This opinion piece was first published by Cleveland.com.

Ohio boasts an award-winning craft beer industry. But that industry and its small business owners have largely thrived in recent years despite — not because of — an unfair legal holdover from the Nixon era that should finally be changed, if not repealed entirely.

After Prohibition, states were handed broad powers to regulate alcohol within their borders. Like most states, Ohio implemented an anti-competitive three-tier system of alcohol manufacturers, wholesale distributors, and retailers, and state law prohibits ownership between any two tiers. Even worse, that now-antiquated system is partly responsible for lopsided restrictions in Ohio’s franchise law. For decades, the largest manufacturers bullied the smaller distributors into one-sided distribution agreements at the threat of moving their oversized business to other distributors. Lobbyists and legislators responded with a 1974 franchise law that protects distributors by requiring brewers to show “just cause” before terminating a distribution contract.

As with many protectionist statutes, however, this one overcorrected for the problem and has now created a new, if unintended one. Today, more than 400 small breweries dot Ohio’s landscape, while the number of wholesale distributors has dwindled significantly in the last 50 years. The consolidated distributor market has reversed the bargaining power of the 1960s, and Ohio’s franchise law, once designed to level the playing field, now tilts it in favor of large, regional distributors that can strong-arm small breweries into signing contracts virtually impossible to renegotiate or amend.

With the government’s heavy thumb on the distributors’ side of the scale, small brewers looking to change distributors without “just cause” could be sued by the larger, well-financed distributor — while still having to rely exclusively on that same distributor to move the beer during the litigation. Some might call this a conflict of interest, but Ohio calls it the law.

Contracts should be honored, of course. And the consequences of breaking a legal contract should be known and enforced, with parties liable for damages as prescribed by law. But Ohio’s franchise law is different. It creates disincentives for one party to renegotiate, seek better terms, or from using the unbiased power of free-market competition to ensure that both parties live up to the terms of their deal or risk losing a paying client.

At bottom, Ohio’s entire three-tier alcohol system is anti-competitive and the franchise law only makes it worse. The consequences of these types of unfair laws across the country are serious. Recent federal research shows that such laws have stunted the craft brewery market nationwide. A 2021 U.S. Department of Justice Economic Analysis Group discussion paper found that alcohol franchise laws like Ohio’s “encourage” opportunism by wholesalers and could “increase the cost of distribution to brewers,” thus inhibiting the growth of the craft brewing industry.

According to that discussion paper, such laws also tend to limit entry into the wholesale distributor market. By locking brewers into long-term, auto-renewing contracts that are difficult to end or amend, franchise statutes keep new distributors from gaining market share or the clients needed to enter the market at all.

Ohio should scrap its entire three-tier system and let the free market work. Consumers should be allowed to purchase products directly from producers, and distributors should be free to own breweries and tap rooms. Such freedoms may prove too ambitious, but Ohio should at least remove itself from contract negotiations between brewers and distributors, and legislation (House Bill 306) currently pending in the Ohio General Assembly to exempt craft brewers from the onerous terms of an outdated, anti-competitive franchise law is a good start.

Greg R. Lawson is a research fellow at The Buckeye Institute and the author of “Brewing Freedom: Ensuring the Freedom to Contract for Ohio’s Craft Brewers,” a Buckeye Policy Brief.