Looking to contract out production of your beer brand? Be careful of fee arrangements.

The New York State Liquor Authority has recently issued an advisory clarifying that retail licensees that market a particular brand of beer and that contract-out production of the beer to a manufacturer cannot receive payments from the manufacturer that correlate to the manufacturer’s sales.

This situation is most likely to arise in the context of a beer marketing company — A company that does not itself produce beer, but that has created a brand under which a manufacturing-party produces and sells beer. In many such arrangements, the beer marketing company may wish to receive its share of sales in the form of a percentage or other amount that correlates to the sales. This arrangement, however, is prohibited by NY’s Alcoholic Beverage Control Law (ABCL).

According to sections 105(16), 106(13), and 101(1)(a) and (c) of the ABCL, retail (either off- or on- premises) licensees are prohibited from being interested in any premises where alcoholic beverages are manufactured or sold at wholesale, and manufacturers and wholesalers are prohibited from being interested in any premises where alcoholic beverages are sold at retail. Fee payments that correlate to sales create such an interest between the parties.

If you operate such a beer marketing company, be sure to avoid such agreements, which, by the way, are subject to inspection under the ABCL.

Patrick Quinlan