Brew-ED Beer News: South Carolina’s ‘Stone Bill’ could be big draw for craft brewers

By Cliff Mori

South Carolina’s Stone Bill and the Future of Craft Beer in the South

North Carolina is home to over 100 breweries, and our state leads the South when it comes to the production of craft beer. Much of the growth in our state’s brewing industry can be attributed to favorable laws that help support small brewers. Most recently, these class leading laws have led three major breweries to make Western North Carolina their East Coast home. Though the local culture and natural beauty of the environment were certainly factors, none of those breweries would have considered North Carolina if it didn’t make sense from a business perspective. However, new laws recently enacted in South Carolina could make our neighbors to the south more appealing.

Three Tier System Overview

When Prohibition was repealed, a Three-Tier system was put into effect that limited who could do what when it came to beer. In the perfect form, Brewers could only sell their product to Distributors who could only sell their product to Retailers. Those three tiers were set up to inspire competition and to keep the huge breweries from dominating the beer market.

Before Prohibition, tied houses were common. In a tied house system, breweries often own pubs and those pubs only sell that brewery’s beers. This model obviously gave the competitive edge to the largest breweries with the most capital to buy pubs or coerce pub owners into only selling their beer through steep discounts and other perks. By putting an independent distributor in the middle, the idea was that the distributor would sell to retailers the products that were the best and most desirable. Unfortunately, there were flaws with the system. What ended up happening was that the large breweries signed with distributors and then pressured those distributors to focus on their brands instead of others in exchange for certain perks or “bonuses” such as new warehouses and shiny new trucks. Distributors, while supposedly independent, couldn’t promote other brands without feeling the backlash from the big brands that paid the bills.

Craft Beer and the Three-Tier System

Fortunately, the repeal of Prohibition gave states a lot of autonomy in regulating the sale of alcohol. Over the years, many states made adjustments to the Three-Tier system. North Carolina is one of those states. Laws were altered to allow breweries that produced fewer than 25,000 barrels to sell directly to retailers. Also, breweries of any size were allowed to sell directly to customers in the form of tasting rooms and on-site restaurants. These exceptions help increase profits for small brewers as there is no middle-man involved. These exemptions make business models like Asheville’s Burial Beer and One World Brewing possible. If those tiny breweries weren’t allowed to sell their beer directly to customers, there is no way they would be able to survive financially. If you make more than 25,000 barrels a year, the law requires that a distributor must be enlisted and given the exclusive right to sell the brewery’s beer to retailers. The 25,000 barrel limit seemed like an arbitrarily huge number when the law was written (Think Dr. Evil and “one million dollars”) but as craft beer popularity continues to soar, many breweries are rapidly approaching that number.

South Carolina and the “Stone Bill”

North Carolina’s laws have created the biggest brewing industry in the South, creating jobs and generating billions in tax revenue. Other states in the South would love some of that action. Recently, California’s Stone Brewing Company announced an East Coast expansion plan. Beer is heavy to transport and if you sell enough of it far enough away from home, it makes sense to build another place to make it. South Carolina wants to be the site for Stone’s new facility. However, South Carolina’s laws prohibit production breweries from selling food on-site. In California, Stone’s “World Bistro and Gardens” features a large restaurant that operates alongside the production brewery, and new location would include a similar concept. In addition, Stone has attributed much of its success to the ability to self-distribute its beers. In California, breweries are allowed to sell their products directly to retailers, regardless of size.

If South Carolina wanted to be considered for an East Coast expansion, current laws had to change. A bill was proposed in the state house that would relax these regulations on breweries in South Carolina. The so-called “Stone Bill” would not only allow production breweries to open restaurants on their properties, but brewers would be allowed to self-distribute up to 500,000 barrels of beer each year. No craft brewery in South Carolina produces that much beer, but the legislation was crafted to attract Stone, not to directly benefit the nascent brewing industry that the state already has. South Carolina’s governor signed the Stone Bill into law Tuesday evening.

Why should North Carolina care?

Though North Carolina has seen a huge boom in the number of craft breweries and has successfully lured larger craft breweries to the state, South Carolina’s addition of an exemption from distributors up to 500,000 barrels makes the state pretty attractive. Though most breweries choose to use a distributor long before they hit 25,000 barrels, some argue that North Carolina’s limit is a cap on production. If they exceed that, they are legally bound to give a large amount of their profits to an outside company to handle their sales and distribution. Depending on their individual practices, they may take a substantial loss by producing more beer. HR Bill 781 was resubmitted this session to raise the caps on small brewers, but it is not expected to make it through to a vote. It’s unfortunate, as North Carolina was once the most favorable place in the South to open a new brewery and we here in Asheville have certainly reaped the rewards.

Cliff Mori is the owner and operator of BREW-ed, which offers brewery tours and a variety of beer training in Asheville.  He was the first Certified Cicerone in Western North Carolina (the beer equivalent to the wine world’s sommelier), then began working for the Cicerone Certification Program by traveling around the U.S. proctoring exams. Cliff also teaches a variety of beer-related courses at Asheville-Buncombe Technical Community College.