Why The ABCC Got It Right About Farmer-Brewers In Massachusetts…

Posted on Posted in Alcoholic Beverages Control Commission, Beer Law, Boston Beer, Cambridge Brewing Company, Craft Beer, Farmer-brewer, Massachusetts Beer, Massachusetts Brewers Guild, Northampton Brewery

It’s been a busy week in the world of Massachusetts beer. In case you’ve been living in a cave (or were just out of town like myself), the controversy started with the Idle Hands Craft Ales company announcing that the Massachusetts Alcoholic Beverages Control Commission (ABCC) had denied its application for a so-called farmer-brewery license. Beyond impacting this single nano-in-development, the ABCC’s decision included a section purporting to be an advisory opinion, which held that in order to qualify for a Farmer-Brewery license, a farmer-brewer must “grow at least 50-percent, in the aggregate, of the quantity of cereal grains and hops needed to produce the anticipated volume of malt beverages.” The ABCC explicitly stated in its decision that “the industry is put on notice that the Commission will be applying this ruling prospectively and, specifically, during the next annual renewal cycle to ensure that every applicant for a farmer-brewer license meets the state law definition of farmer-brewer by growing at least 50 percent…”

This statement no doubt scared the hell out of dozens of brewers around the state that continue to operate under such a license, even if their renewal period was still a few months away. Read as an advisory opinion, the agency’s decision sought to redefine a long-standing license that a large number of production breweries in the state use for their operations.

The response to the ABCC’s decision and advisory opinion was fast, furious, and devastating. Everyone from newbie nanos to United States Senator Scott Brown piled on the vitriol against the ABCC, calling the decision everything from a “job killer” to a “devastating financial opinion.” Speaking at a well-timed annual meeting of the Beer Institute in Boston, Senator Brown lit into the decision. From the start it appeared clear that it was only a matter of time before either the legislature or other state politicians acted to quell concerns. On the state level, Senator Robert Hedlund filed legislation to allow for a new manufacturer’s permit for craft brewers. On the federal level, Senator Brown announced his support for the long-pending bill to roll back the taxes brewers pay to pre-1991 levels, which would cut the per barrel tax to $9 under legislation. Under the bill, the taxes paid by small breweries on their first 60,000 barrels produced would also be cut from $7 to $3.50. A few days later, State Treasurer Steve Grossman, who oversees the ABCC, announced that the agency’s decision would be rescinded and that public hearings on the rule would be held.

The funny thing about all of the controversy, however, is just how uncontroversial the ABCC’s decision should have been. Little is generally known by the public of the farmer-brewer designation and craft brewers themselves seem to also lack knowledge about its history. This fundamental lack of understanding, combined with the ABCC’s admittedly clumsy handling of the situation, has allowed what is otherwise a seemingly proper decision to go up in flames, squelching a broader and necessary discussion.

Long before the Harpoon Brewery sought the state’s first brewing permit in 1986, the Massachusetts alcohol licensing law contained but a single type of permit allowing for the manufacture of malt beverages in the state. In 1982, at a time when no breweries existed in the state, the state legislature tried to encourage brewing by adding a “farmer-brewer” or “farmer-brewery” license. Little changed since its passage, the farmer-brewer law was intended to encourage “the development of domestic farms.” Under the license, individuals and corporations can brew and sell their own beer on the site of the brewery. The measure passed with little fanfare and went unused until small, upstart craft breweries saw the benefits of its less restrictive terms and much less expensive licensing fees.

But from the beginning, applying the farmer-brewer designation to small brewers was complicated and fraught with problems. In the beginning, the ABCC enforced the spirit of the regulation and required brewers to cultivate at least one ingredient used in the brewing process, be it hops or barley. This, of course, caused problems for local brewers. As the Boston Business Journal put it more than twenty years ago, “[s]ince the climate here is not appropriate for growing barley adequate for brewing beer, to get the license [brewery] owners must lease farmland to grow a crop they will never use.”

“I don’t know of any other business that is required to farm in the state in order to do business,” Jonathan Tremblay, the then manager of the Cambridge Brewing Company, told the Journal. To qualify for the farmer brewer license, the brewpub grew 10 acres of useless barley that it leased from a farmer. At the same time in Northampton, one of the state’s only other brewpub proprietors, Janet Egelston, wanted to open new locations of the popular Northampton Brewery in Worcester and Salem but the state’s laws caused them to open in Portsmouth, New Hampshire instead. The nature of the farmer brewer license also caused her to postpone for five years her marriage to a business partner, until a state senator filed special legislation exempting from the state law prohibiting joint ownership of both brewery and restaurant.

