Politics & Government

Charlotte breweries want to expand. But a big campaign donor is getting in the way.

John Marrino opened what’s now Charlotte’s largest craft brewery in 2009. But to expand, he’s going up against an industry that has brewed its own success – with campaign contributions.

Last year the stainless steel tanks at Marrino’s Olde Mecklenburg Brewery produced more than 21,000 barrels of beer. But that’s close to North Carolina’s 25,000-barrel limit for craft brewers. Even one barrel above that would push him into a forced and potentially costly marriage with one of the state’s big beer distributors.

Now Marrino and the owners of Charlotte’s NoDa Brewery are behind the latest push to raise the cap. They say that would mean more sales, jobs and expansion, including Olde Mecklenburg’s plans for a new $7 million brewing facility in Cornelius.

The effort pits the fast-growing craft beer industry against wholesale distributors, a group that has reinforced its clout with nearly $1.5 million in political contributions in the last four years, according to Bob Hall, who tracks campaign money for Democracy North Carolina.

That includes $523,000 from the N.C. Beer & Wine Wholesalers political action committee and $941,000 from individual distributors and their families. Together they gave Senate GOP leader Phil Berger $182,200 and Republican House Speaker Tim Moore nearly $98,500.

Lawmakers say that’s helped stifle attempts to change the law.

“Money talks,” says Rep. Chuck McGrady, a Hendersonville Republican. He plans to introduce a bill that could raise the production cap to 200,000 barrels and make other changes to the state’s alcohol laws.

Exceeding the current 25,000-barrel limit for self-distribution would force craft brewers into contracts with distributors, who would take over the brewery’s sales, delivery and distribution. Craft brewers say that would cost local jobs.

“Why should I be limited in how much beer I can sell to my neighbors in Charlotte?” asks Marrino, 50.

Marrino, along with Todd and Suzie Ford of NoDa brewing, call their campaign Craft Freedom. They’ve lined up a prominent Republican consultant and claim the backing of state and national conservative groups.

In a letter to N.C. lawmakers Thursday, Grover Norquist, president of Americans for Tax Reform, called the cap a “glaring example of harmful regulation that inflicts economic harm while serving no purpose other than pure protectionism.”

Becki Gray, a senior vice president of the John Locke Foundation, a Raleigh-based conservative group, calls craft brewers “victims of their own success” who face a wall of regulations that date from soon after the Prohibition era.

“This is like the ultimate free market (issue),” Gray says.

Tim Kent, executive director of the N.C. Beer and Wine Wholesalers Association, says the current law works for craft brewers like Marrino. For one thing, if they’re willing to work through a distributor it doesn’t limit how much they can brew. And distributors, he says, can help expand their markets.

“If you didn’t have limits on self-distribution, you’d have big brewers being their own distributors,” says Kent. “And when you have big brewers being their own distributors, that limits the pathway for other brands. Having a limit on self-distribution is the best situation possible for craft brewers. They may not understand it, but it’s true.”

Advocates of craft brewers say the archaic regulations fly in the face of the free market. They say by promoting small, home-grown business, free enterprise and regulatory reform, they’re checking the boxes that a Republican-controlled legislature should like. But some still consider themselves Davids up against Goliath.

It’s been 14 years since the production cap was raised from 310,000 gallons to 25,000 barrels. Subsequent efforts to loosen alcohol laws have failed. This year both sides have engaged high-profile lobbyists for what’s expected to be one of the session’s big battles.

“What has changed the equation is you have more brewers approaching the 25,000-barrel cap,” says Charlotte’s Mark Leggett, a former Bank of America lobbyist who represents Red Oak Brewery near Greensboro. “… Why in the world would we want to restrict their growth?”

Booming business

The craft beer industry is exploding across the country.

Craft brews made up 12.2 percent of the beer market in 2015, a share that continues to grow, according to the Brewers Association, a national trade group. Nationwide, it’s a $22 billion market.

North Carolina has 190 craft breweries with an annual economic impact of $1.2 billion. Since Olde Mecklenburg opened in 2009, another three dozen more have opened in the Charlotte area with more in the pipeline.

