REGULATING ALTERNATING PROPRIETORSHIP BREWING ARRANGEMENTS IN MASSACHUSETTS

The Massachusetts House of Representatives recently finished deliberating its version of the 2017 fiscal budget and some interesting changes to brewing regulations could be on its way. The House adopted Amendment #805 that would further regulate tenant brewing, otherwise known as alternating proprietorship arrangements, by adding a new “Tenant Brewer License” under Massachusetts General Law Chapter 138, Section 19G.

An alternating proprietorship is when two or more people/entities take turns using the same facility to manufacture malt beverages (beer). Typically in the alternating proprietorship arrangement there is a “Host Brewer” and “Tenant Brewer.” The Host Brewer is the person or entity that agrees to rent its brewing facility and equipment to the Tenant Brewer so it can manufacture its own beer. To enter into an alternating proprietorship agreement in Massachusetts, approval from the U.S. Department of Alcohol and Tobacco Tax and Trade Bureau (TTB) must be obtained prior to filing an Alteration of Licenses Premises Application with the Massachusetts Alcoholic Beverage Control Commission (ABCC). The alternating proprietorship arrangement is different from a contract brewer arrangement, whereas one brewer hires another to manufacture its product (Check out an explanation between the two here – http://www.connelllawoffices.com/the-differences-between-contract-brewers-and-tenant-brewers/).

In Massachusetts, and under the new regulations, the Host Brewer must hold a Section 19 manufacturer, Section 19C Farmer-Brewers License, or Section 19D Pub-Brewers License to enter into an alternating proprietorship agreement. The Tenant Brewer would be required to hold a Section 19 manufacturer or Section 19C Farmer-Brewers License, as well as a Section 22 Transportation Permit. The new Section 19G would require the tenant brewer to obtain a Tenant Brewers License, in addition to the manufacturers license, and receive ABCC approval for the alternating proprietorship arrangement that allows the applicant to use the facilities, equipment, and employees of a host brewer. Unlike the Section 19C Farmer-Brewer license that allows for self-distribution, a Tenant Brewer may only sell its product at wholesale to a distributer licensed under Section 18.

Massachusetts has seen a dramatic increase in new beers and breweries over the past decade, yet some of the brands you may enjoy do not own their own facility or even manufacture their own product for a variety of reasons, often because of prohibitive financial barriers to opening and operating a brewery. The contract or tenant brewer arrangement can offer an alternative to those young brewers looking to make a leap into the market but lacking the capital for a full-scale operation or allow existing breweries with limited capacity to expand their production.

A few breweries such as Mercury Brewing Company in Ipswich, MA and Paper City Brewing Company in Holyoke, MA currently operate as contract brewers, taking recipes of those that do not have the ability for full-scale brewing and manufacturing the product for them. Dorchester Brewing Company will soon open a facility in Dorchester, MA for brewers to either contract out or brew on site – an exciting prospect for embryonic brewers in Massachusetts.

Although the Massachusetts House of Representatives adopted the amendment, this is no guarantee it will become law. Next, the Senate will release its own budget and must include the same language. If not, both the House and Senate must agree to the language via Conference Committee, where a few selected members from both the House and Senate that will convene to hash out the differences between each branch’s version of the budget. If the language survives those hurdles, then it must avoid Governor Baker’s line-item veto power – however that would appear unlikely as the Governor has been a proponent of moving the liquor licensing industry forward by supporting measures such as granting municipalities autonomy over how many liquor licenses they can issues. I’ll be tracking this change, and the many others proposed on Beacon Hill, so stay tuned…