Craft brewer Scotty Hunter takes on Pennsylvania protectionism
Scotty Hunter and his friends developed a passion for craft brews in college. A chemical engineering major at Ohio University, Scotty started engineering his own brews during college and found he was pretty good at it. He even started a campus home brew club to showcase his and others’ creations. That club still thrives on campus today.
While in college, Scotty thought of brewing beer as just a hobby. However, upon graduating in 2010, the job market didn’t look promising. So he and his fellow brewing-enthusiast friends turned their passion into a scrappy little entrepreneurial powerhouse that they named Urban Artifact.
Urban Artifact’s success is a classic example of the American Dream. When Scotty and his two partners obtained an SBA loan in 2015, they found their niche making high-quality fruit beers using real fruit—one million pounds a year!—where others might use artificial flavoring or turn up their nose at fruit beer altogether. Scotty discovered a solid demand for his fruit-infused craft beers. Urban Artifact is now on the map as the “largest dedicated fruit brewery in the world,” with distribution to taprooms and retail shops in 20 states and growing.
The company even has a farmer growing a specialty crop of golden raspberries just for their brewery because they buy so many!
But Urban Artifact’s real “secret sauce” is shipping beer directly to consumers. That’s much more complicated than it should be, but for no real good reason other than protectionist laws and barriers put up by some states—not to protect consumers, but to protect other breweries.
Expanding direct-to-consumer
Neighboring Pennsylvania is an obvious choice for expansion. It is RIGHT THERE next to Ohio and home to the third-largest number of craft breweries in the country, second in annual barrel production. Gaining access to the Pennsylvania market would be a huge next step for Scotty, and it would be wonderful for beer-loving Pennsylvanians as well.
But Pennsylvania’s state government has a nasty web of protectionist regulatory hoops that make it hard for craft brewers based outside of Pennsylvania.
Shipping beer directly to consumers is a strategy that helped Urban Artifact thrive during the COVID-19 pandemic when other breweries went under. Pre-pandemic, they already were focused on direct-to-consumer shipping, growing it to about 70% of their business. Other breweries that more heavily relied on tap room sales suffered double-digit losses when tap rooms were locked down. Urban Artifact grew during the pandemic lockdowns, thanks to this timely strategy that it already had in place—for the 10 states which allowed it.
Because direct-to-consumer shipping proved to be such a successful business strategy, post-pandemic they sought to double down and add more states. Unfortunately, Pennsylvania has cost-prohibitive regulations and limitations that apply only to out-of-state breweries. For example, an out-of-state brewer cannot ship more than 90 ounces monthly to any one consumer per year, and there’s a 96-ounce limit per brand per customer in a year.
That’s only eight cans a year.
Pennsylvania also requires out-of-state brewers to acquire a shipping license. Urban Artifact obtained this license but quickly realized that the limitations—and keeping track of them—were going to make direct-to-consumer shipping in Pennsylvania a losing proposition. Any marketer or entrepreneur understands that you can’t survive in business if your investment in winning a customer won’t pay off with repeat sales. And imagine the consumer’s frustration when they find out they are not allowed to buy any more of this wonderful beer that they just fell in love with until next year!
None of these limitations apply to Urban Artifact’s competition: brewers in Pennsylvania.
Interstate commerce is not supposed to look this way
Only Congress can regulate commerce between the states. The U.S. Constitution spells it out right there in the Commerce Clause.
Article 1, Section 8, Clause 3:
“The Congress shall have Power… To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes…”
Only Congress can regulate commerce between states. States are not to set up trade barriers between each other. We are not little countries with borders and tariffs. We are united states. The Commerce Clause is our free trade agreement.
The Supreme Court has dealt with this very issue several times. In the landmark case Gibbons v. Ogden (1824), the Court ruled that the Commerce Clause granted Congress the authority to regulate navigation on interstate waterways, reinforcing the principle that states cannot enact legislation that interferes with or discriminates against interstate commerce.
Then in 1951, in Dean Milk Co. v. City of Madison, the Supreme Court struck down a Madison, Wisconsin, ordinance that prohibited the sale of milk unless it was processed and bottled at a plant within five miles of the city. The Court held that this law discriminated against out-of-state milk producers. The case highlighted the principle that state and local regulations that discriminate against interstate commerce are unconstitutional unless they serve a legitimate local purpose that cannot be adequately served by reasonable non-discriminatory alternatives.
Perhaps most relevant is the more-recent 2005 case Granholm v. Heald, which invalidated laws in Michigan and New York allowing in-state wineries to ship wine directly to consumers but prohibiting out-of-state wineries from doing the same. The Court reaffirmed that states cannot enact laws that provide unfair advantages to in-state businesses at the expense of out-of-state competitors. Such laws directly violate the Commerce Clause of the U.S. Constitution.
The Commerce Clause is the original, immutable free trade agreement holding the states together as a unified country, ensuring that they do not act like 50 separate countries with border controls, tariffs, and restrictions against each other. The Commerce Clause is part of what enabled our strong economic growth as a young country and keeps us growing and prospering today. Allowing restrictions such as these to stand unchallenged will only encourage more interstate protectionism and ultimately weaken us as we become more economically divided.
Pacific Legal Foundation is honored to stand beside Scotty Hunter and Urban Artifact in this battle against unconstitutional laws that restrict opportunities that would allow the business to thrive.
He’s taken up this fight with neighboring Pennsylvania to ensure a freer market where consumer choice is allowed to cross state boundaries. He’s fighting so his customers and potential customers can freely choose beers from his unique, groundbreaking brewery in Ohio, even if they live in Pennsylvania.
The Constitution, existing case law, and the Supreme Court agree with Scotty.
