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* 1. Date

Date

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* 2. Contact Information

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* 3. Party Affiliation

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* 4. CTE Name

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* 5. Signature (Type Your Name)

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* 6. I verify that the name I have typed is my legal name and that this is my electronic signature

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* 7. Do you personally know any beer wholesalers or have you or a family member ever worked for a beer wholesaler?

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* 8. Do you currently hold or have you ever held a license to sell alcohol in the state?

GENERAL BACKGROUND AND PHILOSOPHY OF REGULATION

As a socially sensitive product, all states including Michigan regulate the production, distribution and sale of alcoholic liquor. Society and voters have and continue to demand that proper safeguards be placed on alcoholic liquor. This point is illustrated by the fact that alcoholic liquor has been the subject of two amendments to the U.S. Constitution; the first was an attempt to completely prohibit alcoholic liquor (18th Amendment) and the second was a repeal of the prohibition (21st Amendment).

The MB&WWA has long stood for balanced and reasonable laws and rules for the production, distribution and sale of alcoholic liquor. We believe that the licensed system of alcohol distribution and sale in Michigan has achieved a strong balance between accountability and a competitive marketplace. This licensed system ensures that all licenses operate in an accessible, independent and competitive market. The background information which follows provides additional detail about this system and a number of important issues that have or may surface in the public policy arena.

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* 9. Do you agree that with over 300 craft brewers, over 100 small winemakers, 19,000 plus retailers and over 100 independent distributors, Michigan has a strong, vibrant and competitive alcoholic liquor market?

THREE-TIER DISTRIBUTION SYSTEM

In Michigan, as well as almost all states, beer and wine is distributed through a licensed three-tier distribution system. Under this system, a supplier licensee (brewery or winery) sells to a distributor licensee who in turn sells to a retail licensee (on-premises or off-premises). The law prohibits a person licensed in one of the tiers from being licensed in another tier and also prevents a person in one tier from having a financial or ownership interest, directly or indirectly, in one of the other two tiers. In addition, the law also prohibits retailers from functioning as distributors by prohibiting retail to retail sales for beer and wine. The three-tier system prevents vertical price fixing, monopolistic ownership combinations, and provides a system for the collection of state tax revenues at the wholesale level.

Preventing suppliers from owning distributors and/or retailers ensures that all alcohol producers, especially import and craft brands, have access to retailers and thereby consumers. This access to market has been directly responsible for the growth of craft brands. In addition, by ensuring an independent distribution tier that is free from the ownership and economic control of large multinational brewers all brands, large and small, have a route to that competitive market. In short, the three-tier system allows distributors to help small brands, including hundreds of Michigan based brands access the market and grow.

The licensed three-tier distribution system also helps to ensure adequate service and product availability to all licensed retail outlets regardless of their size. Thereby ensuring that all retailers are offered a wide variety of products to choose from without the undue influence of supplier controlled distributors.

The ban on retail sales ensures that all retailers have access to competitive prices and a broad selection of brands to choose from. Retail to retail sales (essentially allowing a retailer to be a distributor) also limits the opportunities for craft brewers and wineries to access the market and grow.

In summary, three-tier distribution is the primary vehicle in the State’s efforts to properly control the use and marketing of alcohol beverages. The system insures that monolithic, multi-national companies who may have little regard for state regulations and access to market for craft brands, do not lock out competition and ignore state laws.

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* 10. Do you favor maintaining a licensed three-tier distribution system?

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* 11. Would you support continuation of the present law that prohibits a manufacturer or distributor from owning an interest in each other’s business or in a retail licensee and vice versa?

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* 12. Do you agree having independent businesses, free from the ownership and financial control of large multinational companies are vital to the continued success of small retailers and craft brands?

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* 13. Will you continue to support the ban on retail to retail sales for beer and wine?

FRANCHISE LAW

In 1984, the Michigan Legislature passed a franchise law for beer and wine distributors. Among other provisions, this law requires that a supplier have good cause before canceling or terminating an agreement with a distributor. The law was based on two key theories that time has proven to be true. First, that a distributor who has spent years of time, energy, and financial resources in getting a brand to market and building the brand deserves due process and just cause before being terminated by a supplier. Second, that distributors must be allowed to operate independent of suppliers in order to ensure they can create access to the market and build brands of multiple suppliers without the fear of termination. Both theories have proved correct as distributors do in fact invest significant resources getting brands for multiple suppliers, large and small, including Michigan craft brands to market and helping them grow.

