Both houses of Okla state legislature passed bill that will set up ballot initiative this fall to allow cold, strong beer to be sold in grocery stores and c-stores.  Those outlets now limited to cold 3.2 beer.  Strong beer only sold warm and limited to liquor stores.  Also, distribs, especially AB branches, don’t currently have full control over the beer sold to liquor stores (there’s additional class of licenses that sell to them). Beer Distribs of Okla and AB support this “modernization initiative.”  Accompanying ballot issue is a 285-page bill with lotsa other details.  If measure passes, goes into effect in 2018.  At same time, Okla legislature approved separate measure that allows on-site sales at breweries.  That goes into effect in 90 days, if Gov signs.   

Gotta take note when LA Times headlines: “Pot growers leery of Big Alcohol takeover.”  And the lengthy story that follows even more interesting than headline suggests.  The gist:  Ted Simpkins, a 43-yr wine and spirits distribution veteran (started career with Southern Wine, ended with Young’s Market) played key role, via political contributions, hiring lobbyist, etc. in Calif legislature adopting new rules for selling medical marijuana.  One of ’em will establish a middle tier between growers and dispensaries: pot distributors.  Some of the resulting issues will be eerily familiar to followers of 3-tier alc bev debates from the raisons d’être of regulation to craft vs middle tier tensions.  Here are a few:

• Traditional, independent small-biz growers not so happy about having to give up margin to a new middleman.  “While prices for marijuana have sunk to all-time lows, new players would be taking a bite out of increasingly thin margins.”  At mtg where Simpkins intro’d plans, some growers “suddenly saw that someone with this much money posed a new threat to their scruffy livelihoods.”  One grower, remarkably named Sunshine Johnson, said “we had the sudden feeling we were in the belly of the beast.”  But other growers see “hope” in new model and have already signed on with Ted’s distrib co (River Wellness) “hoping it will give them more power to set prices with dispensaries,” who now apparently possess all the leverage.  Indeed, Ted “tried to convince” growers and regulators that creating middle tier “would empower growers by forcing retailers to negotiate better pricing and shelf placement.” 

• State regulators (pot bureau now being run by Lori Ajax, who came over from alc bevs) apparently signed on to idea of inserting middle tier to “create a manageable ‘choke point’ in the supply chain, with a smaller number of entities to perform audits and collect taxes.”  (NBWA couldn’t have put it any better.)
  
  
• Many in industry didn’t know about new 3-tier requirement until it emerged, exec director of Cannabis Industry Assn told Times.  And “he fears only large-scale growers and manufacturers will be able to make a living after big distributors take a cut.”   One grower said “no way the cottage industry can pay these fees.  Now we got distributors coming in.  They want 30%.  The little guys are going to get mowed.”  (Of course, that’s in sharp contrast to Jim Koch’s insistence that “no 3-tier, no craft beer.”

• Finally, and this may be biggest issue/oppy of all: “Adding a potential layer of chaos is a well-funded ballot initiative to legalize recreational use of marijuana, which does not require independent distributors.”  Nor did medical marijuana, at first. 

May be a long time comin’, but change approaching in both Pennsy and Colo. Not exactly full privatization in PA, tho thru small adjustments, new practices, “it’s comin’,” as Dick Yuengling said during late March Meeting of the Malts event. Status quo is a “thing of the past,” he said, and “times are changed” so system must change too. Yesterday, Pennsy Liquor Control Bd (PLCB) approved 9 licenses to allow gas stations to sell up to 192 oz of beer as long as they have separate point of sale. Gov Tom Wolf “applauded” move (since he pushed for the decision, see yesterday’s Express). But it angered Malt Beverage Distributors Assn (4th tier home-distributors), which dismissed Gov’s “attempt to tamper with the administrative process” ahead of yesterday’s PLCB votes. Then too, Brewers of Pennsylvania “supports added opportunities for consumers to purchase beer.” But it wants to see PLCB go further and allow “six-pack sales in all channels of trade.” It may be happening a handful of licenses at a time, but that seems to be direction Pennsy’s moving.

