North Carolina § 18B-1116 - Exclusive outlets prohibited.

§ 18B-1116. Exclusive outlets prohibited.

Prohibitions. - It shall be unlawful for any manufacturer, bottler, or wholesaler of any alcoholic beverages, or for any officer, director, or affiliate thereof, either directly or indirectly to: Require that an alcoholic beverage retailer purchase any alcoholic beverages from that person to the full or partial exclusion of any other alcoholic beverages offered for sale by other persons in this State; or Have any direct or indirect financial interest in the business of any alcoholic beverage retailer in this State or in the premises where the business of any alcoholic beverage retailer in this State is conducted; or Lend or give to any alcoholic beverage retailer in this State or his employee or to the owner of the premises where the business of any alcoholic beverage retailer in this State is conducted, any money, service, equipment, furniture, fixtures or any other thing of value. Exemptions. - The Commission may grant exemptions from the provisions of this section. Any exemption entered by the Commission in which any brewery or any officer, director, or affiliate of the brewery has a direct or indirect financial interest in the business of any retailer beyond the number of additional retail locations authorized by G.S. 18B-1104 shall prohibit the brewery's malt beverages from being sold to or purchased by that retailer. In determining whether to grant an exemption, the Commission shall consider the public welfare, the quantity and value of articles involved, established trade customs not contrary to the public interest, and the purposes of this section. As used in this section, the phrase "giving things of value" shall not include the dividing or removing of individual containers of alcohol from larger packages of alcohol or the delivery of such to the retail permittee. A brewery qualifying under subdivision (7) or (8) of G.S. 18B-1104(a) is not subject to the provisions of this section concerning financial interests in, and lending or giving things of value to, a wholesaler or retailer with respect to the brewery's transactions with the retail business on its premises or other retail locations allowed under G.S. 18B-1104(a)(8). The brewery is subject to the provisions of this subsection, however, with respect to its transactions with all other wholesalers and retailers. A distillery is not subject to the provisions of this section concerning financial interests in, and lending or giving things of value to, a retailer with respect to the distillery's transactions with the retail business allowed on its premises under G.S. 18B-1105(a)(4). The distillery is subject to the provisions of this subsection, however, with respect to its transactions with all other retailers. History (1945, c. 708, s. 6; 1953, c. 1207, s. 1; 1971, c. 872, s. 1; 1981, c. 412, s. 2; c. 747, s. 63; 1993, c. 415, s. 25; 2005-380, s. 3; 2014-115, s. 28.2(c); 2017-87, ss. 11, 16(f); 2019-18, s. 3; 2019-182, s. 4(b).) Editor's Note. - Session Laws 2017-87, s. 19(a), (b), provides: "(a) Except as otherwise provided, the Alcoholic Beverage Control (ABC) Commission shall adopt temporary rules to implement the provisions of this act. Temporary rules adopted in accordance with this section shall remain in effect until permanent rules that replace the temporary rules become effective. "(b) Any rule or policy adopted by the ABC Commission that does not comply with the provisions of this act shall be null, void, and without effect." Session Laws 2018-65, s. 5.1(a)-(e), provides: "(a) Definition. - 'Advertising Rule' means 14B NCAC 15B.1006 (Advertising of Malt Beverages, Wine and Mixed Beverages by Retailers) for purposes of this section and its implementation. "(b) Advertising Rule. - Until the effective date of the revised permanent rule that the Alcoholic Beverage Control Commission is required to adopt pursuant to subsection (d) of this section, the Commission shall implement the Advertising Rule as provided in subsection (c) of this section. "(c) Implementation. - Notwithstanding the Advertising Rule, the Commission shall allow a sports or entertainment venue with a permanently constructed seating capacity of 3,000 or more, which is not located on the campus of a school, college, or university, to display point-of-sale advertising for malt beverages and unfortified wine inside the venue that is visible from the outside of the venue, and shall not require the venue to move or remove the advertising. "(d) The Commission shall adopt rules to amend the Advertising Rule consistent with subsection (c) of this section. "(e) Sunset. - This section expires when permanent rules adopted as required by subsection (d) of this section become effective." Session Laws 2019-18 provides in its preamble: "Whereas, the General Assembly reaffirms its support of the Beer Franchise Law and the three-tier system for the distribution of malt beverages and finds that the Beer Franchise Law and the three-tier system does all of the following: "(1) Promotes consumer choice and product variety by providing a platform that enables new malt beverage products to come to market that might not otherwise be