It is no coincidence that Michigan’s recent craft boom started happening shortly after Michigan adopted the franchise law in 1984. The franchise law is a necessary component of Michigan’s three-tier system because of the independence it creates for distributors and the access to market it creates for large and small suppliers. More specifically, the law puts teeth in the concept of an independent distribution tier by protecting distributors from unreasonable demands by large, multinational corporations -- demands such as “do not take on other brands such as those in the growing craft beer sector.”

Ironically, there has been a push by some in other states to seek exemptions from franchise laws for small suppliers. Such exemptions hurt the very breweries and wineries they are designed to assist, as there will be less incentive for distributors to take on and invest in new small suppliers if they can exit the relationship without cause. Also, any “carve out” type exemptions could very well lead to a court challenge that results in all suppliers being exempt. In such a scenario, a small craft supplier will be locked out of the market.

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* 14. Are you supportive of the concept of the franchise law that protects the independence of the distribution tier in Michigan?

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* 15. Do you support requiring due process and just cause provisions before a supplier can terminate a contract with a distributor?

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* 16. Would you oppose legislation to exempt small suppliers from the provisions of the franchise law?

STATUTORY PROVISIONS IMPACTING FAIR AND ORDERLY MARKETS

The Michigan Liquor Control Act includes provisions designed to foster a level, yet competitive, market when it comes to the retail sale and pricing of alcoholic beverages. The Act includes a number of safeguards that allow small independent retailers to compete with the so-called big box retailers. These laws are a necessary component of Michigan’s three-tier distribution system because they ensure that pricing schemes are not utilized in a manner that impedes retailer and distributor independence. These safeguards include the following:

A.     Cash Law – The law requires that all sales and purchases of alcoholic beverages be made by “cash” (payment at the time of delivery). This prevents any licensee in one tier of the distribution system from gaining an unfair economic advantage or control over any other licensee.

B.     Price Posting – Each distributor must file with the Liquor Control Commission the price at which it will sell beer and wine to a retail licensee, thereby guaranteeing that all retailers will be able to purchase those products at the same price. This prohibits the “sweetheart” pricing arrangements between large retailers, distributors and suppliers that either freeze out the small retailers or are designed to essentially pay for shelf space.

C.     Quantity Discounts - Price posting regulations prohibit “quantity discounts” whereby large retailers could purchase large quantities of product at prices unavailable to small retailers.

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* 17. Would you favor continuation of the law that requires beer and wine to be purchased for cash which helps prevent one licensee from using its economic power to control another licensee or to derive a competitive edge over smaller retailers through the use of credit purchases?

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* 18. Would you favor continuation of the ban on quantity discounts?

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* 19. Would you favor continuation of price posting requirements that are aimed at maintaining equity in pricing and stability in the market?

TERRITORIAL INTEGRITY FOR BEER AND WINE

Under territorial integrity, beer and wine manufacturers assign a brand to only one distributor in any given geographic area. The concept of manufacturers utilizing assigned territories is used to varying degrees for many direct store delivery (DSD) products such as baked goods, dairy products, snack foods, etc. Territorial integrity is an integral part of the three-tier distribution system in Michigan and is supported by the majority of beer and wine manufacturers due to the competition and service levels it promotes. Territorial integrity ensures that all products on retailer shelves are fresh and vigorously merchandised, and it allows beer and wine manufacturers to hold distributors accountable for underperformance.

Territorial integrity provides distributor independence and encourages distributors to invest the time, energy and financial resources needed to promote and grow brands while meeting the requirements of the supplier.

