The Business of Beer: The D.C. Import Loophole

Alex Fossi, March 11, 2014

Hill Farmstead and The Alchemist are widely considered to be two of the best breweries in the United States. Our leaderboards don't disagree; The Alchemist's Heady Topper is our #1 overall beer (by a significant margin) and Hill Farmstead is a top-12 brewery by just about any metric. Sadly, their products aren't the easiest to get your hands on. As far as I can ascertain, Hill Farmstead produces just about 2,000 barrels of beer a year, while The Alchemist produces about 9,000. What really makes it tough is that both are located in Vermont, and neither regularly distributes their beer outside of the state. If you want beer from either of these luminary breweries, your options are two: go to Vermont, or be disappointed.

As it happens, though, there's a secret option #3. This past Tuesday, someone on Twitter mentioned that they were going to a bar in Washington, D.C. that was serving not just one of these rarities, but both. Heady Topper and a variety of Hill Farmstead offerings, all in one place. I'm in Philadelphia, and I do not exaggerate when I say that I gave serious consideration to taking a train to DC after work just for this event.

How did this bar pull that off? Turns out that fearmongers in the media were right, and all of our worst fears are true: Washington, D.C., our nation's capitol, is a wild, uncontrolled free-for-all. Perhaps I should qualify that: it's a wild, uncontrolled free-for-all when it comes to alcohol imports. See, there's a law on the books that says that retailers can buy and import alcoholic beverages from suppliers directly if wholesalers aren't providing a product (or even if they aren't providing enough of a product). In practice, what this means is this: if a D.C. bar or retailer wants to sell a beer, all they have to do is drive out and buy it themselves. Then, they can bring it back, pay a small tax, and sell it just like any beer that wholesalers bring in.

Of course, wholesalers aren't a huge fan of this. In the 50 states, laws prevent this sort of activity, meaning that wholesalers get to control and profit from all interstate beer sales. In the District of Columbia, this isn't the case.

The wholesalers are arguing that the current law undermines regulatory oversight, as there's pretty much no way to keep track of which retail stores are bringing in beers or which beers they're bringing in. I can't find any recent cases where there was a recall of craft beer, though the wholesalers did cite the Four Loko recall of a couple years ago as evidence that oversight and tracking of products are needed. One might argue that the mere existence of Four Loko is evidence that more oversight is needed, but that's really neither here nor there. Point is, wholesalers want to eliminate this apparent loophole.

Consumers, on the other hand, seem to be strongly in favor of the status quo. It's easy to see why. If our options were "have access to craft beer from anywhere in the country" and "not have access to craft beer from anywhere in the country", I daresay most of us would pick door #1. Retailers, for the most part, seem to agree--they can draw consumers with the promise of rare beers, and the only downside is that the restaurant next door can do the same.

Of course, that's only true of retailers that are actually in the District. I used to live on Western Avenue in Chevy Chase, MD. Our residence there had one very unusual feature: in the yard, there was a border stone dating back to the early 19th century. This stone marked the (approximate) point where D.C. ended and Maryland began. A curiousity for us, but the point here is that a hypothetical bar across the street from my house in D.C. would have had every right to serve any beer they could get their hands on. On the other hand, had there been a bar next door to my house on the Maryland side of the line, they would have been a wee bit frustrated. It's hard for a business to compete when your opponent has access to a far wider variety of products.

In the real world, there aren't a whole lot of Maryland bars across the street from competing D.C. establishments. You don't have to be next door for it to matter, though. Many bars in Bethesda, Chevy Chase, and other Maryland neighborhoods are not pleased with this competitive disadvantage. On top of that, some Maryland counties force retailers to order beer through their local government, a policy that retailers claim results in as much as a 50% markup. All in all, if I was opening a bar in the D.C. area, I'd make every effort to make sure I was inside the District.

Of course, it's no sweat off D.C.'s back if Maryland bars struggle to keep up. We could say that D.C. should be commended for making it easy to serve better beer. D.C. retailers like the policy, D.C. consumers benefit from the policy, and it's not the local government's job to make things easier for their neighbors. Sure, wholesalers are upset, but they haven't put forward the most compelling arguments beyond the damage to their own profit. They can point out that cans of Heady Topper run as much as $18 in D.C., and that's true. Still, the alternative is to have Heady Topper be entirely unavailable. I don't have to be willing to pay that price myself to recognize that some people would rather pay a premium than be simply unable to obtain the beer.

There's one key participant in these transactions that I haven't mentioned yet, though. Remember when I said that retailers can just drive to any brewery, buy their beer, and resell it in D.C.? This doesn't require the consent of the brewery. As it turns out, some breweries aren't too pleased with this.

At first glance, that doesn't make much sense. If anything, this is free advertising -- a chance to have a brand sold in a new place, with no effort required from the brewery. However, you don't get to be one of the best breweries in the world by being careless with how your beer is distributed. We've seen that breweries are willing to go as far as setting up an international distribution program to keep control over their beer and prevent bootlegging.

When Hill Farmstead heard about the event I mentioned up top, they were none too pleased. Not only was their beer being sold without their approval, but some of it had been transported in growlers that were filled a week or more prior to the event. If you've ever kept beer for any length of time in a growler, you know that it isn't always foolproof. Had these growlers been kept out of the sun, and at appropriate temperatures? Had they gone flat at all? Were the beers being poured in D.C. of the same quality as the same beers that Hill Farmstead sells in Vermont?

The only person who might know was the owner of the restaurant. He claimed that they'd be opening and tasting each growler to assure quality, of course. I don't blame Hill Farmstead for being skeptical, though -- the one person who could decide not to serve the beer was the same one who would be profiting from its sale. Moreover, there's no way he could be familiar enough with Hill Farmstead's beers to recognize slight changes in the beer.

It's hard to say for sure if the beer was altered, but it's worth noting that Hill Farmstead beers received eight Untappd checkins of three stars or fewer at this event. Eight may not sound like much, but it's as many in one night as the number of three-star or worse checkins that Hill Farmstead received on Untappd in the five days prior. It's a small sample, sure. Still, it's odd that in one night, at one bar, Hill Farmstead received as many average-or-worse ratings as they typically see in a full week from all locations combined.

It's just eight checkins, of course. Given the obvious benefits that this policy/loophole has, it's not difficult to argue that the pros outweigh the cons. Personally, I feel that at the very least, no establishment should be allowed to sell beer without the permission of the brewery. Hill Farmstead puts too much effort into producing high-quality beers for that quality to be risked to satisfy the desires of a few consumers.

As much as I am in favor of everyone having access to the best beer possible, it's not worth taking away a brewery's ability to control the supply of their beer. In fact, taking that away may be directly counterproductive if you're looking to find the best-quality beer. I'm sure you'll find plenty of people who disagree with me; for some especially vehement examples, just look at the responses Hill Farmstead got on Twitter when they voiced their opposition to this event. Nonetheless, I don't think any of us benefit in the long run from breweries and retailers fighting over distribution. We all want access to the best beer, but it's not worth compromising a brewery's ability to make sure that the beer we receive is the same as the beer they designed.

You can follow Alex on Twitter @AlexanderFossi.

Thanks to The Beer Crossing for the header image.