available to the consumer. These laws encourage wholesalers to make investments in their businesses necessary to expand distribution of new products and to allow large and small breweries alike an opportunity to enter the market through independent distribution. Wholesaler investments include adding resources such as warehouses, personnel, vehicles, equipment, merchandise, and marketing. Consumers have access to an exceedingly wide array of malt beverage products, unlike other industries that foster closed distribution networks and vertical integration. "(2) Promotes the growth of the craft beer industry by providing suppliers with access to markets outside of the brewery. Brewers that use wholesalers are able to instantly access and utilize a wholesaler's established infrastructure in markets they may not otherwise be able to enter. Smaller breweries further benefit because wholesalers are able to act independently to carry all brands, from large and small suppliers. The goal of these laws is to allow brewers of all sizes to fairly compete in the marketplace and to access retailers of all sizes. "(3) Helps ensure that the industry, as a whole, complies with the alcohol laws of this State. A wholesaler must remain independent and free from unfair conduct to promote responsible sales and marketing practices. Wholesaler independence also promotes and maintains fair dealing among industry participants. Ultimately, these measures protect consumers and the public from abuses that might occur absent the three-tier system. "(4) Promotes a vibrant marketplace that carefully balances fair competition with health and public safety concerns. The Beer Franchise Law and the three-tier system ensure that all three tiers operate independently and on a level playing field so that no one participant or sector of the industry becomes too dominant over the others. These laws allow for fair checks and balances in the beer industry. Wholesaler independence further creates a transparent and accountable distribution system that assists in identifying improper marketing practices and potentially unsafe products when issues arise and provides brewers that engage a wholesaler with an established means to access new markets. "(5) Prevents vertical integration of the manufacturing, distribution, and retail tiers. This still occurs in other countries today where adverse health and public safety effects are observed. The historical three-tier system model incorporated a deliberate regulatory structure that prevents monopolization. However, as the number of beer industry participants has grown substantially, it is necessary to make important adjustments to the three-tier system to promote the overall success of the beer manufacturing industry in North Carolina by recognizing the different stages of brewery development. "(6) Assists in collecting excise taxes, particularly from nonresident suppliers. While self-distributing resident breweries are required to remit excise taxes directly to the Department of Revenue, wholesalers collect and remit the excise tax on malt beverages on behalf of resident and nonresident suppliers to the Department of Revenue, totaling approximately $140 million in excise taxes each year to the State. "(7) Promotes local regulatory control, temperance, and moderate consumption of malt beverages. The three-tier system in particular incorporates features to promote healthy competition in the marketplace while minimizing overly-aggressive marketing practices, such as limits on quantity discounts, requirements of nondiscriminatory treatment among wholesalers and retailers, and limits on advertising and promotional materials. The three-tier system also provides clear chain of custody for products in distribution, which enables law enforcement to easily track products in the marketplace when issues arise. "(8) Provides a vital platform that promotes product safety for consumers. Malt beverage distributors invest heavily in infrastructure, such as modern warehouses and vehicles, that maintain product integrity during distribution. There are also strict record-keeping requirements, which enable wholesalers to readily track malt beverage products sold in the market for prompt return in the event of a product recall. "(9) Encourages wholesalers, under the Beer Franchise Law, to invest capital and labor for suppliers of all sizes, large and small, to expand into new markets with new products. Unfair or arbitrary termination is prohibited, but suppliers who are subject to the Beer Franchise Law are still afforded the ability to terminate a distribution agreement for good cause. The Beer Franchise Law inhibits forced consolidation among wholesalers. The three-tier system also affords small retailers the same market access opportunities to the same wide selection of brands that other large-scale retailers have, and on equal terms. "Whereas, the General Assembly also reaffirms its support of the craft beer industry and makes the following findings: "(1) The current small-brewery provisions of Chapter 18B of the General Statutes were intended to foster the growth of small craft breweries while simultaneously protecting wholesalers from the risk of economic uncertainty. Since