Out in Colo, state brewers so far neutral on bill passed to phase-in liquor sales at chain stores over 20 years. That bill still waiting for Gov John Hickenlooper’s action. He has ’til June 10. Indie liquor stores in state largely pressuring him to sign it, since it slows down the onset of their competition from larger grocery chains. For example, chains would only be able to pick up 5 licenses across the state in 2017, but those licenses harder to get if chain outlet in close proximity to existing liquor store. And sales of full-strength beer (above 3.2% alc by weight) not allowed in grocery stores til 2019. But chains behind Your Choice Colorado group not satisfied by bill. They’re waiting on Gov action too, but hope to proceed with planned ballot initiative that would allow grocery stores to sell full-strength beer and wine immediately.

Scans and shipments data confirm anecdotal reports we got that biz has slowed.  In addition to soft Apr shipments, IRI mutli-outlet + convenience scans match Nielsen numbers from earlier this week, showing off-premise volume sagged about 1% for 4 wks thru mid-May and yr-to-date gain slipped below 1%. In IRI, 4-wk trend thru May 15 was -1%. Yr-to-date volume up just 0.7%.  IRI data also shows FMB’s leading above premium growth, +12% YTD. Imports, craft and superpremium segments each up 6.5%-6.8% thru mid-May.  IRI reports also very similar trends for domestic premium and subpremium, -1.7% and -1.9% respectively YTD.  Cider still sufferin’, -11%. 

Top 2 each down yr-to-date in IRI data too, tho AB trends a bit better in this dataset, -0.9% vs -1.6% for MC.  Each dropped 2.2-2.5 mil cases yr-to-date in these scans and each lost 0.6-0.8 share of volume.  Of remaining top 10, Constellation leads gainers with +13% trend, but Pabst and Mike’s Hard each up 8%+, Yuengling up near 4%, NAB +2.3% and DGUSA +1.4%.  Meanwhile, Boston -4% and HUSA -1.4%.  Very mixed bag for top craft players. Sierra Nevada, New Belgium, Craft Brew Alliance each down 2.4%.  Gambrinus and Duvel Moortgat down mid-singles.  But Lagunitas and Bell’s truckin’ at +25% each, Founders and Firestone Walker flyin’ at +70% or so, Deschutes, New Glarus and Stone each up double-digits.  Finally, SweetWater, Dogfish Head and Great Lakes each up mid-singles.          

It was fun while it lasted.  But estimated near-2% US shipments gain in Q1 already a memory.  Domestic brewers’ taxpaid shipments dropped 265K bbls, 1.8% in Apr, estimates Beer Inst economist Michael Uhrich.  That pulled 4-mo taxpaids gain down to just 156K bbls, 0.3%.  Even with import gain of half-mil bbls, nearly 7% thru Mar, available yr-to-date figures now show 666K-bbl, 1.1% gain for US beer shipments.  And if cider shipments mirror scan trends, US biz up even less than that.  Like we’ve said, 2016 shaping up to be rocky road, with ups and downs as volume numbers come in month-to-month.

Teamsters were at Molson Coors shareholder mtg in Denver today to “protest outside”  and “raise concerns” inside about “likely anticompetitive effects” of decision to close Eden and how regulators may view it.  Recall, Teamsters recently concluded negotiations over closing of MillerCoors Eden brewery.  But that was yesterday’s Express.

Elsewhere, 91 Teamster drivers and warehouse workers went on strike Sunday night at CT’s largest AB distrib Dichello in New Haven. Union sez Dichello did not offer fair contract, claiming “latest offer” was avg wage hike of 12 cents/hr over 10 yrs.   

At a Pennsy Liquor Control Board meeting today, the Board will decide whether or not to approve 12 license applications by convenience or grocery stores that also sell gas. Gov Tom Wolf wants them to be approved for convenience’s sake. He penned letter to PLCB asking them to “Free the Six-Pack,” and duplicate decisions they already made for a handful of existing licensees. But those approvals being challenged in court. Pennsy law bars sellers of “liquid fuels or oil” from having liquor license at same location. Yet PLCB approved beer sales when “on the same property,” but with separate points of sale, as Gov wrote. When those licenses challenged by state home-ds (unique 4th tier of beer retailer/distribs), Commonwealth Court upheld PLCB decision. But that case could be taken up by state Supreme Court. Gov Wolf appealed to “shared goal” with PLCB: “increasing convenience and improving customer satisfaction.” 

