Signing with a distributor is exciting, and it can lock you in. Because the three tiers of the alcohol beverage industry are so heavily regulated, some states require government approval just to end a distributor relationship. Lindsey Zahn P.C. reviews, drafts, and negotiates distribution agreements so suppliers understand the risks before they sign.
Alternating proprietorships let a new winery, brewery, or distillery grow without investing in its own equipment and production space. They also raise questions that should be settled at the negotiation stage, not after a dispute.
What to watch for in a distribution agreement
- One-sided termination, liability, and insurance clauses
- Rights of first refusal and exclusivity
- Missing targets and other performance measures
- Cost-shifting obligations and hidden charges
- No annual review of strategy or price points
- State franchise laws, including how “good cause” for termination is defined
- Notice requirements and fair market value calculations on termination
Questions every alternating proprietorship agreement should answer
- What are the exit terms if the relationship ends?
- When and how often can the tenant access the premises?
- Who maintains equipment and who pays when it fails?
- Who bears the loss for spoiled product or ingredients?
- Who sources ingredients, and can the tenant use the host’s employees?
- Do both parties have the required permits and insurance, and are other third parties using the space?
How the firm helps
- Review and draft distribution agreements
- Review alternating proprietorship agreements, including those proposed by a distillery host
- Draft alternating proprietorship agreements for submission to TTB with an original or amended DSP permit application
- Train your team on the terms, risks, and limits of alternating proprietorships
Recent representations
- Negotiated a national distribution agreement for wine and distilled spirits and advised on go-to-market strategy
- Drafted an alternating proprietorship agreement for a distillery renting space and equipment from an existing distillery
- Counseled a beer supplier on state franchise laws and termination options
- Advised a supplier on the risks and gaps in a statewide distribution agreement proposed by a distributor
Prior results do not guarantee a similar outcome.
Frequently asked questions
Can I get out of a distribution agreement?
It depends on the agreement and the state. Franchise laws in some states restrict termination and may require good cause, notice, compensation, or even government approval.
What is an alternating proprietorship?
An arrangement where two or more producers take turns using the same licensed premises and equipment, each operating under its own permit. It requires TTB approval and a well-drafted agreement.