Sonoma County brewery in major legal battle with wholesaler amid competition concerns in $9 billion California beer market

A major battle is being played out in front of a San Francisco court in California’s $ 9 billion beer market, centered around a Sonoma County brewery.

On one side is Reyes Holdings, the largest beer wholesaler in the country and, according to Forbes, the eighth largest privately held company in the United States with sales of $ 35 billion.

The Illinois-based family business has been on a shopping spree since 2018. In California, 17 different deals with Reyes and its subsidiaries have resulted in Reyes having a market share of 55% of all beers sold in the state, according to a census. The company’s amazing growth and impact has been the # 1 topic among insiders of the state’s beer industry, though largely unknown to consumers.

On the flip side is Seismic Brewing of Santa Rosa, which is being sued for an alleged breach of contract the brewery made with a distributor later bought by Reyes. Seismic, owned by Christopher Jackson, claims to have duly terminated its contract after Reyes tried to impose onerous restrictions that were not covered by the original deal.

Jackson, a member of the second generation of the family who run Jackson Family Wines, has set out to pioneer the craft beer market since starting the local brewery in 2015. Competitive practices that unfairly crowded out family distributors, placed burdensome conditions on small craft brewers, and limited consumer availability in the state’s most populous areas.

At the heart of it is a dispute between Reyes and Seismic over the termination of a wholesale agreement to sell the brewery’s beer in shops and restaurants in some Northern California markets. But it has also brought the spotlight to massive changes in state and national beer distribution, changes some say will hamper the ability for beer lovers in the Golden State to purchase their favorite craft beer locally.

“Distributors are the gatekeepers of the beer business,” said Kevin Luckey, executive director of California Family Beer Distributors, a trading group that has become involved with Reyes. “Beer has just as much to do with access. You have to take beer to a grocery store. You have to bring beer to a bar. “

The litigation has gained momentum as the Biden government investigates anti-competitive practices across the economy, including the wine, beer and spirits industries. Commentators have quoted Reyes specifically for criticism in the federal investigation, arguing that beer wholesalers’ consolidation needs to be tightened to encourage more competition in the $ 94 billion market.

At the state level, there are even more significant moves as Seismic said in a filing on Tuesday that Attorney General Rob Bonta is conducting his own antitrust investigation into the industry. In its motion, Seismic said the state had called the brewery over on an investigation into “anti-competitive activities related to beer distribution and beer prices in California.”

Bonta’s office said in a statement it could not comment on the investigation or even confirm whether it existed because its subpoenas are confidential.

The issue has so far remained under the radar given the complex consequences of prohibition, when each state was allowed to regulate alcohol under a three-tier system to avoid monopoly. Producers sell their inventory to wholesalers, who in turn market beer, wine and spirits and sell them to retailers.

California has some exceptions that allow breweries to sell locally as well as self-distribute or operate their own sales arms. Stone Brewing Co. of Escondido, for example, has its own wholesale division serving Southern California.

The dispute between Reyes and Seismic was sparked when a Reyes subsidiary called Harbor Distributing bought DBI Beverage in 2019, which operates major distribution companies in areas such as Sacramento, San Francisco and San Jose. DBI previously served Seismic under wholesale agreements.

Jackson claims it eventually withdrew from those contracts after Reyes failed to agree the same terms as DBI’s original agreement, and wanted to impose more onerous policies that would make it “virtually impossible” to switch dealers, according to a legal document issued by Seismic. In turn, DBI – now controlled by Reyes – sued Seismic last year for alleged breach of contract.