In another sign that regulators payin’ more attention to alc bev biz practices, fed grand jury indicted Republic Natl Dist Co (RNDC), 2d largest wine/liquor distrib in US, and 3 employees in scheme to evade NY state excise taxes.  US Atty for MD, Homeland Security, TTB and IRS teamed up to indict RNDC’s MD operation and 3 employees there on 23 counts.  According to allegations, retailers in MD worked with RNDC employees to buy wine and liquor which they resold to NY retailers who picked it up in MD and paid cash, evading NY excise tax.  (Liquor tax in MD is $1.50/gal vs $7.44 in NY.)  Republic billed MD retailers for the extra product they allegedly knew was going north and retailers paid by check. But indictment sez neither RNDC, NY retailers nor MD retailers registered as distrib in NY, provided monthly reports of product shipped to NY, or paid NY tax.  What’s more, RNDC “allegedly filed false reports” with MD “indicating that all liquor sold to” MD retailers was “intended for resale” in MD.  Indictment seeks “forfeiture of all proceeds” from scheme which ran from at least 2009-2012, including judgment of $9 mil.  Republic also faces $250K fine; 3 employees lookin’ at 20 yrs for wire fraud charges. RNDC may also have to return funds from money laundering charges. 

Republic denies any wrongdoing, natch, and expects “complete exoneration.” Prexy/CEO Tom Cole said his co worked “diligently” with US Atty’s office since 2012, “and have seen no evidence to support their version of the facts. RNDC emphatically denies these allegations and looks forward to our day in court where we will demonstrate that the prosecutors’ accusations are based on erroneous assumptions, unsubstantiated theories, and represent an unprecedented attempt at federal government overreach.”  Cole also called indictment “a rogue effort by a federal agency to seize control of the state regulation of liquor sales in violation of longstanding law,” citing 21^st Amendment’s grant of power to states to regulate alc bevs.  

NC’s David Rouzer became 218^th co-sponsor of Craft Bev Modernization and Tax Reform Act.  So bill that reduces fed excise tax for all brewers and importers, and has benefits for vintners and distillers too, now supported by majority in House.     

Just as Justice Deps antitrust chief Bill Baer told Senators back in Mar that DoJ would “look at” requiring AB to cap branch volume as condition for clearing ABI-SAB, DoJ also “investigating ABI over its new incentives that encourage distributors to sell more of its own beer brands at the expense of competing craft brews,” Reuters reported this morning.  Report cited “two people with knowledge of the matter.”  Same people said DoJ contacted beer distribs and craft brewers with questions about VAIP incentive plan adopted last fall, “as well as AB InBev’s other steps at curbing craft promotion” by distribs.  DoJ had no comment.  AB spokesperson Gemma Hart did: “VAIP is a reflection of just how competitive the U.S. beer industry has become.”  AB’s had incentive programs for 15 yrs, she noted, adding that VAIP not only incents AB distrib to sell AB brands, but provides “more flexibility than prior iterations to sell non-Anheuser-Busch products and still gain rewards.”  VAIP “clearly does not prevent or inhibit other brands from getting to market. There are more than 3,000 distributors across the U.S., only 467 of which are AB distributors. Nearly all AB distributors carry other brands.”

Recall that both BA’s Bob Pease and NBWA’s Craig Purser raised concerns about VAIP during Senate subcommittee hearing back in Dec.  Craig warned there’s a “very fine line” between a “carrot and a stick” and attention needs to be paid “when the incentive can become a stick.”  Sources made similar points to Reuters, suggesting that program “makes the incentives appear designed primarily to suppress craft sales rather than boost AB InBev sales.”  And tho practices “not outright illegal, [they] could be deemed as such if AB InBev is found to be dominant and aiming primarily at shutting out rivals rather than building up their own sales.”  Reuters reminded too that when DoJ cleared ABI-Modelo deal back in 2013, it barred AB from changing distrib incentive program in ways that could harm distribs with Modelo brands.  Reuters article comes hot on heels ABI-SAB getting antitrust clearance from European Union.  But that was yesterday.