Kentucky judge orders state to approve sale of alcohol distributor to Anheuser-Busch

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A Kentucky judge has ordered the state to approve the sale of a small distributor to Anheuser-Busch in a decision that could lead to legislative fight when the General Assembly returns in January.

Franklin circuit court Judge Phillip J. Shepherd ordered the state Department of Alcoholic Beverage Control to issue a wholesale beer distributor's license to the beer company within the next week, which would allow the sale to go through. Other alcohol distributors and retailers have opposed the sale, arguing it would give the beer giant too much power to control how competing products are doled out to customers.

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The state could appeal the ruling. A spokesman for the Department of Alcoholic Beverage Control said Friday the state is still reviewing the decision.

Anheuser-Busch has a contract to buy Budweiser of Owensboro. The contract says the sale must close no later than Dec. 31. But Anheuser-Busch cannot complete the sale until it has a distributor's license from the state. Its application has been pending since it was submitted on Aug. 18.

Shepherd wrote in his decision that, under normal circumstances, he would order the state's malt beverage administrator to make a decision. "However, in this case, because of the delay in issuing a ruling, a decision by the Malt Beverage Administrator at this point, would almost certainly come too late," he wrote.

Shepherd said the case is "the latest battle in a regulatory war that has been waged for over 50 years concerning the question of whether a licensed brewer may also hold a distributor's license for malt beverages."

Kentucky, like most states, operates under a three-tier system with alcohol sales: manufacturers make the beverages, then go through distributors to get the products to retailers. The Kentucky Supreme Court ruled in 1957 that a state law prohibiting makers of distilled spirits and wine from owning distributors did not apply to brewers of malt beverages.

The Alcoholic Beverage Control Board later issued a regulation to get around that court ruling, but Anheuser-Busch challenged it and in 1978, the Supreme Court ordered the state to grant Anheuser-Busch a wholesale distributor's license in Louisville.

"Since the decision of the Court of Appeals in 1978, it appears than an uneasy truce has existed," Shepherd wrote.

That truce was broken when Anheuser-Busch attempted to purchase a second distributor in Owensboro earlier this year, prompting what Shepherd called "a firestorm of protests, mostly form other actors in the beer industry who fear the concentration of market power of (Anheuser-Busch)."

"We have big concerns about Anheuser-Busch buying another distributorship just based on experiences that I've heard from some of my retailers in the Louisville area," said Karen Lentz, executive director of Kentucky Association of Beverage Retailers. "Choice is greatly diminished when this happens because Anheuser-Busch has no incentive really to carry any other product."

In a statement, Anheuser-Busch said it was pleased with the court ruling because it allowed the company to "focus on growing our business in Kentucky." Bob Kelley, a regional vice president for Anheuser-Busch, wrote an op-ed for the Messenger-Inquirer in Owensboro that the sale "won't affect consumer choice in any way."

"Anheuser-Busch remains committed to delivering excellent products, and the existing system ensures our competitors have a robust way to get their products to market, too," he wrote.

If the sale goes through, opponents are likely to ask lawmakers to pass a law that would make it illegal for brewers to own distributors -- a topic that could tie up the legislature for much of the 30 legislative days it has to work.