Territorial integrity has many advantages:

o Territorial integrity protects Michigan family businesses and jobs.

o Territorial integrity promotes wide consumer choice through strong inter-brand competition and competitive prices.

o Territorial integrity preserves Michigan’s ability to:

     · Protect consumers from tainted products

     · Create a transparent and accountable supply chain

     · Uphold enforcement and safety regulations

     · Regulate sales and collect tax dollars that pay for vital public services

     · Enforce Michigan’s Bottle Bill

o Territorial integrity provides an even playing field for all retailers, distributors and suppliers, preventing mega retailers and international suppliers from dominating the market. As such, territorial integrity is especially beneficial to small Michigan craft breweries and wineries which experience improved market access. Territorial integrity keeps prices down and promotes competition by requiring distributors to promote and merchandise all products assigned to their companies. Distributors must promote their products and service all retailers, regardless of size and prevents distributors from “cherry picking” high volume accounts.

o Territorial integrity protects Michigan’s family owned distributors and the 5,000 local jobs they create by preventing the literal “theft” of equity that Michigan distributors have built in brands over nearly the last 80 years. Theft of equity could force some distributors out of business and kill jobs.

o Lastly, territorial integrity reduces beverage container dislocation problems that can result from the Bottle Bill. Territorial integrity keeps distributors from “dumping” product in another distributor’s territory (at $2.40 per case, the redemption fee could virtually wipe out local distributors), and they ensure that distributors redeem empty containers from all retailers in the respective territory. The territorial integrity provisions of Michigan law has been a major reason for the successful implementation of Michigan’s Bottle Bill.

Territorial integrity drives brand competition, keeps prices low, ensures compliance with Michigan’s alcohol beverage laws, and results in job retention and growth as distributors continue to invest in more brands.

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* 20. Do you favor maintaining territorial integrity for beer and wine?

CONTROLLING COMMERCIAL BRIBERY IN THE ALCOHOL MARKET

Since the inception of the Liquor Control Act in 1933, Michigan law has prohibited one licensee from aiding and assisting another licensee. The purpose of the law was to keep a person located in either the supplier or distributor tier from limiting competition through the use of commercial bribery of retailers. Again, this law is imperative to keeping independence in the distributor and retailer tiers and is therefore a major component of Michigan’s three-tier distribution system.

The law has worked very well in keeping unethical practices from occurring in the industry. It helps maintain fairness in the market as small suppliers, distributors and retailers are not dominated by larger peers. Those suppliers and distributors with the financial capability of engaging in “giveaways” would expect a “quid-pro-quo” (we give you what you want and you give us the draft handles, the favored shelf space, extra merchandising opportunities, ad features, etc.). The small supplier, especially microbreweries and local wineries, would simply not be able to compete and consumer choice would be greatly reduced.

In recent years, there have been efforts to expand permitted activities in the area of commercial bribery, often called “trade practices” or “aid and assistance”. In the last few years, multiple laws have been enacted to create exceptions to the prohibition on aid and assistance. These laws have expanded the services that suppliers and distributors can offer a retailer, as well as advertising items. Despite these changes in law, there may be additional efforts to expand what can be given away or used as inducements to influence retailers’ buying decisions.

Michigan has over 19,000 retailers, over 100 distributors and hundreds of suppliers doing business in Michigan. Retail and craft supplier licenses continue to be issued at a record pace. However, the focus on enforcement by the Liquor Control Commission is at an all-time low. One of the reasons is a lack of funding and staff for their Enforcement Division. In order to maintain a balanced and competitive alcohol marketplace, the Commission’s Enforcement Division must be adequately funded.

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* 21. Would you oppose efforts that would weaken current law by authorizing such things as slotting fees, depletion allowance and similar “pay-to-play” schemes?

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* 22. Do you favor maintaining the law that prohibits aid and assistance and thereby protects new and smaller craft brewers, vintners and small retail licensees from unfair competition?

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* 23. Will you oppose efforts to allow even more items to be given away to retailers by suppliers and distributors?

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* 24. Will you support efforts to properly fund the Michigan Liquor Control Commission’s Enforcement Division?

MICROBREWERIES AND BREWPUBS

The State of Michigan enjoys a robust and growing brewing industry that is recognized as one of the best in the nation. One of the major reasons for this success is Michigan’s balanced alcohol regulatory approach that fosters innovation and investment and promotes a level playing field between large international beer suppliers, large and small national beer suppliers and Michigan’s craft brewers.

