USA, MD: Diageo wanting a special liquor licence sparkles debate

A battle over beer is brewing in Maryland, the Baltimore Sun reported on February 19.

State lawmakers are faced with competing proposals to change the rules for breweries, which have exploded in popularity in recent years as drinkers turn away from mass-produced corporate beers in favor of craft brews.

And there's a big new player in the debate this year: Diageo, the international liquor giant that owns the Guinness beer brand and plans to open a brewery and taproom in an old rum bottling plant in Relay.

"We want to create a world-class beer tourism destination," said Dwayne Kratt, Diageo's senior director of state government affairs.

It's an idea that's drawn enthusiastic support from politicians and economic development officials, who are eager to pass a law to ensure that the Guinness project moves forward. Diageo says it will invest $50 million to renovate the building and create 70 jobs.

First, Diageo faces a fight with other brewers and the owners of bars and liquor stores over how it needs the General Assembly to alter the state laws that govern how breweries operate in Maryland.

While Diageo wants the state to create a special liquor license for its planned operation, the Brewers Association of Maryland argues that lawmakers shouldn't carve out an exception for one giant beer corporation at the expense of home-grown brands. The Maryland State Licensed Beverage Association, which represents owners of bars, restaurants and liquor stores, supports the brewing operation but not a taproom that might compete with existing retailers.

Diageo plans to brew and sell test beers at the Guinness plant, which also is likely to become home to Guinness Blonde American Lager, a relatively new beer that's currently brewed by a contractor in Pennsylvania. The company hopes to open the plant in October to coincide with the 200th anniversary of importing Guinness Draught — the company's signature dark stout — to America.

But current state law doesn't allow breweries to sell more than 500 barrels of beer a year to customers in on-site taprooms. That many barrels equates to about 125,000 pints, according to Diageo, which expects to see twice as many visitors in its first year.

The company also hopes visitors will provide feedback on test beers, helping determine whether it should brew more.

"When we get to a beer that we think is a winner, we'll brew that at a larger volume and sell that through our wholesale partners to retailers," Kratt said.

Both the Brewers Association and the Licensed Beverage Association have their own competing bills they're pushing in the General Assembly. The brewers are backing a bill that would extend to every brewery the changes Diageo is seeking, while the bar and liquor stores proposed legislation that would limit the ability of breweries to sell directly to consumers.

All three bills will be discussed by state lawmakers during public hearings this week.

Comptroller Peter Franchot, whose office regulates the liquor industry and collects alcohol taxes, supports the bill being pushed by the brewers association, said spokesman Alan Brody.

Gov. Larry Hogan is excited about the Guinness brewery and supports the growth of the industry, said his spokeswoman Amelia Chasse. But the governor is stopping short of endorsing any specific bill.

"Our administration is very supportive of allowing Maryland breweries to offer expanded tasting facilities, and we look forward to seeing what passes through the legislature this session," Chasse said in a statement.

Jim Caruso, CEO of Flying Dog Brewery in Frederick, said it's unfair — and anti-free market — to approve a law that caters to a single business.

"I am completely opposed to legislation that favors any one of the 70" breweries in Maryland, he said.

Hugh Sisson, founder of Heavy Seas and a pioneer in the state's beer industry, said he welcomes Diageo as a neighbor — their site is just a couple of miles from his brewery. But he also argues that all breweries need the same rules.

"Nobody who is a Maryland brewer who is part of our association doesn't want to see Diageo come here and be successful," Sisson said. "But we don't want to pass another carve-out bill and have a large, international conglomerate have privileges that home-grown businesses don't have."

Diageo's Kratt said the bill promoted by the brewers association would work for his company. But he's concerned that a statewide bill may not pass. Bills that affect just one county — such as the Diageo-supported bill — have an easier path in the General Assembly if all of that county's legislators support it.

Kratt said it's "very crucial" for at least one of those two bills to pass for the Guinness plant to be successful.

Both would remove the 500-barrel cap for on-site beer sales at breweries. Diageo's bill would allow for 5,000 barrels, while the brewers association bill would raise the cap to 4,000 barrels.

Diageo's entrance alters the conversation about brewery laws in Annapolis, said Kevin Atticks, executive director of the Brewers Association of Maryland.

The association has been trying for three years to raise the cap for on-site sales at breweries. Now that a well-known, massive liquor company is asking for the same thing, more people are paying attention, he said.

"There's a different dynamic," Atticks said. "It's a different voice in the conversation."

But the push from the breweries to sell more beer has the state's retailers nervous. They, too, like the idea of having Guinness in their backyard. But they don't like the idea of Guinness — or any other brewery, for that matter — operating what amounts to a full-scale bar.

"If they do that much retail, what's the effect going to be on the small restaurant or tavern in the area?" asked Jack Milani, owner of Monaghan's Pub in Woodlawn. Milani is also legislative chairman for the licensed beverage association.

He said it's important to keep the distinctions established decades ago in the state's "three-tier" system, with breweries limited to manufacturing beer, wholesalers limited to distributing beer, and stores and bars limited to selling beer to consumers.

Advocates of the three-tier system system say it protects consumers and prevents corruption. Before Prohibition, for example, brewers owned bars and filled them with their own products, which may have been of questionable quality.

With the three tiers, "no one tier controls the industry," Milani said.

Others argue it's time for Maryland to move past an antiquated system that doesn't take into account changing consumer attitudes and innovations in the industry.

While the overall beer industry is flat, craft beers and import beers have seen strong sale growth, according to the national Brewers Association, which represents independent craft breweries.

Ten million people per year take tours of independent breweries, and 7 percent of craft beer sales take place at the breweries, according to the Brewers Association.

The patchwork of laws and the "artificial" limit on sales are hindering breweries from catering to consumer demand, Atticks said.

"After years of trying to inch the licenses forward, the licenses now do not reflect the marketplace demands," he said.

20 February, 2017