In response, the ABCC filed legislation in 1990 attempting to scrap the farmer brewery license and replace it with a new brewpub license. After long being stuck in a legislative committee, and while no other brewpub licenses were granted, the legislature finally passed the law in 1998, adding licenses for pub brewers and pub brewers. While the new license allowed pub brewers to operate without the farming requirements, the legislature did not remove the language for non-pub based farmer brewers.

The ABCC itself acknowledged the farcical nature of the license. “The farmer brewery license is not working out well at all. It is making hypocrites and dishonest people out of legitimate business people by claiming they are growing the commodities that go into the product when in fact they are not,” George McCarthy, former ABCC chairman, told the Boston Business Journal in 1990. Somewhere thereafter, the ABCC changed its application of the ingredient growing requirement, allowing new craft brewers to enjoy the benefits of a license never intended to govern their operations. Craft breweries favored the farmer brewer license and continued to open and operate under its designation.

Fast forward to today and craft breweries are suddenly up in arms over something that should have been addressed by their lobbyists and the legislature decades ago. Until recently, Massachusetts brewers have been a largely disorganized bunch, preferring to go it alone in their operations and eschewing a larger, statewide group effort. The resurrection of a statewide brewers guild has helped this situation but the group has not taken steps to alter the state of the farmer brewery designation before the legislature.

The ABCC decision certainly frightened business owners who have worked hard to develop their operations or spent time in the planning stages. The Idle Hands press release on the denial of its license best captures this feeling.

Though this decision helps clarify a license that has been on the book for years, it sets a precedent that creates far-reaching effects on breweries, bars, restaurants, retailers and ultimately consumers. There are cost implications and more important issues relate to economic growth, industry innovation, and consumer access to a greater variety of local beers. These effects are further amplified as the brewing industry is one of a few growing industries in an otherwise struggling economy. Existing breweries of all sizes will have to adapt to the 50 percent requirements or apply for alternate licensing, and local entrepreneurs will have to determine whether they can invest in an industry that no longer supports growth and innovation.

While the ABCC’s unexpected change in course sent craft brewers scurrying in response, and with good reason, the agency’s decision was neither unforeseeable nor out of line. State law allows the ABCC to make rules governing brewing licenses, with comment periods usually given to the public and those affected. The ABCC even has the power to issue emergency regulations, as it did earlier this year when it prohibited the sale of caffeinated alcoholic beverages in the Commonwealth.

The odd thing, however, is that craft brewers are either ignoring the spirit and language of the farmer-brewer law or want to continue to operate in ignorance of it. For its part, Idle Hands conceded that it was not going to produce any significant portion of its own ingredients in line with the farmer brewer’s licensing guidelines and most craft brewers grow very little or none of their brewing ingredients.

While the ABCC’s abrupt announcement in the Idle Hands decision and its later advisory opinion was far from the best way to handle the shift of how it will apply state law, craft breweries operating in Massachusetts have to take some responsibility for their failure to address a glaring and long-standing problem. State Senator John Olver, the one who assisted Egelston in navigating the brewpub law in 1990, telegraphed the situation to the Journal in 1990. “The farmers brewery license was set up for another time and was never successful.”

It’s time for the Commonwealth (and its brewers and legislators) to address these long-standing issues in a responsible and public manner.

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9 thoughts on “Why The ABCC Got It Right About Farmer-Brewers In Massachusetts…

  1. Hey Andy,

    I think you got it right, that the interpretation was spot on. The Farmer/Brewer license is a farce in almost every case. That said, I don’t think the right thing was to change the interpretation in the manner they did without warning and without seeking to create a better way to do it.

    Without the intervention of Treasurer Grossman and other key stakeholders, these rule changes had the potential to greatly harm the MA brewing industry.

    We need to move for a small brewers license in Massachusetts, but we shouldn’t hobble the industry in the process of pushing for it. Most of these operations have been working in good faith that they are within the modern interpretation of how the license is given out. To change it this radically and suddenly without other options is just as bad as the farce the the license has become.

