says the idea is not unique. A few other breweries in Virginia have an affiliated — but entirely separate — distributor. She says the separation is key to the business model’s legality. “There has to be crystal clear delineation between the businesses,” she says. “We have completely separate bank accounts and separate records.” That relationship is perfectly legal — even facilitated by ABC officials. “I call them all the time with questions, and my first line is always, ‘It’s me again.’”

There’s a case to be made for a complete overhaul of ABC laws given the fluid evolution of craft beverages, according to Lavender. “When a lot of these laws were made, the industry was not what it is now,” he says. Mead, made from fermented honey and water, is especially tricky to deal with, because it doesn’t fit neatly in a single category. Yet Lavender is certain of ingredients he can’t include. “I’m not allowed to ferment any grain at all, because I don’t have a brewery license,” he says. Lavender thinks making laws based on the outcome of fermentation would make more sense than beer, wine, and spirits categories. “We’re all just fermenting different sugars anyway,” he says.

But Kevin Erskine, owner of Coelacanth Brewing Co. in Norfolk, says some of the laws, though they seem arbitrary, serve to help the industry’s little guys. One regulation he highlights is a rule capping at $10 the value of gifts — wine glasses or hats, for instance — given to patrons as a way to promote their products. Yes, he says, it’s a pain making sure freebies fall within this limit, but this also prevents large corporations with deep pockets from gaining unfair advantage with lavish gifts. Erskine says in aggregate, Virginia’s regulations do a fair job reining in the liabilities inherent in alcohol production, but there can always be improvements.

He says a bigger issue than what some see as nanny-state governance is overlapping jurisdiction. While the breweries must follow Virginia’s laws, they have to mind the regulations of federal and local governments, too, and those different levels of oversight aren’t always on the same page.

Virginia is a good place to be as more people look to wet their whistle with craft beverages, Erskine says. In some other states, such as Florida and North Carolina, there’s outright antagonism between parties within the brewing industry. And lawmakers in other states aren’t always so eager to invest in the craft beverage industry.

“The reality is that, especially here in Virginia, the government is doing its best to help this industry grow,” he says.


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