State regulators on Wednesday accused the company that distributes much of the craft beer in the state to bars and liquor stores of unfair trade practices that limit consumer choices and harm small brewers.
The Alcoholic Beverages Control Commission, or ABCC, said Craft Beer Guild LLC violated a state rule against offering inducements to retailers to stock its products over those of competitors and a state law that prohibits distributors from charging different prices for the same products.
These are the first charges to emerge from a six-month probe into so-called pay-to-play practices that limit consumer choices by favoring one company’s products over another’s.
“The alleged wrongdoing in this case is serious,” said state Treasurer Deborah Goldberg, who oversees the ABCC, said in a statement. “As the commission examines this matter, we’ll continue the work to ensure license holders across the state are acting in a proper manner.”
In one form of pay-to-play, distributors pay bars to have their beers served and a competitor’s excluded; in another, retailers demand free booze, rebates, or expensive equipment from distributors in exchange for stocking their products.
Both practices are common and generally legal in other industries, including at grocery stores but were outlawed in the alcohol industry in most states after the repeal of Prohibition to keep large national brands from dominating local markets.
Craft Beer Guild did not respond to requests for comment.
A spokeswoman for the company and the association that represents distributors issued a statement on behalf of Beer Distributors of Massachusetts that said its members have cooperated in the investigation.
“Beer Distributors have an established track record of working collaboratively with brewers and retailers to ensure that new brands are able to enter into and achieve success” in the state, the association said.
The company is a subsidiary of Sheehan Family Cos., which owns a large network of distributors in 13 states. Among the well-known brands Craft Beer Guild distributes are Allagash, Lagunitas, Yuengling, and local brews from Boston Beer Works and Wachusett Brewing Co.
The ABCC investigation is centered on the beer industry. Small craft brewers, in particular, say they cannot afford to compete against bigger, more established brands for the limited number of tap lines at bars. These brewers have quietly complained that the practice is rampant in the Boston area, but until Wednesday no business had been charged over the practice in at least 15 years, state officials have acknowledged.
Regulators have scheduled a hearing on the charges against Craft Beer Guild for June 23. If the ABCC rules against the company, it could have its license to distribute alcohol suspended or revoked. Companies are often allowed to pay fines in lieu of license suspensions, however.
It is unclear what specific practices Craft Beer Guild allegedly engaged in. The ABCC published only a hearing notice that identified the rules allegedly violated but is not releasing the more detailed report by investigators into the company’s actions. The ABCC said that its policy is to release such reports only after a scheduled hearing.
The charges are the first from an ongoing probe into “pay-to-play” that began in October after inquiries from The Boston Globe. The investigation intensified later that month, when a local brewer sparked a firestorm with an online tirade against pay-to-play.
A spokesman said that the ABCC’s investigation is ongoing.
Other prominent companies in the beer industry, including Pennsylvania’s D. G. Yuengling & Son and Boston’s Harpoon Brewery, have said they were subpoenaed or provided records as part of the investigation.
Massachusetts currently has the fifth-lowest ratio of liquor enforcement agents to licensees of any state, according to the ABCC — at a time when license applications are up sharply.
Nearly 500 out-of-state vineyards have sought approval to ship wine into the state under recently relaxed rules.
And new breweries, distilleries, and restaurants are sprouting up during a growing economy.
Goldberg has asked the Legislature to substantially increase the ABCC’s budget so that she can hire five additional investigators, along with other staffers.
Governor Charlie Baker has said he opposes that request, citing the state’s budget deficit.
Industry experts have said that pay-to-play, which is illegal under federal law and the laws of most states, is rarely caught by regulators because it is difficult to prove definitively that a payment was made in exchange for favoring one product over another.