March 25, 2026 · Small Business and Economic Opportunity Committee · 4,614 words · 6 speakers · 43 segments
Come to order. If everyone would please stand for the Pledge of Allegiance.
I pledge allegiance to the flag of the United States of America and to the republic for which it stands, one nation, under God, indivisible, with liberty and justice for all.
Will the clerk please call the roll? Chair DeTrona.
Present.
Mr. Richard.
Here.
We have a quorum and we'll proceed as a full committee. Members, a copy of your minutes from the October 8th meeting or on your iPads. Please take a moment to review. Are there any objections? Hearing none, the minutes are approved. For our agenda today, we'll hear Senate Bill 23 for its third hearing. The chair recognizes Jacob Evans to provide testimony.
Well, good afternoon. Chairman Katrona, Vice Chair Romanchuk, Member Gaviron, thank you for the opportunity to testify today. As you all are well aware, I'm with the Wholesale Beer and Wine Association, represent our members and our 5,000 employees we have across the state of Ohio. While we appreciate the committee's consideration of Senate Bill 23, As we've shared with you before, we obviously strongly oppose the changes that have been recommended. I think it's important for people to understand the franchise law as part of the framework for the relationship between the wholesaler and the brewer. We believe that that has helped create a stable marketplace that works. And frankly, we think it's part of the reason you've seen the number of craft brewers grow over the last decade plus from roughly 42 to 425 to 450, depending upon where we're at exactly. I would suggest you don't get to 400 breweries from a broken system. You get to that point from one that works. One of the things that we've shared in conversation is that this is not a typical services contract. This is not pay me, I provide a service, and we're done. It needs to be remembered that all of the product in a wholesaler's warehouse has been paid for by the wholesaler. They are truly the first customer. They are paying for that product. They are assuming that financial risk of taking on that product because now it's their responsibility to get it sold to recoup their investment. Additionally, they have added overhead costs that go through that. Right now we have a wholesaler that's in the process of putting in a 330,000 square foot refrigerated system to keep kegs cool and things of that nature. Certainly that helps service lots of brands, but it's also primarily for craft brewers. In the early stages of the relationship between the two parties, the craft brewer often gets kind of a front-loaded benefit. That could be through the purchase of distribution rights. It could be a marketing fee, what have you. It's over the length of that service that the wholesaler is going to provide that they recoup their investment and start to get a return on the investment. So when you start asking, can we shorten these contracts, what is the issue with it? It's over that lifespan that the wholesaler is able to recoup their investment. That's why it's so critical. Up front, the craft brewer gets the benefit immediately, and the wholesaler gets paid back over time. It's also important to note that one of the major issues with this is not just how it might affect a smaller mid-sized wholesaler who has somebody under 250,000 barrels, but this also will greatly impact small craft brewers. And the reason why is because that upfront investment I talked about, wholesalers will be much less likely to make that investment or that size of investment that they've made simply because they can't rely upon a contract to keep somebody there. If they're allowed to just walk away whenever they like, that becomes a much more risky proposition. They will hold back that investment because they don't know if they're going to be able to get the return. They build a brand, somebody walks out the door, that becomes an issue. We've said it before, I'll reiterate it, 250,000 barrels, that is 7.75 million gallons of beer, or about 3.4 million cases of beer. That is 99% of all brewers in the United States. Essentially, we're talking about exempting all brewers in the United States unless your name happens to be Anheuser-Busch, Molson-Kors, Heineken. I think there's some confusion about the process of how this contract is entered into. First of all, no one is required to use a distributor. You may self-distribute. I appreciate that that's an expensive endeavor. Build the trucks, the warehouse, all of that. But that's part of what you're getting in the service contract, is the infrastructure that the wholesaler has already put together. Furthermore, it is not uncommon, in fact maybe more often than not the case, that the craft brewer presents the agreement. Says, let's enter into this, here's my agreement. Between the wholesaler and the craft brewer, they start to decide what terms are important. Hey, I want to make sure I'm in more convenience stores, I want to be in more sports venues, I need this level of marketing spend, whatever the case may be. And as sure as Senator Gaviron and I were to say this is what's important to us. I talked to Senator Lista and she says, well, I would rather do it this way. That's fine. So this is not a one-size-takes-all agreement that we say here, take it or leave it. This is the way it's going to be. It is negotiated. It is discussed. The terms