Michigan’s craft brewing industry is made up of two types of licenses that are similar in some ways, yet very different in other ways. Microbrewers are licensees in the supplier tier. They are small brewers, located in-state, that sell their products to distributors for distribution to licensed

retailers. Based on a law change in 2014, small, start-up microbrewers are allowed to self- distribute their beer. Brewpubs are licensed retailers that are allowed, as a condition of their license, to brew and sell their beer only at their licensed restaurant. Class C retail licensees, as well as tavern, Class A hotel or Class B hotel retail licensees are eligible to receive a brewpub license. Brewpubs are full-service retail establishments that can sell any products (beer, wine and spirits) that are available in Michigan’s alcohol distribution stream in addition to the beer(s) they produce.

Together the microbrewery and brewpub licensees make up Michigan’s craft brewing industry.

Michigan’s structured craft brewing industry has been a huge success. Michigan ranks fifth in the nation for the number of craft brewers and even more are being planned. According to the Michigan Brewers Guild, the industry continues to enjoy double digit growth in sales. To help continue this success story, craft brewers and distributors partnered in supporting numerous changes to Michigan law in 2014. As mentioned, small start-up microbreweries may now self- distribute their beers, and the definitions of a brewer, microbrewery and brewpub have been amended to promote the expansion of those industries.

Despite this verifiable record of success, a small number of craft suppliers have expressed a desire to drastically modify Michigan’s alcohol laws. Some wish to operate in all three tiers of Michigan’s three-tier structure. In other words, they want to produce their beers, distribute it directly to retailers and sell at retail which could result in a complete dismantling of Michigan’s three-tier distribution system. As covered earlier in the survey, others wish to be exempt from Michigan’s beer franchise laws which provide distributors the ability to distribute and build multiple brands and encourages distributors to invest in those brands.

Past experience has taught us that granting this type of an exception to in-state producers, such as Michigan’s craft suppliers, will open Michigan up to legal challenges under the dormant Commerce Clause by out-of-state brewers, including large international brewers. In fact, Michigan has lost two similar challenges in the past, including the ground breaking case of Granholm v Heald. The Granholm case struck down a Michigan law that allowed in-state wine producers to direct ship to consumers in Michigan while prohibiting out-of-state producers from doing the same. These decisions clearly state that disparate treatment of in versus out-of-state suppliers is not constitutional.

Considering that several changes were recently made to continue the expansion of the craft brewing industry in Michigan, coupled with the threat of legal challenges, we believe that future legislatures should proceed cautiously when considering any additional law changes or “carve outs” in this area.

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* 25. Do you agree that Michigan’s alcoholic liquor laws foster a strong and growing craft supplier industry in Michigan?

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* 26. Would you support maintaining the current law which preserves the licensed three-tier system by placing the brewpub license in the retail tier of the industry and the microbrewery license in the supplier tier?

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* 27. Will you oppose legislation designed to provide special privileges to Michigan craft brewers that will subject Michigan to legal challenges that will threaten Michigan’s three- tier system?

DIRECT SHIPMENTS OF ALCOHOLIC LIQUORS

In May of 2005, the U.S. Supreme Court ruled that the laws of Michigan and New York regulating the importation of alcoholic liquors were in violation of the Commerce Clause of the U.S. Constitution because they allowed in-state wineries to sell and ship directly to consumers while prohibiting out-of-state wineries from doing so. The Court ruled that the provisions of the 21st Amendment that clearly gives the states the rights to regulate the importation of alcoholic liquor into their borders could not save the statutes because of the disparate treatment between in-state and out-of-state wineries.

In response to the Court’s order, Michigan’s Legislature amended its importation laws to allow the direct shipment of wine by those wine makers, whether in-state or out-of-state, who obtained a “direct shippers” license. The person holding such a license must check the I.D. of everyone making a purchase of wine, must properly label the shipping container to indicate it contains alcohol, must ensure that the wine is delivered to a person over 21 years of age, remit the appropriate taxes to Michigan, and report on shipments to the Michigan Liquor Control Commission. No winery can directly ship more than 1,500 cases of wine per year into Michigan. To date, over 900 direct shipper licenses have been issued by the Liquor Control Commission with shipments growing each year.

However, the fact is there are numerous retail licensees throughout the country and so-called wine clubs that continue to ship alcohol direct to consumers without regard to state laws. These entities are prohibited from shipping alcohol to Michigan consumers and there is little oversight and enforcement as it relates to these entities.

