Protectionist Policies Post Prohibition Punish Purposeful Promotion

05
Mar 2020
Protectionist Policies Post Prohibition Punish Purposeful Promotion

Asheville: land of beer and outdoor recreation.

Pairing beer with fundraising recreational activities is as natural as the splendor of the Blue Ridge Mountains. Nothing could be simpler or better than a sponsorship or partnership with any one of Asheville’s innumerable breweries and an outdoor recreational event. Breweries want to show support and respect for this place they call home. Naturally, offering funds in support of community events is a great way to promote the brewery and be an integral part of the community. At all of these events, participants look forward to the requisite t-shirts and to-go cups or koozies that mark attendance. Like a scout’s badge, this “schwag” has come to be expected, as much as brewery participation. What is there not to like about such co-sponsoring and promotion?

Being fined for providing Schwag; that is quite unlikable.

But in North Carolina, our State statutes, regulating beer production, distribution, and sales, dating from the end of prohibition, prohibit such cross-promotion activities. And unlike some laws that go unenforced, the ABC Commission seems ready, willing, and able to enforce violations against cross promotion or what it terms “cooperative advertising.” Just this past November, in Charlotte, the NC ABC fined the U.S. National Whitewater Center $3,000 for sponsorship agreements with NoDa Brewing Company, among other breweries, for its “Brew Dash 6K.” The Charlotte Ledger reported on the incident in a accounting of the ALE officers investigation and subsequent report and fine, which is hilarious for the reader. The reality of the experience is no laughing matter for breweries and other entities unaware of the intricate prohibitions created by North Carolina’s onerous three-tier system.

After prohibition was repealed, states were left to regulate the manufacture, distribution and sale of alcohol, as each saw fit. North Carolina decided upon a three-tier system with the purpose of discouraging monopolies and unfair business practices that could adversely affect consumers. In so doing, North Carolina has created a Cerberus of regulation that dogs producers, wholesalers and retailers alike. NCGS § 18B-1116 clearly states that it is prohibited for producers or wholesalers to directly or indirectly have any financial interest with retailers (emphasis supplied). This is a pretty broad statute that covers a variety of activities such as sponsorships and collaborative events. The NC Administrative Code further defines prohibited activity as cooperative advertising or any advertising promoting a retailer of the wholesaler or producers product. (See NCAC 14B)

So should breweries cease to support and promote community activities and event organizers shy away from seeking funds and sponsorships from local breweries? That would defeat the tenacious character of WNC and its people! Instead breweries and event holders need to be aware of the pitfalls of cross promotion. Licensing agreements and indemnification clauses in sponsorship agreements can add a level of protection from fines for inadvertent violations. Additionally, sponsors and event coordinators can apply for an exception from the NC ABC to cross promote events. Having procedures in place for handling such concerns can help deter and even eliminate any possible issues.

Seeking counsel from an experienced attorney is recommended to create such policies and keep everyone happily donning event t-shirts and carrying to-go cups as the badge of honor they are meant to be.

If you have an issue involving cross promotion or ABC regulation, contact Allen Stahl + Kilbourne to discuss your options.

 

By Derek Allen and Megan Farley

Updated: March 5, 2020