“This is not a little industry anymore,” says Margo Knight Metzger, executive director of the N.C. Craft Brewers Guild. “There has been a complete sea change.”

Raising the cap to 25,000 in 2003 helped small brewers. So did “pop the cap” in 2005. That was the law that raised the legal alcohol content from 1930s levels and made it possible for brewers to make beers such as IPAs and Belgian ales. Advocates predicted the law would create 300 jobs. Today it accounts for an estimated 10,000 as the number of breweries continues to jump.

Todd Ford, the owner of NoDa Brewing Co., says he wouldn’t be in the business without “pop the cap.” Now he and his wife Suzie own two Charlotte locations. While NoDa produced around 15,000 barrels last year, he says the barrel limit still affects decisions, including how many people to hire and what to spend on distribution.

“We’re at the point now where the infrastructure has to be decided, the investments have to be made if we’re going to proceed to 25,000 (barrels),” he says. “We would actually shrink in Charlotte if we go with a distributor.”

The distribution industry has deep roots in North Carolina and across the country.

The 21st Amendment, which ended Prohibition in 1933, left it to states to regulate alcohol. States such as North Carolina adopted a “three-tier” system of producers, wholesalers and retailers designed to avoid monopolies.

Some craft brewers welcome collaboration with distributors, who claim nearly 4,000 employees and a $1.9 billion economic impact in North Carolina.

Jamie Bartholomaus is president of Winston-Salem-based Foothills Brewing, one of the state’s largest at 40,000 barrels a year. He made a video for the wholesalers association describing how distributors helped his business.

“I very much enjoy working with my wholesaler,” he tells the Observer. “(But) I very much agree that the cap should be raised…

“If a brewery like Olde Mecklenburg or NoDa make the decision to make an investment, they should be able to do anything they want if they don’t break the law.”

Bootleggers and ‘oligopoly’

In a report last November, the John Locke Foundation called the distribution system a “profitable oligopoly.” It “protects the big producers by giving small producers a powerful incentive to stay small,” the report said. It cited Olde Mecklenburg’s decision that year to pull out of the Triad market, walking away from a $130,000 investment for fear of hitting 25,000-barrel cap.

Daniel Okrent, author of “Last Call – The Rise and Fall of Prohibition,” says the early distributors were the old bootleggers.

“They were determined to keep their piece of the legal action just like they did of illegal action,” he says. Distributors, Okrent says, “cloak themselves in social responsibility when it’s really about maintaining their stranglehold on profitability.”

The Beer & Wine PAC, as well as individual distributors, spread their money around. Rep. Jamie Boles, a Moore County Republican who co-chairs the House ABC Committee, which would consider any bill to lift the production cap, received $32,450 from wholesalers and their PAC over four years, according to Hall. McGrady, the other co-chair, got $1,750 from the PAC.

McGrady introduced a bill in 2015 to relax beverage laws, including the 25,000-barrel limit. Initially he had three GOP co-sponsors. He remembers them coming into his office, sitting on his beige couch, and telling him they could no longer support the bill because of pressure from distributors.

Paul Shumaker, the top campaign strategist for GOP U.S. Sens. Richard Burr and Thom Tillis, is advising the Craft Freedom campaign. To him the issue is simple.

“Are free-market principles going to prevail or is this going to be a system the state maintains due to the influence of lobbyists and donations?” he says.

Kent says the current limit doesn’t limit production because brewers still have a choice. The way he sees it, brewers such as Olde Meck and NoDa simply want to outgrow – and dominate – competitors.

“Now that these two breweries aren’t the only game in town,” he said, “they want to change the law and privilege that helped make them successful, and in so doing, squeeze out their competition.”

Marrino says his company doesn’t “intend to be anything but a local brewery.” But he wants to grow without the threat of losing the ability to distribute or even control his products.

“The politicians are caught between a rock and a hard place,” he says. “They’re caught between their beliefs, which are free market, and the money they get from distributors who finance their campaigns.”

Staff writer Gavin Off contributed.

Jim Morrill: 704-358-5059, @jimmorrill