vary widely from one agreement to the other. And so this is something that is, in fact, negotiated fairly and the parties executed. Another issue that's been brought up is that, yeah, that's all well and good, but people can't leave these agreements. And even if they want to, the reality is they're going to be leaving their distributor that's distributing their beer, and they're going to tank my beer, my words, tank, no pun intended. But basic economics belies that point. They, again, have to buy the product, sit it in their warehouse, and then not sell it. Because if they don't buy product, that makes it a pretty easy just cause cancellation of the agreement. Or they're going to buy it and let it sit there and not recoup their investment. The fact of the matter is they are out there trying to sell the product and go through that. But the reality is over the past 12 years, there's been over 125 of these agreements that have been terminated or transitioned without ever going to court The current system works If there a disagreement maybe that something over a phone call gets taken care of Maybe it takes longer than that I want this I need to do that Okay either we can move forward or we can They make that decision, and we've seen repeatedly brands transfer from one wholesaler to another, and there's already been a couple of those that have happened this year. It happens all the time. We've talked about just cause and what allows a craft brewer to leave an agreement, and it's defined as just cause. The Ohio Revised Code does not provide a definition of just cause, and that's intentional, because just as soon as all of us agreed on what the term just cause means, somebody says, oh, wait, what about this thing? Oh, yeah, good call. We should do that. Yeah, let's make that item number 11, number 12. Just cause is something that is not only negotiated between the parties, as I said earlier, but courts have held on, this was a wine case, but it's the same alcohol beverage franchise law, that any reasonable business decision constitutes just cause. You can't just say, oh, Jacob wears bow ties, I don't want to work with him. However, he's not selling my beer, he's been truculent, whatever the case may be, and I use the word truculent because that's what was in the lawsuit. that can be easily determined to be just cause and they move on. Right now, all alcohol beverages is facing a difficult road in the marketplace. Over the last really 40 years, the ethyl alcohol consumption has stayed pretty consistent per capita. Ethyl alcohol is, whether it's in beer, wine, or spirits, it's how much alcohol everybody drinks. It's the clearest way to say people are drinking more, they're drinking less. Okay, they used to drink 12 beers, now they have four old fashions, whatever the case may be. But that number has stayed rather consistent. Again, what hasn't is the number of craft brewers in Ohio that's grown tenfold. So while the same amount of alcohol is being consumed, you have now ten times as many craft brewers in Ohio fighting for that same, what we call share of throat, that same little slice of the pie. I am happy to say that in Ohio, whether you're doing it by dollars, whether you're doing it by volume, or whether you're doing it by shelf space, Ohio still outpaces the national average in terms of the success of craft brewers in Ohio. We have fantastic craft brewers that make great beer. I want to be clear about that. Many members love representing them. They're a critical part of their portfolio, and they make products that have sold very well. We just believe that the current system has helped them get to that point, and we don't think it needs to be changed. We are not asking for any new protections in this bill. We believe the current system works. We're asking you to preserve a system that already works. We don't believe that Senate Bill 23 creates fairness. we believe it removes accountability from the relationship. With that, Mr. Chairman, I'd be happy to try to answer any questions.
Thank you for your testimony. Are there any questions? Senator Gaviron?
Thank you for your testimony. I have one question. When you were talking about the duration of the contract being necessary to recoup the initial investment, how long does the typical contract last?
Mr. Chairman, Senator Gavirone, right now most of them are built in with an automatic rollover, whether that's yearly or every three years. It sort of depends upon the agreement. But generally, these are terminated but for just cause. But again, I would point you back to that the market reality is that when the relationship doesn't work, they get terminated then. But it provides the wholesaler the stability to make that investment. but it's also, as I said earlier, all these products are paid for, I say in cash, which means not credit. And so my members are borrowing that money. It's not, hey, let me reach into my wallet, flip out a few hundreds, here you go, that paid for the $1,000 worth of beer. They're borrowing that money to make the initial investment and to purchase the product, which of course they're getting through some sort of financial institution, a bank. There is a lending cost associated to that. if we start to put part of these supplier contracts in jeopardy, i.e. we can't rely upon them being there, that starts to change the rate at which my members borrow, and that ends up costing them more money. Any other questions?
