Kentucky bill could strip distributorships from Anheuser-Busch

Is this some sort of backlash against AB-InBev’s market clout? After the state of Illinois, Kentucky is now the second U.S. state in recent years to pass legislation that bans brewers from distributing their own products.

Interestingly, each bill was introduced after Anheuser-Busch, the U.S. unit of brewer AB-InBev, had moved either to increase its existing stake in a distributor (Illinois) or acquire one outright (Kentucky).

Although the U.S. Three Tier System for alcohol clearly separates those who produce beer from those who distribute it and those who sell it, about half of U.S. states allow brewers to own distributors.

Kentucky was one of them. Anheuser-Busch has owned a distributorship there since 1978. Last year it bought another one. It was that purchase which prompted the new bill which prohibits brewers from owning/operating a distributorship.

The bill produced sharp disagreements on the Senate floor, with Republicans opposing Republicans. In the end, on a vote of 23-13, the Kentucky Senate on 4 March 2015 sent the heavily-lobbied House Bill 168 to the Governor, who reportedly said he will be “pleased” to sign it into law. When this will be is far from clear.

The Senate vote was a defeat for Anheuser-Busch. If the bill is approved by the Governor, the law could force Anheuser-Busch to give up not only its new distributorship but also its old one. The procedure to take the licence away from Anheuser-Busch remains a bit of a mystery. Will that license be revoked or will it simply not be reissued when it comes up for renewal?

Anheuser-Busch has not announced yet if it will pursue a legal challenge. Ultimately, though, the bill could wind up in court because it violates Anheuser-Busch’s private property rights and unfairly forces it to sell its businesses.

Smaller brewers had supported the proposal, saying they were worried that Anheuser-Busch would make it harder for competitors to get their products to market.