Jack’s Abby Craft Lagers is attempting to sever its relationship with Atlantic Beverage Distributors, its Massachusetts wholesaler. The Framingham, Massachusetts-based craft brewery provided Atlantic with notice on January 14, two days after franchise law reform was enacted in the state.
However, Holliston, Massachusetts-based Atlantic is fighting the termination, filing a 25E petition with the Massachusetts Alcoholic Beverages Control Commission on March 1.
Among the reasons for termination cited by Jack’s Abby in a press release were Atlantic’s decisions to lay off “a significant portion of its sales staff” in June 2020, and the wholesaler’s decision to stop servicing more than 1,000 accounts with in-person sales calls. Jack’s Abby added that Atlantic’s leadership refused to discuss those decisions.
“I don’t think the biggest issue in the end is the service levels as much as it is the just the deterioration of a relationship,” Jack’s Abby co-founder and co-owner Sam Hendler told Brewbound. “The thing that really puts it over the edge for us is that we couldn’t have a conversation about what is the plan.
“We weren’t given the opportunity to even have that conversation,” he continued.
Atlantic provides statewide coverage of Massachusetts, which accounts for 70% of Jack’s Abby’s revenue, Hendler said.
“That’s essential to us — Jack’s Abby does not survive without Massachusetts,” he said. “Being in this level of toxic relationship with the wholesaler who’s supposed to be our partner on that amount of business just is not possible.”
The 1,000 accounts that Atlantic shifted from in-person sales service to online ordering following sales layoffs accounted for 40% of Jack’s Abby’s off-premise accounts, which were a crucial revenue source in 2020, when the COVID-19 pandemic forced the closure and restriction of on-premise establishments. Jack’s Abby estimated that the decision to stop serving those accounts jeopardized 20% of its overall volume.
Jack’s Abby made “repeated requests” for a meeting with Atlantic president and owner Sean Siegal, who also owns Exhibit A Brewing Company in Framingham, when the layoffs were announced in June 2020, but were rebuffed until February 10, 2021, nearly a month after Jack’s Abby had notified Atlantic of its intent to terminate within 30 days, according to Jack’s Abby’s press release.
“When push came to shove in 2020 and our business was really on the ropes going into summertime, the ownership level at Atlantic wasn’t even willing to sit down and have a meeting about massive changes coming to their organization,” Hendler said. “That was just a sign that any facade of partnership was really gone from that relationship.”
Jack’s Abby signed on with Atlantic in June 2012, following stints with a different wholesaler and self-distribution after the brewery’s 2011 founding. Hendler and his brothers and co-founders Jack and Eric Hendler were attracted to Atlantic by its craft-centric sales team and were happy with the relationship at the time.
“It just clicked,” Hendler said. “It worked out of the gate.”
But now that relationship has deteriorated.
In preparation to terminate its relationship with Atlantic, Jack’s Abby worked with a “third party economist with experience in distribution rights valuations” to determine the fair market value to pay Atlantic for the release of its portfolio, including sister brand Springdale Beer.
Under Massachusetts’ franchise reform law, brewers producing fewer than 250,000 barrels annually are allowed to terminate wholesaler relationships at any time by giving 30 days’ notice and paying fair market value for their brand rights. Previously, brewers needed to prove “good cause” for wanting to leave.
“It allows a supplier, specifically a small supplier, to choose who in a market is the best fit for their brands at the time,” McDermott, Will & Emery counsel Nichole Shustack said during the February 25 episode of the Brewbound Podcast about Massachusetts franchise law reform. “They’re not necessarily married to a wholesaler forever, which is unfortunately the result of what ‘good cause’ means in a lot of states.”
Jack’s Abby has designated itself as the wholesaler successor and intends to self-distribute until new wholesalers are selected, which Atlantic has deemed “legally defective” in the petition for relief it filed with the ABCC on March 1.
“The failure by Jack’s Abby to identify ‘the successor wholesaler’ in its termination notice as required by law is a fundamental, incurable defect,” Atlantic wrote.
According to Atlantic’s petition, it distributed 25,906 barrels of Jack’s Abby beer in 2020. Under state law, a farmer brewery, which is how Jack’s Abby is licensed, may only distribute up to 50,000 gallons of beer, about 1,612 barrels.
“Its decision to self-distribute the brands is perplexing and frankly self-destructive,” Atlantic said in a statement provided to Brewbound by its attorney, J. Mark Dickison of Boston-based law firm Lawson & Weitzen.
Jack’s Abby intends to self-distribute up to 50,000 gallons, after which it will explore securing a full distribution license, which Massachusetts brewers can do, or selecting new wholesaler partners, a Jack’s Abby spokesperson said.
Atlantic argues that franchise law reform is “unconstitutional, because it deprives Atlantic of the due process of law.”
“If Jack’s Abby is permitted to terminate Atlantic under [Section] 25 E ½, then the fair market value of Atlantic’s rights must be determined by a jury, subject to review by a court unless the parties agree otherwise (which they have not),” Atlantic wrote in its petition.
Under the reformed franchise law, if the wholesaler and brewer could not agree on fair market value for brand rights, a panel of arbitrators would determine the brand’s value, not a jury. Hendler said he hopes arbitration can determine an agreed upon fair market value to extricate Jack’s Abby from its contract with Atlantic.
“I’m not proud of the fact that Sean and I couldn’t see eye to eye to figure out what fair market value is and would love for some arbitrators to step in and do that for us,” Hendler said, adding that he “really just want[s] that to happen and want[s] to get out of this relationship that is clearly toxic to all parties.”
In addition to their distribution agreement, Jack’s Abby and Atlantic also entered a five-year, $2.5 million marketing agreement in April 2018. Atlantic claims that franchise law reform does not apply to such agreements and cannot be terminated. However, Jack’s Abby instructed Atlantic to include the outstanding amount of the marketing agreement in its fair market valuation.
Atlantic also distributes Jack’s Abby products in Rhode Island, which the brewery is not seeking to change. Jack’s Abby is available in all six New England states, as well as New York, New Jersey and eastern Pennsylvania.