    The Mass Brewers Guild, Massachusetts Brewers and other stakeholders should work with the ABCC to craft a better license option then let brewers know that when they are up for renewal, this is what they’ll have to go with. At least that way the proper people are involved in creating the license and we know that we’ll be regulating to make the industry stronger, not weaker.

  2. It’s unfortunate this is all unfolding in such a sudden and scary way, but it seems as though it will be bringing about the discussions that have been long overdue. I’m glad the state is interested in supporting the true farmer-brewers as I think this will help encourage a new crop of interesting, locally-focused entrepreneurs. But clearly as you and Jeff point out, brewery licensing strategy needs to be re-thought and done in a way that will help support craft brewers of all kinds. Hopefully Massachusetts is serious about continuing to support their existence and growth.

  3. This is yet another example of the craft industry that irks me. I love the beers and most of the people involved. However, when a brewery is operating outside the current legal framework rather than comply the breweries scream that the law is unfair. I realize that many small brewers aren’t lawyers or using the limited capital they have to pay lawyers. But just because you operated outside the guidelines of the law doesn’t mean you should be appalled when you are called out. Is the law dumb? Yes. Solution: Organize and change it rather than crying like babies.

    1. Jason,

      It’s not that breweries were operating outside of the current legal framework. In fact, they were operating very much inside of it up until the ABCC changed their interpretation. There is no codification of the 50% threshold that the ABCC decided to apply, it was an interpretation that they’re empowered to make.

      Nobody operated outside the guidelines of the law, in fact it’s nearly impossible to do that being that the alcohol industry is one of the most policed in our country and Massachusetts is one of the more restrictive in many ways even for our country.

      People are upset because the ABCC had interpreted and applied the law in dozens of cases one way and their was and established understanding of how they applied vaguely written statutes. Then, suddenly, they changed the interpretation in a way that was very harmful to these businesses without soliciting comments from stakeholders, as they’re supposed to do. The issue wasn’t that the law was unfair, it’s that the change of interpretation and the implementation was done wrong.

      1. Hi Jeff-

        I’d say you are largely correct except that the ABCC appears to have been interpreting or at least not upholding the spirit of the state F-B license law as of sometime after 1990. I suppose craft breweries can’t be blamed for continuing to exploit an applied but not encoded regulatory loophole. But the problem still loomed for a long time. Plenty of criticism to go around for all involved.

        Best,

        Andy

  4. I agree that the existing use of the farmer-brewer license is a slightly weird arrangement, but it doesn’t seem like breweries are getting away with anything troublesome by using it. A more appropriate license would presumably codify the existing practices, distribution rules, tasting room allowances, and so on, while eliminating the long-ignored requirement to grow the crops. As long as the ABCC was clearly not making anything of that requirement, what’s the compelling reason for brewers to press for a change? “Just clearing things up” is pretty weak justification for spending money and effort on lobbying.

    More concretely, the ABCC’s 50% threshold in this latest rulemaking seems entirely arbitrary. Perhaps we should be grateful that they didn’t, upon re-reading the law, conclude that 100% was the right answer, but if there’s going to be a cutoff it should be something defensible and that licensees don’t have to worry about changing spontaneously.

  5. Yeah, Idle Hands…stop whining. You should have had your lobbyists all over this back in the 1990’s. Serves you right. Same with the other microbreweries in this state. Put down your recipes, operational concerns, sales plans, distributor issues, and get all of your lobbyists to scour Mass State Laws and make sure they are all appropriate!

    1. Hi Marc-

      Your witty sarcasm aside, Idle Hands was very aware of this state law and had seen at least one other aspiring nano catch hell from the ABCC along the exact same lines. As with the others, I think the article makes pretty clear that craft breweries knew this problem existed as early as 21 years ago and did nothing about it. Doesn’t take any scouring: the statute is listed right there on on their licenses.

      Best,

      Andy

      1. Why spend time and money trying to change a law that 1) the ABCC had already set a precedent in ignoring for 25+ breweries and 2) everybody had recognized as outdated and unreasonable?

        I put more of the blame on the ABCC than the breweries.

        I agree that the outcry seemed to be more about the “50%” rule itself rather than calling out the ABCC for inconsistent rulings. But when headlines pop out like they did last week, wasn’t the response natural? Were you expecting breweries and beer fans to just say “I guess it is the letter of the law, we’ll have to take it like a man.”?

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