the adoption of those provisions, however, the craft beer industry has seen exponential growth. The craft beer industry now provides a significant source of high-quality manufacturing and service employment and wages and generates significant tax revenue for the State. In addition, the growth of the craft beer industry has resulted in significant positive secondary impacts on the economy through increased business to a myriad of suppliers to the craft breweries, resulting in even greater employment and tax revenue for the State's citizens. "(2) It is in the best interest of the State to continue supporting the entrepreneurial spirit and economic growth driven by the craft beer industry. Yet it remains vital to preserve the integrity of the State's three-tier system. Today, mid-sized independent breweries possess only a fraction of the malt beverage market in light of increased consolidation and globalization of large suppliers. Consequently, the growth of these mid-sized independent breweries promotes economic development, employment and wages, and significant tax revenue without the same risks of harm that the three-tier system is designed to minimize. "(3) In view of these new market realities, the existing small brewery provisions of Chapter 18B of the General Statutes warrant revision. Specifically, recognition for a new category of breweries, Mid-Sized Independent Breweries, is needed to reflect the market's evolution, foster the continued growth of the craft beer industry, promote consumer choice, ensure access to market, and promote stable and healthy competition in the malt beverage industry in this State. The following legislative enactments are expressly intended to further these purposes. "Whereas, the General Assembly finds that regulation of the malt beverage industry and the objectives sought to be achieved by this act fall squarely within the authority granted to the State by the 21st Amendment to the United States Constitution and the inherent police powers of this State; Now, therefore," Session Laws 2019-18, s. 6, is a severability clause. Session Laws 2019-18, s. 7, provides: "This act does not apply to any exemption order or amendment thereto entered by the Alcoholic Beverage Control Commission prior to the effective date of this act [May 30, 2019], or to any such exemption order or amendment that is renewed or reissued by the Commission after the effective date of this act [May 30, 2019]." Session Laws 2019-182, s. 4(c), made the last paragraph of subsection (a), as added by Session Laws 2019-182, s. 4(b), effective September 1, 2019, and applicable to sales made on or after that date. Session Laws 2019-182, s. 11(a)-(e), provides: "(a) Definition. - 'Discount Rule' means 14B NCAC 15B.1004 (General Prohibitions) for purposes of this section and its implementation. "(b) Discount Rule. - Until the effective date of the revised permanent rule that the Alcoholic Beverage Control Commission is required to adopt pursuant to subsection (d) of this section, the Commission shall implement the Discount Rule as provided in subsection (c) of this section. "(c) Implementation. - Notwithstanding any provision of subsection (b) of 14B NCAC 15B.1004 to the contrary, all of the following shall apply: "(1) A combination of the use of a coupon, a rebate, or a permittee's loyalty card, discount card, or membership card shall not exceed thirty-five percent (35%) of the advertised retail price for the purchase of a malt beverage or wine. "(2) A coupon or rebate shall not provide a discount exceeding thirty-five percent (35%) of the advertised retail price for the purchase of a malt beverage or wine. "(3) A loyalty card, discount card, or membership card shall not provide a discount exceeding thirty-five percent (35%) of the advertised retail price for the purchase of a malt beverage or wine. "(d) Adoption. - The Commission shall adopt rules to amend the Discount Rule consistent with subsection (c) of this section by no later than September 1, 2019. The Commission may adopt temporary rules to comply with the deadline set in this subsection. Any temporary rules adopted in accordance with this subsection shall remain in effect until permanent rules that replace the temporary rules become effective. "(e) Sunset. - This section expires when permanent rules adopted as required by subsection (d) of this section become effective." Effect of Amendments. - Session Laws 2005-380, s. 3, effective September 8, 2005, added subsection (c). Session Laws 2014-115, s. 28.2(c), effective August 11, 2014, substituted "G.S. 18B-1104(8)" for "G.S. 18B-1104(7)" in the last paragraph of subsection (a). Session Laws 2017-87, ss. 11, 16(f), effective June 30, 2017, in the last paragraph of subsection (a), substituted "subdivision (7) or (8) of G.S. 18B-1104(a)" for "G.S. 18B-1104(8) to act as a wholesaler or retailer of its own malt beverages" and added "or other retail locations allowed under G.S. 18B-1104(a)(8)" in the first sentence. Session Laws 2019-18, s. 3, effective May 30, 2019, added the second sentence in subsection (b). Session Laws 2019-182, s. 4(b), added the last paragraph of subsection (a). For effective date and applicability, see editor's note.