Senator Edelson?
Thank you, Chairman. Thank you for your testimony. I'm putting pieces of things together. I feel like there's difference of opinion on this 25,000 barrels of beer and what that represents in terms of the industry. And I'm just wondering if there's a definition that perhaps isn't being agreed upon, because certainly the craft brewers are saying, hey, all the big guys are well above this. It's only the small guys that are below. Oh, and your testimony is sort of talking about how all of the craft brewers would be below it. So am I just thinking about the populations incorrectly, or are we defining them differently? Can you provide any insight into that?
Yeah. Mr. Chairman, Senator Liston, currently the bill says 250,000 barrels.
Right. Not a whole lot to argue there. That's what the number is. That's what it comes to.
You look at a report from the TTB, which is through the Department of Justice Alcohol Tobacco Trade Bureau at the federal level. They went through and in then President Biden's choice in competition report in alcohol, they broke down the number of brewers that fall under each number. based upon, they did a category, I think it was 100,000 to 500,000. 250 was not a number they cut it off at, but roughly 99.3% of all brewers registered with the TTB are over 250,000 barrels.
Follow up. So then, so that's all brewers, and that would include some of the bigger name, like actual, you know what I mean? Are you using brewers to mean something that I'm not picking up on because it's more subtle? Or is it just anyone who makes beer is a brewer?
So, you know, Anheuser-Busch is a brewer. So there's only a few name brands that are larger than that, and everybody else is considered a brewer and makes under $250,000. Through the chair, Senator Liston, yes, anyone who makes beer is considered a brewer, a permitted brewer. So whether you are, you know, Jacob's craft brewery that's making 100 barrels or your Anheuser-Busch making millions of barrels, that still falls under the definition of brewer. So it would be all of those, yes.
So when you go to that 250 you are talking about the ones that are above it are the Anheuser Molson Coors those In Ohio the best number we have roughly is at the heart The largest craft brewer in Ohio is doing about 135 to 150 barrels a year So it covers every single Ohio brewery and again
covers 99.3 percent as best as my math comes up with. Okay. And those were 2020 numbers that were in that report, I don't expect they've changed a whole lot. You know, if it's now 98.7, I'll concede that point.
Okay.
Is that another question in line, or would you like to?
Yeah, I'll ask. Thank you. So it seems like when things are working well, if the just cause clause makes it so that the practical relationship when things are going well is not actually significantly different between these two scenarios, right? Like if this bill passes as written, removing the brewers from the franchise, then if their relationship, the distributor and the wholesaler, is good, then there's not a practical difference. But it's when things go wrong that the franchise law comes into effect and has specific protections for wholesalers. Am I understanding that correctly?
Through the chair, Senator Liston? To a certain degree, yes. I mean, I think, first of all, the first thing about contracts is they're only really good when things are bad. If things are going well, most people don't worry about the contract. Hey, things are going well. This is great. Everybody's happy. Let's move forward. But I would tell you that the first issue is going to be the likelihood of seeing wholesalers make that investment in new contracts changes dramatically immediately because they don't have that security that they had before. In regards to when things are bad, the terms of the contract are what control. Okay, did you say you were going to do X, Y, and Z? You didn't? Okay, that's a just cause termination. I say I did. Yes, maybe we need to go to court to fight about that. But again, we haven't had those court cases. What ends up happening is somebody picks up the phone, they have a discussion, they work through it, they get it worked out, and either the craft brewer transitions back to self-distribution or they transition to another wholesaler.
So is it the in-perpetuity component of it that is motivating the rationale that people might have for pushing this put forward? In that if it's hurting the craft brewers because of the difficulty getting contracts with distributors, I'm confused as to what the impetus might be. and I'm asking you maybe to speak at the opposite side or just to say, like, where I'm just trying to figure out where the conflict is, and it's a new field for me, so I apologize.
