Gov. Larry Hogan is expected to make a decision on a bill that would change the rules for Maryland breweries by this weekend. (Ulysses Muñoz, Pam Wood / Baltimore Sun)
Virginia officials are seizing on discord in Maryland over how to regulate the growing number of breweries here by trying to entice brewers and entrepreneurs to move south.
Virginia Secretary of Commerce and Trade Todd Haymore said he and his staff have contacted more than half a dozen Maryland breweries, pitching the commonwealth as more pro-business and pro-beer.
The effort comes as some Maryland elected officials criticize legislation passed by the General Assembly last month that will quadruple the amount of beer breweries can serve in their on-site taprooms, but also make other rule changes that some consider regressive and harmful to the industry.
Gov. Larry Hogan announced Friday that he'd let the bill to become law without his signature, a symbolic gesture that highlights his concern.
In a letter to legislative leaders, the Republican governor cited Virginia's entreaties to Maryland breweries as motivation to fix flaws in the state's liquor laws during next year's General Assembly session.
"Failing to do so will possibly force new and existing breweries to look outside of Maryland to expand their operations," Hogan wrote. "Indeed, Virginia has already seized upon [the bill] and the unfriendly perception it created to lure not only start-up breweries, but to pursue Maryland's existing breweries."
The bill limits the operating hours of new production breweries, a provision panned by the Brewers Association of Maryland. It also forces brewers to buy back their beer from a wholesaler if they want to serve more than a certain amount in their taprooms.
"Think about this: You have to sell your beer and then buy it back," said Del. Robin Grammer, a Republican from eastern Baltimore County with two craft breweries in his district. "What century do we live in here?
"It is a measure aimed completely to pull the profit off of one person and give it to the next."
Haymore said his phone began ringing during the Maryland legislature's messy and protracted debate.
"We had a number of folks in Maryland who were forwarding us information as the legislature was moving along, saying this may be an opportunity for Virginia to show once again how proactive and positive we are to the craft beer industry," Haymore said.
He boasted that Virginia has persuaded four West Coast breweries to open production facilities in the commonwealth: Green Flash Brewing Co., Stone Brewing Co., Deschutes Brewery and Ballast Point Brewing Co. That's in addition to promoting home-grown brands and encouraging brewers to use local hops and other ingredients.
Haymore said he had meetings and phone conversations with Maryland businesses as recently as last week. Follow-up conversations are scheduled in the coming weeks.
Under current law, production breweries are limited to selling 500 barrels of beer per year to customers who visit their on-site taprooms. Diageo estimated that equals 124,000 pints — enough to serve a pint to only half of the customers its expects to draw.
The company came into the legislative session asking permission to serve 5,000 barrels of beer a year. In the end, lawmakers approved allowing all breweries to serve up to 2,000 barrels — nearly 500,000 pints. They can ask permission to serve an additional 1,000 barrels if they sell the beer to a wholesaler, then buy it back.
Craft brewers agreed to that provision to address concerns of the state's liquor distributors, who had opposed the bill. But Comptroller Peter Franchot, the state's alcohol regulator, sees it as a blatant giveaway.
"Why didn't they just write a check to the distributors?" said Franchot, a Democrat who has launched a task force to study ways to improve state liquor laws.
Betty Buck, of Buck Distributing, is past president of the Maryland Beer Wholesalers Association. She said the buy-back provision isn't to protect distributors' bottom line, but to ensure that giant companies like Diageo don't take over the market.
She said there's a pattern of major beer corporations buying up smaller breweries in order to operate multiple taprooms and push their product.
"They are dismantling the whole state's liquor laws," Buck said. "We have to be careful what happens today with folks like Diageo."
Of more concern to craft brewers is the provision limiting taproom hours for new production breweries.
Kevin Atticks, executive director of the Brewers Association of Maryland, said most production breweries won't sell enough beer in their taprooms to trigger the buy-back provision. But limiting new breweries' hours limits the industry's growth.
"No one in any of the industries loves the entirety of [the bill], but it provides a path for Guinness," he said. "It provides some new benefits to the breweries of Maryland ... The challenges that the industry will face because of the passage of [the bill] will need to be addressed in future sessions."
Sen. Ed Kasemeyer, whose district includes the proposed Guinness brewery, played a key role in negotiating final details of the bill. The Democrat called the result a win for the whole state — but an imperfect one.
"I don't think it's what everybody wanted, but at that moment in time, the brewers and the people who own bars and taverns were together in agreement with what was in the bill," Kasemeyer said.
The Guinness brewery will bring a $50 million investment from Diageo and 70 jobs to southwest Baltimore County. It will become the new home for Guinness American Blonde Lager, as well as a test brewery for new recipes and a taproom. The taproom will also serve imported affiliate beers, including Harp, Smithwick's and Guinness Draught from Ireland.
Tom Day, president of Diageo Beer Company USA, said in a statement that the bill "helps pave the way to making Maryland a beer tourism destination."
Atticks said that if the Guinness project wasn't hanging in the balance, the various segments of the liquor industry and lawmakers could have produced a better bill. He expects any debate on the topic next year to be motivated by Virginia's entreaties to Maryland brewers.
"It has become an increased pressure that did not exist before the passage of" the bill, Atticks said.
Franchot said Virginia's efforts prove Maryland made a mistake.
He saw the fallout at a beer industry conference in Washington right after the General Assembly session ended in April. "I saw the Virginia secretary of commerce soliciting our breweries to move," Franchot said.
Franchot said what started as "a common-sense request" to sell more beer ended as a bill that jeopardizes the growth in the beer industry.
"There has been significant damage done to the state's reputation as a place for craft brewers to locate," he said.
Some lawmakers aren't convinced change is needed.
Del. Dereck Davis, who holds considerable influence as chairman of the committee that reviews liquor bills, said Maryland breweries haven't proved they need new rules. None were approaching the limit of selling 500 barrels in their taprooms, he said.
"Had there been no Diageo, we wouldn't be discussing this bill," the Prince George's County Democrat said. "I see it all the time: Folks want as few restrictions as possible in all industries."