In the relatively established world of distributors, the unscrupulous players may not be as obvious as in e-commerce, but that does not mean the land mines are not there. Distillers doing business in franchise states had better be well-informed about the distributors they are signing with and the provisions that each one of these states has. In a franchise state generally, “If the distributor complies with the statutory requirements, you often can’t fire them without good cause,” said Stamey-White. “Once you get into a franchise market with a distributor, you basically can’t fire them, or getting out often requires a termination payment, an expensive lawsuit, or leaving the state for a while.” Hletko said, “Maybe you're going to take a permanent partnership with a distributor. That may well be something you decide is okay, and in your interest, or worth it. But you should affirmatively decide that, ‘I know the risks but the benefits outweigh them.’ And that's okay if that is your affirmative decision. But go in smart, because those contract terms are not likely in there for you.” Distributors in non-franchise states may try putting franchise clauses into agreements, making it all but impossible to leave the distributor without paying hefty fees, regardless of sales performance. Things that seem boilerplate are worth understanding and also should be negotiable. “There are many clauses that, when you are not trained to read them, you do not know what they say, especially if they are written in legalese and not clearly stated,” said Stamey-White. Distillers need to weigh the cost of an attorney, and the potential cost of not hiring an attorney, against the gains they hope to acquire from entering a new market. The bottom line in this issue is that, when presented with a contract, producers should read it carefully and seek legal counsel. “Not using a tax or intellectual property or an alcohol attorney in these matters is like making a cocktail with methanol,” said Kula. “Maybe you come out blind or maybe you die, but nothing in that range is good.”
Andrew Faulkner was Managing Editor of Distiller magazine for six years. In 14 years at the American Distilling Institute he coordinated curriculum for Hands-on Distilling Workshops, helped plan the Annual Spirits Conference and Vendor Expo, and was the architect of the ADI’s International Judging of Craft Spirits. He is the co-author, along with Bill Owens and Alan Dikty, of “The Art of Distilling Whiskey” (2019, Quarry Press) and has edited six books on distilled spirits. WWW.ART ISANSP IRITMAG.COM
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