Through the chair, Senator, listen, sorry, I didn't mean to cut you off there at the end. You know, certainly I don't want to speak for where they're coming from on this. I guess what I would suggest to you is kind of as I opened with, if you're telling me 13 years ago, roughly, We were at 42 craft breweries, and we're now up to 425, again, give or take. We've seen a tenfold increase. Part of what allows that to happen is the wholesaler can confidently make the investment to purchase the distribution rights, to fund a marketing fee, to continue to invest in their facilities to help build that brand. And so we have seen this growth go on in Ohio and other places. And so that's what changes in this. Furthermore, if there is an issue, they have that just cause, whatever they've negotiated, but furthermore, courts have made, I dare say, a pretty low bar for just cause. I can get you a letter that we have from a practicing attorney in franchise, Mark Wagner, as he wrote, these cases are so rare because, A, the bar is pretty low, and B, a wholesaler is not going to fund a lawsuit in which either it's A, clear I violated the terms of the contract, or B, it's an easy just cause termination. And so they're not going to make that investment, as I said earlier, continue to buy the beer, not sell the beer, and just see how much money they can waste. At some point, business does come into this, and that's where we believe we've seen the success and seen the craft market grow so much.
Thank you.
So I do have a couple of questions myself. So I was under the impression that the bill's sponsor was looking to reduce from 250,000 barrels to 25,000 barrels, and wanted to get your thoughts on that. And if it drops down to 25,000 barrels, what does that look like? Because then it's no longer the Amhigur and Bush and all the big guys. It's going to be the smaller craft brewers. What does that look like for you guys, number one? Number two, portfolio-wise, I mean, this is not a very large percentage of the overall, you know, financial stability for the wholesalers, right? I mean, this is a very small percentage. So can you walk me through that a little bit? And I think it would be helpful for the members as well, just because there's, I think, a little bit of confusion with the $25,000, $250,000. And I'm sure you're going off of what the bill says because I don't think there's been any amendments as of yet. But I figure that would be helpful for the members.
Yeah, Mr. Chairman, you're correct. There's been discussion about $250,000, but the bill currently is at $250,000. So that's where we're at. I don't want to say the number doesn't matter, but the point is—
$25,000, right?
$25,000, I'm sorry. Yeah, sorry. But that doesn't change most of what I laid out here. That changes the investment that people are willing to make to build that brand, to see it grow. So those sort of issues don't change. Again, the contract still is negotiated. You still go through all that process. Your second question is, as I recall, essentially, hey, for a small craft brewer, how badly is that going to hurt a wholesaler? Certainly it depends upon the wholesaler. I can tell you a wholesaler in Ohio that does millions of cases of beer a year, 30% of their revenue is from craft beer. 30% of their revenue. Now, that's not coming from just one craft. It's from multiple crafts. But who decides they want to leave? How bad does that hurt them? Again, as we talked about the borrowing costs, it changes what they are paying pretty much in a daily borrowing cost. Further, we have several wholesalers or distributors in Ohio who focus on craft, on smaller people. At 25 what percentage of their suppliers are above that or below that I couldn tell you for sure But in talking to them all of them were below 250 So, again, yes, the number does matter. But regardless of the number, that doesn't change the willingness to make the investment, the willingness to negotiate, the fact that the craft brewer is still using the infrastructure that has been built by the wholesaler. It doesn't change that. The final thing I would add is that for many wholesalers, they have a territory. So if you're talking about a 25,000-barrel craft brewer, that doesn't mean they're with just one wholesaler. They could be. They could be with one wholesaler across the state, or they could be with several wholesalers who are doing a much smaller amount. that are doing just a couple thousand or a few thousand cases a year. The craft brewer is getting the benefit, again, of that infrastructure, the goodwill that that wholesaler has created. And so to build that brand and not have the security that it's going to be there, that becomes a risk that somebody says, I'm not going to do that original fee that I've paid others. You now want to enter into something? I don't want to make that investment. And that oftentimes can hold off somebody being able to buy a canning line. It could be, you know, am I going to do an expansion of a tap room? Am I going in a different direction? And so, again, this system works really, really well. And it's not great English, but I would certainly argue if it ain't broke, don't fix it. And that's what we have seen. Tenfold growth in 12, 13, 14 years is pretty strong stuff.
