When a brewery wants to market its product in a retail store it needs to conform to Virginia’s tied house regulations. If you need a refresher on Virginia’s tied house regulations, you can find that information here. Briefly, a brewery cannot sell directly to a retailer; instead, the product must be sold to a wholesaler first who may then legally sell the beer to retailers.
Franchise laws protect a wholesaler’s ability to continue distributing a brand once a relationship begins (§4.1-500). This means that a brewer must have “good cause” before terminating or failing to renew a wholesaler (§4.1-505). An example of a good cause for termination is the failure by the wholesaler to substantially comply, without reasonable excuse or justification, with any reasonable and material requirement imposed upon him in writing by the brewery, including, but not limited to, a substantial failure by a beer wholesaler to (i) maintain a sales volume of his brewery’s brand or brands, (ii) render services comparable in quality, quantity or volume to the sales volumes maintained and services rendered by other wholesalers of the same brand or brands within the Commonwealth, or (iii) failure to obtain the consent of the brewery to a transfer of a wholesaler’s business unless a determination has been made by the Board pursuant to § 4.1-507 that such consent was unreasonably withheld by the brewery.
Other examples of “good cause” are the revocation of the wholesaler’s license to do business in the Commonwealth or the bankruptcy or receivership of the wholesaler. Assignment for the benefit of creditors or similar disposition of the assets of the wholesaler other than the creation of a security interest in the assets of a wholesaler for the purpose of securing financing in the ordinary course of business can also be considered “good cause” for termination.
Absent the limited circumstances outlined in §4.1-505, a brewer is obligated to maintain a business relationship with their wholesaler. Terminating a wholesaler is always a costly, expensive, and often impractical avenue. A thoroughly and professionally drafted wholesale contract is crucial to protecting a brewer against a future of unknowns.
If turning your brewing hobby into a career is a dream of yours, the experienced and professional attorneys at Winslow & McCurry, PLLC can help make it a reality! Call us at (804) 423.1382 to set up an initial consultation.
