A distributor merger has some local microbreweries buzzing about logistical headaches

At the height of the pandemic, the co-owners of Diamondback Brewing Co. in Locust Point signed a deal with Legends Limited, giving them a one-stop shop for distribution and a wide reach across the state.

Colin Marshall and Tom Foster had experienced working with multiple distributors to sell their beers and wanted out. So, they paid half of $24,000 to exit their contract with Wantz Distributors in Hagerstown.

After the remaining half was paid off, Legends was able to distribute Diamondback’s beers in five of Maryland’s western counties, and Marshall and Foster only had to work with them as their single distributor.

But a deal went through a little over a week ago allowing Chesapeake Beverage Co. to acquire Legends, and as a result, they’ll now have to go back to a patchwork of distributors to sell beer in different parts of the state. Marshall and Foster feel like their hands are tied.

“We’re hamstrung at this moment. ... And we have no say in how our brand is distributed in the state after this merger. Everything was on a really nice upswing for us,” Marshall said. “Financially, in terms of just this deal, we were left kind of out to dry.”

In addition to Diamondback, Chesapeake acquired the rights to a handful of other popular breweries in the state, such as Brewer’s Art, Burley Oak Brewing Co., Denizens Brewing Co., Oliver Brewing Co., Manor Hill Brewing, RaR Brewing and UNION Craft Brewing. The deal comes at a time of significant upheaval for Maryland breweries, as DuClaw Brewing Co. and Flying Dog Brewery were acquired by out-of-state companies and beverage giant Diageo ended its manufacturing of Guinness Baltimore Blonde in June.

Brands now under Chesapeake are feeling the effects in different ways. Some will gain more coverage while others will lose a foothold in other regions. There’s also some uncertainty around production volume since some manufacturers have had to rethink logistics while working with more distributors.

Evan Athanas, vice president of sales at Chesapeake, said his company and several other Maryland distributors purchased most of the brands from Legends, a subsidiary of the Sheehan Family Cos., which has started selling off its network of beverage companies up and down the Eastern seaboard.

Chesapeake kept the Legends distributing name and hired “most” of the company’s employees, he said. They will operate under the name in Baltimore City, Baltimore County, Montgomery County and Washington, D.C., while the rest of the territory will operate as Chesapeake.

The distributor has also increased its footprint from seven jurisdictions to nine, adding the Montgomery County and Washington, D.C., markets. Athanas said this will help them increase the availability of craft brands.

After 40 presentations to show suppliers what Chesapeake can offer, Athanas said all the craft brands they pitched “approved them and are very happy.”

“They’re all excited about the opportunity because we kept most of their people who are experts in craft beer. We’re also expanding the availability of their brands to more customers,” Athanas said.

As part of the deal, Chesapeake will partner with other distributors around the state to ship A-B products in areas outside of Anne Arundel County, Baltimore City, Baltimore County, Cecil County, Harford County, Howard County, Montgomery County and the district.

For Marshall and Foster, the acquisition means that their brewery will be represented by five or more distributors throughout the state with beer going in five different directions and many more brand managers to work with.

“At minimum, we’re talking 10 to 15 different sales representatives to work with. And so this really just drives a wedge in between the amount of efficiency and growth that we’ve had for our company,” Marshall said.

Volker Stewart, founding partner of Brewer’s Art, said Chesapeake is dropping the beers made by the Mount Vernon restaurant altogether.

“We were one of the brands who fell through the cracks. When Chesapeake made the offer, we weren’t interesting to them because the rights for Baltimore metro area, Southern Maryland and Montgomery County were not included. So, they probably didn’t see us as any sort of a money-making proposition,” Stewart said.

Starting in the mid-2000s, Legends had the rights to distribute Brewer’s Art products in Western Maryland, the Eastern Shore and in Washington, D.C. And now the brand will have no representation at all in those areas. Bond Distributing Co. and Buck Distributing sell Brewer’s Arts beers locally, making the label “a bit of a peculiarity in this whole equation,” Volker said.

He thinks that the accounts that were the “big sellers” for Legends will get good service from the new ownership since they now have “a pretty significant fleet throughout the state,” he said. But for smaller companies like his, there could be some tougher conversations. He’s also started looking for a new distributor in the areas he’s losing.