I do have a follow-up on that. So there's been a lot of talk about the purchasing power, the borrowing power, the investment, all of these things. That equally could be placed in the contract that that's all paid back as well, so there's no actual loss. What are your thoughts on that? So that argument, then would that become a little bit more mute if it could be calculated and it could be contracts, and so you can have the negotiation piece there?
Mr. Chairman, respectfully, there are some things that certainly can be calculated as fair market value is determined. But I think a couple things get lost in that. First of all, the impetus or focus on a franchise-protected product is going to be greater than a non-franchise-protected product. So even if on the back end you could calculate what that fair market value is, will it ever ascend to the place that it could based upon the current system that allows the wholesaler to continue to make that investment because they have a return on their investment? Or are they less likely to make that investment, to make that commitment? Because, hey, as soon as I start to be successful with this product, they're going to look to leave, go somewhere else, see if the grass is greener elsewhere. Further, there are some costs, as we talk about the borrowing costs, things of that. If borrowing rates change because you've got a couple craft brewers, how much do I assign to Senator Catrona brewing versus Senator Romanchuk brewing? And so how do I recoup that, essentially, again, daily cost on my line of credit?
Thank you, Mr. Chairman.
You know, you prefaced your comments, remarks today about, you said that this has been around for a long time, and I would agree with that. We've been wrestling with this for a few years. And you also said something that I don't remember being said before, and that was the fact that the craft brewers don't buy back the inventory. I thought they did. Do I remember that incorrectly? I always thought that they would buy it back if there was an issue. Is that something changed, or my memory with all the things we deal with around here could be circling around. I don't know what I'm talking about.
To the Chair, Senator Romanchuk, But certainly if there is a problem with the beer or it's about to go unpalatable, the wholesaler can take that back out of the market. If there's an issue, you know, we saw a few years ago that not a craft brewer, a large brewer, bottling line got off a little bit so there were chips in the bottled beer, that stuff comes back. Yes, in that regards, they can. Federal alcohol law is clear. You cannot sell alcohol on consignment. When the wholesaler buys it, unless there is a reason, not we didn't sell it, but hey, the beer's got an issue, whatever the case may be, then yes, the manufacturer can buy it back. If it is not, hey, just didn't sell or beer sales have slowed, things of that nature, then if they took it back, that would be considered a consignment sale, and that is in violation of the Federal Alcohol Act.
Yep.
Any more questions?
I've got one last question. How does this differ from Red Bull, energy drinks, all of that? How does that play into this, and why is that different?
My understanding is those products are treated differently and are outside the franchise law, and they seem to be – and I'm sure that – so can you explain that a little bit? Absolutely, Mr. Chairman. Several things. So beer and wine products are franchise protected in Ohio. Non-alcoholic products such as Red Bull, Coca-Cola, Pepsi, things of that nature are not. What I would suggest is if you get the opportunity next time you're in the grocery store to walk down the two aisles of the non-alcoholic beverage and then the alcoholic beverage. And you will watch as you go down the NA side that you're going to see essentially four or five producers of those beverages. Coke, Pepsi, Keurig, Dr. Pepper, and throw in a couple others that you find. Walk down the beer and wine aisle, and you will see hundreds of producers. I would suggest to you it's because the wholesaler can make that commitment to grow these brands, to build them because they will continue to be there, and that label has a value. This craft brewer has made a product that people want, that they support, and that's how we're going to continue to get it to market. whereas in the non-alcoholic space you have multi-billion dollar companies that are dominating it and that's why there's very little variety in there. At the end of the day, it's just a handful of manufacturers.
Any other questions for the witness? All right, I'm seeing none. Thank you for your testimony today.
Thank you very much.
Is there anyone else who would like to testify on behalf of this bill? Seeing none, this will conclude the third hearing for Senate Bill 23 Seeing no further business before the committee We are here now, adjourned