franchise laws
Subscribe to franchise laws's Posts

Oklahoma Supreme Court Strikes Down New Distribution Statute as Unconstitutional

In a win for alcohol beverage suppliers, on Wednesday the Oklahoma Supreme Court issued an opinion in The Institute For Responsible Alcohol Policy v. State ex rel. Alcohol Beverage Laws Enforcement Comm’n. In a 5-4 ruling, the court struck down as unconstitutional a statute requiring the top 25 wine and spirits brands in the state, by volume, to be offered to all wholesalers without discrimination. The effect of the ruling is that a supplier of any brand of alcohol is free to choose its preferred or potentially exclusive distributor in the State of Oklahoma.

As background, Oklahoma has historically prohibited suppliers of wine and spirits from having an exclusive distribution relationship with an Oklahoma wholesaler, and required suppliers to sell their products to any Oklahoma wholesaler desiring to purchase them. For those familiar with the concept of “franchise” laws in the alcohol beverage industry—which typically require suppliers and wholesalers to establish exclusive distribution relationships—this provision effectively operated as a “reverse franchise” law.

Following a voter referendum in the fall of 2016, Oklahoma enacted a constitutional amendment overhauling its alcohol beverage laws. As part of the legislative changes, a new statute authorized suppliers to appoint a single wholesaler for their products in Oklahoma. The new statute allowed, but did not require, suppliers to establish exclusive distribution relationships with Oklahoma wholesalers.

As a reaction to the constitutional amendment and 2016 legislative changes, Oklahoma enacted a new law in May 2019 that partially restored the reverse franchise law, requiring any wine or spirit product constituting a “top brand” (i.e., by volume) to be made available to all Oklahoma wholesalers. A number of parties, including The Institute for Responsible Alcohol Policy and several members of the alcohol industry, comprising the supplier, wholesaler, and retailer tiers, sued to challenge the law. The plaintiffs argued that the law conflicted with the new constitutional amendment.

In August 2019, a district court judge held the law unconstitutional. The wholesalers appealed, and in this ruling the Oklahoma Supreme Court affirmed the lower court’s decision. Specifically, the court’s majority opinion held:

  1. The statute in question is “clearly, palpably, and plainly inconsistent” with the 2016 constitutional amendment’s provision giving discretion to a supplier of spirits or wine to determine what wholesaler(s) sells its products. Because the statute “infringes on a manufacturer’s constitutionally granted discretion to select one wholesaler to the exclusion of all others,” it is unconstitutional.
  1. The statute “is not a proper use of legislative authority,” as the constitutional amendment does not conflict with the Oklahoma constitution’s prohibition on anti-competitive activities (i.e., monopolies). The amendment does not require suppliers to sell their brands to only one wholesaler, and instead places discretion in the hands of the suppliers to determine how they will distribute their products in the state.

The ruling allows for a level playing field for all suppliers, including suppliers of high-volume brands in Oklahoma, to determine how their products will be distributed in Oklahoma.




An Intro to Distribution Agreements

As a craft distiller, getting your products into the hands of consumers is, of course, critical to your business. As a general matter, state alcohol laws separate the alcohol beverage industry into three tiers (i.e., the three-tier system): the supplier tier, the wholesaler tier, and the retailer tier. To get its product to market, a supplier typically must sell to a wholesaler, which then must sell to a retailer.

Of course, state laws today contain a number of expectations to the three-tier system – for example, many states now license pub distilleries, which may produce spirits on-site (typically a function of a retailer). But generally speaking, a distiller must sell its products through wholesalers. This article will explore the terms that govern the relationship between a distiller and its wholesaler.

Read the full article.

Originally published in Artisan Spirit, Summer 2018.




Buying and Selling a Craft Brewery

Few craft brew entrepreneurs contemplate selling their business when they first get started.  Unlike, for example, the typical entrepreneur in the software industry, the craft brewers we know were inspired by the love of great beer, a spirit of adventure, and the romance of creating a small manufacturing business.  But the life cycle of most businesses eventually requires at least the consideration of a sale or other transaction designed to both recoup the entrepreneur’s lifelong investment and transition the company to the next generation.

From the buy side, the craft beer business has never been hotter, with market share now approaching 8 percent by volume in the U.S. and margins that have gotten the attention of both big brewers and non-U.S. brewers alike.  This article, published in the January/February 2015 issue of The New Brewer, will explore at a high level some of the issues involved with buying and selling a craft brewery.

Read the full article.




STAY CONNECTED

TOPICS

ARCHIVES