The state’s largest distributor of craft beers has been slapped with an unprecedented 90-day license suspension by the state for paying Boston bars tens of thousands of dollars to carry its beers and freeze out competitors.
The state Alcoholic Beverages Control Commission said the Craft Brewers Guild of Everett spent around “$120,000 to pay kickbacks” to a dozen Boston-area establishments “in a pervasive illegal enterprise’’ that spanned at least five years.
Craft Brewers Guild distributes dozens of specialty beers, from major brewers such as Yuengling and Lagunitas, and from local companies, including Wachusett Brewing Co. and Ipswich Ale Brewery. Craft Brewers is a subsidiary of the Sheehan Family Cos., which is based in Massachusetts and operates 19 beer distributors in 13 states.
Craft Brewers would not say if it would appeal, but issued a statement promising that consumers would not be affected by the decision. It can fight the ruling in court, or instead pay a fine equal to about half its profits for the 90-day period.
“Yesterday, the ABCC issued a ruling which imposed upon Craft Brewers Guild either a 90-day suspension or a fine,” the company said. “We are in the process of reviewing the decision with our legal counsel.
“Regardless of which option we exercise, there will be no disruption in our business and we will continue our high level of service,’’ it said.
The case against Craft Brewers Guild highlights the practice of “pay to play” in the beer industry that some critics insist is rampant but seldom punished — making the size of the penalty imposed this week all the more striking.
The ABCC is investigating at least four other allegations of pay-to-play, officials said, and the commission used the Craft Brewers Guild decision to issue a warning to other companies.
“The members of the alcoholic beverages industry in Massachusetts are hereby admonished that if, for any reason [they] engage in similar conduct that creates a systemic illegality, this commission shall take similar, severe enforcement action,’’ the commission said.
Paying for product placement is not uncommon in other retail sectors, such as grocery stores, where big distributors pay for eye-catching shelf space for cat food, cereal, and other merchandise.
But the practice of “pay to play” was banned in the alcohol industry by many states at the end of Prohibition to keep large national brands from dominating local markets.
“Wow, I did not see a decision of that magnitude coming down the pike,” said Rob Martin, president of the Massachusetts Brewers Guild, a trade group, and owner of Ipswich Ale Brewery.
Martin said most brewers typically use a single distributor and would prefer not to switch to a competitor.
“There are plenty of other distributorships, but consumer choice is hurt for sure because it puts brewers in a place where they couldn’t move product,” Martin said.
Craft Brewers Guild had previously acknowledged in an
ABCC hearing that it would pay bars $1,000 to $2,000 a year for each tap handle they dedicated to a beer distributed by the Everett-based company.
However, its attorneys argued at the time that pay-to-play prohibitions were rarely enforced and even legally invalid because of long-ago changes to state alcohol regulations.
But in their ruling, the ABCC commissioners rejected those arguments, saying the rules are still in effect and that Craft Brewers Guild knew it was breaking the law. The company, the ABCC said, “went to great lengths to hide its knowingly unlawful conduct.”
Regulators suspended the company’s license to distribute beer for 15 months, but said it would have to serve only 90 days, with the balance waived if it does not violate the rules again within two years.
An earlier report by ABCC investigators said Craft Brewers Guild disguised illegal payments on invoices from bars with code words, such as “marketing services” and “brand allocation.” The report also said Craft Brewers Guild general manager Michael Bernfield acknowledged to investigators that he approved the payments and knew the practice violated ABCC regulations.
The report stated that Craft Beer Guild sales manager Craig Corthell conceded that payments were made in exchange for tap lines committed to specific brands.
The ABCC has also charged five bars with violating pay-to-play regulations for improperly accepting payments from Craft Brewers Guild:
■ Jerry Remy’s Sports Bar & Grill, in the Seaport District, owned by the Cronin Group.
■ Estelle’s, a now-closed South End bar owned by the Wilcox Group.
■ Gather, in the Seaport, owned by the Briar Group.
■ Game On Fenway, a bar near Fenway Park owned by the Lyons Group.
■ Coogan’s, in the Financial District, owned by the Glynn Hospitality Group.
The bars are due to argue their case before the ABCC commissioners later this month. Possible punishments include fines, suspensions, or revocation of their licenses.
No brewers have been cited in the investigation.
The ABCC inquiry began in October 2014, when Dann Paquette of craft beer company Pretty Things Beer and Ale Project Inc. complained about the practice on Twitter. Investigators later obtained bills that Craft Brewers Guild had sent to Pretty Things for the cost of payments the distributor made to bars that agreed to stock Paquette’s beer.
“We hope this ruling will be the beginning of a wider investigation into illegal pay-to-play practices in the alcohol industry in Massachusetts,” Paquette said in a statement. He has since closed Pretty Things.
Marc Berkowitz, whose Sunset Grill & Tap in Allston gets more than one-third of its 113 craft beers on tap from Craft Brewers Guild, said pay-to-play bans are outdated.
He said the alcohol industry should be allowed to operate in a way similar to food stores and other consumer businesses, in which paying for shelf space is legal and common.
“I think the decision is unnecessary and unfortunate,” Berkowitz said.
But Jamie Walsh, bar manager at Stoddard’s Fine Food & Ale in Downtown Crossing, said the case shows the need for more enforcement so small brewers aren’t shut out of the market.
“Make it fair so that it allows the independent craft brewers have a level playing field, so that there’s a level playing field for everybody,” he said.
Correction: An earlier version of this story gave the wrong date for the Alcoholic Beverages Control Commission’s ruling. It is expected Friday.