“I think it’s going to be a little challenging, just renegotiating things like logistics and pricing, and there’s kind of a lot of reinventing the wheel that’s probably going to have to happen with a lot of smaller brands,” Volker said.

Union Craft Brewing CEO Adam Benesch said his company had worked with Legends from the beginning.

“Legends have been a tremendous partner to us since we started in 2012. I’m certainly grateful for all the work they’ve done to help grow Union into what it is today,” Benesch said.

Union’s distribution is unaffected by the merger, Benesch said.

“I think it can certainly be a positive to streamline distribution efforts. And there there shouldn’t be a massive change in our day-to-day operations, besides working with some new people. But we’re also excited and grateful that a lot of people from the Legends team, both on the sales and operations will be moving over to Chesapeake. So there will also be some familiar faces that we’re working with,” he said.

Aside from working with so many distributors, Marshall and Foster are largely concerned with obtaining success they had previously with Wantz.

“It would’ve been a one-year return on investment with Legends holding our distribution rights in those five western counties. And now that it’s been sold again, we’ve been cut six months short on the distribution transfer’s return on investment,” Marshall said. “We have no certainty if we’ll ever make that money back and what the production volume will be moving forward with Wantz.”

Alcohol distribution in Maryland operates on a three-tier system, which was implemented after the end of Prohibition. A manufacturer or supplier sells its rights to a wholesale distributor so that the product ends up on the shelves of retailers for consumers to purchase, according to the Maryland Alcohol Tobacco Commission.

For example, Chesapeake represents major national brands such as Anheuser-Busch and Pabst, as well as imports such as Boddingtons and Guinness and larger-scale craft brewers such as Magic Hat and Saranac.

All in-state breweries have the option to sell directly to consumers, but that requires setting up an entire logistics system.

After launching Diamondback Brewing in 2014, Marshall and Foster tried self-distribution. But they found that the overhead was too much. They weighed the decision of having to invest in more trucks and drivers or handing over their product to a distributor to be able to scale their operation while taking a hit on their profit margin.

Once they consolidated all their distribution under Legends, Diamondback built an “immense amount of trust in who we believe to be the best distributor in the state of Maryland for craft product,” Marshall said.

Now they feel like they’ve been caught up in the larger industry trend of consolidation.

“They’re just snatching up the small guys and saying there’s nothing you can do about it. You know, if there was a strategic maneuver that we could have in the moment or an option for us to to opt out of this, then that’s great. But we don’t,” Marshall said.

In a separate challenge to the state’s beer laws, a local lawyer and two Washington state breweries filed a lawsuit claiming a statute prohibiting the direct shipment of beer made out-of-state to Maryland consumers is unconstitutional.

Douglas Furlong, a Baltimore County resident and lawyer, is joined in the suit by Mirage Beer Co. and Varietal Beer Co.

Furlong said in the suit he wants the opportunity to buy beer directly from Mirage, Varietal and other breweries outside of the state, arguing that “many breweries that produce limited production, specialty and unusual craft beer, are located outside of Maryland.”

Furlong and his attorneys declined an interview request for this story. Their suit also says that contracting with Maryland distributors creates “significant additional costs” for making their products available in the state and that consumers would save money with direct shipping.

penelope.blackwell@thebaltimorebanner.com

Penelope Blackwell

penelope.blackwell@thebaltimorebanner.com

Penelope Blackwell is a Breaking News reporter with The Banner. Previously, she covered local government in Durham, NC, for The News & Observer. She received her bachelor’s degree in journalism from Morgan State University and her master’s in journalism from Columbia University's Graduate School of Journalism.

More from Penelope Blackwell

Souls to the Polls: Black churches say election stakes have never been higher

May 05, 2024

Here’s who some Vignarajah voters say is their second choice for mayor

May 03, 2024

More From The Banner

Missing in Baltimore City: Facebook group helps families search for lost loved ones

Unaccompanied migrant children come to Maryland at a higher rate than any other state

Johns Hopkins ‘free Palestine’ protest remains peaceful, but tensions run high

Baltimore’s oddest island: Key Bridge shines new light on abandoned fort