In 2015, the Hill Group issued a study that conservatively estimates that illegal retail and third party wine shipments into Michigan have a retail value of over $64 million per year. The Liquor Control Commission indicates that legal wine shipments from licensed direct shippers amount to

$20 million in retail sales per year. Accordingly, based on retail value, there is approximately $84 million per year of wine shipped into Michigan. 75% of which is black market sales! This means Michigan licensed retailers may be losing sales of $64 million per year to illegal activity by out-of- state entities. In addition, the state is losing approximately $4 million in tax revenue per year.

While we are not proposing to roll back time and the current direct shipping law, we do feel it is inappropriate to expand direct shipping. We also believe that the Liquor Control Commission should properly enforce Michigan’s direct shipping and illegal importation laws. Currently, the law requires that the direct shipping permit fees be used to fund enforcement of the direct shipping law. However, in past years the funds have not always been appropriated and a significant balance currently resides in the Direct Shipping Enforcement Fund. It is imperative that the Commission receive the funds yearly in order to enforce Michigan law. This requires no new revenue. These funds exist and grow each year when direct shipping licenses are issued.

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* 28. Do you agree that the sale of wine over the Internet or by mail should continue to be highly regulated so as to avoid easy access by minors, to ensure the proper state taxes are paid, and that Michigan businesses are not being placed at a competitive disadvantage?

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* 29. Will you oppose efforts in the legislature and courts by interest groups to dismantle Michigan’s effective regulatory system and allow practices such as the direct shipment of alcohol by all retailers around the country?

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* 30. Do you support appropriating the direct shipping licensing fees for use in enforcing Michigan’s direct shipping law to ensure that the proper taxes are being paid and that illegal shipments are not occurring?

BEER AND WINE EXCISE TAX RATES

Michigan sits close to the middle of the pack across the country for beer and wine excise tax rates. However, when it comes to the Great Lakes States Michigan has the second highest rate for both beer and wine excise taxes. Add in the $2.40 per case “tax” required by the Michigan bottle deposit law, and Michigan is at a significant disadvantage to our neighboring states. These laws drive many sales across our borders now, and any future increase would only increase cross this problem. Additionally, excise taxes are hidden in the purchase price of products and are regressive in nature.

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* 31. Would you oppose any increase excise tax rates for beer or wine?

MICHIGAN'S BOTTLE BILL

Since the late 1970’s Michigan beer and soft drink distributors have been tasked to operate Michigan’s Bottle Bill. This includes charging retailers’ dimes, remitting the dimes back to retailers or the State, picking up, washing, and densifying and recycling the containers. Beer distributors alone invest over $60 million per year to operate Michigan’s State mandated Bottle Bill.

Under the original Bottle Bill, beer and soft drink distributors kept the unclaimed dimes as way to offset their costs for operating the Bottle Bill. However, in the mid 90’s the law was changed to require distributors to turn over the unclaimed dimes to a State controlled escheats fund. Retailers were allowed to keep their portion to offset their costs.

Beer and soft drink distributors are required to pay a dime into the escheats fund at the end of each year for every unreturned container. In recent years, this resulted in the fund receiving approximately $100 million from beer and soft drink distributors.

Instead of offsetting distributor costs or investing in the Bottle Bill system, the escheats funds are now allocated as follows: Retailers receive 25% of the escheats funds and EGLE receives the remaining 75% for environmental cleanup and protection funds. In other words, the funds are diverted to other areas of the State budget that have no nexus with the Bottle Bill.

In 2008 the legislature recognized the need to invest in the Bottle Bill. A tax credit was provided to distributors equating to 28.5% of Bottle Bill costs. The credit was eliminated in 2011.

The MB&WWA believes beer distributors should at least be partially reimbursed for their costs related to the Bottle Bill to continue to offset retailer costs and for comprehensive recycling.

Despite uncontrolled costs, some want to expand the Bottle Bill to other products. Doing so will simply add more cost and fraud. The MB&WWA believes the uncontrolled costs must be addressed prior to any discussion about expansion.

Without investing in the Bottle Bill and offsetting distributor costs the Bottle Bill will not remain sustainable for future generations.

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* 32. Will you support legislation to reinstate a tax credit to beer distributors to partially offset the costs imposed on them to operate the Bottle Bill?

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* 33. Do you agree that escalating costs must be addressed before the Bottle Bill is expanded?

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