The Montana Beer and Wine Distributors recently withdrew from the Alcohol Beverage Coalition as a statement of opposition to a bill set for introduction before the 2015 Legislature.
The bill would allow brewery owners to buy a retail or on-premise license — like those held by bar owners — in addition to their brewery license so brewers could expand their brewing capacity, business hours and consumption limit.
“What we’re more worried about than anything is first: destruction of a very good system … and we believe this bill would change the fairness aspect,” Kristi Blazer, executive director of Montana Beer and Wine Distributors, said.
“Ultimately we believe that as a result of the destruction of the system we will be economically affected,” Blazer added.
This bill follows a failed attempt in the 2013 Legislature by the Montana Tavern Association that would have limited breweries to selling 40 percent of their product in the taproom and 60 percent on the wholesale market. MTA introduced the bill after stating taproom popularity was undermining the state alcohol system.
In response, the Montana Brewers Association introduced a bill to study the alcohol licensing after the 2013 session ended.
Within the Alcohol Beverage Coalition — which included representatives from MTA, MBA, MB&WD, the Gaming Industry Association of Montana, the Montana Restaurant Association and the liquor control division of the state Department of Revenue — the three associations deliberated for over a year about a 2015 bill. The distributors association, which Blazer said never supported the compromise, withdrew from the coalition in early December.
MBA and MTA reached a compromise that they hope will stand a chance in front of legislators.
“No change puts a lot of breweries in the position in the next couple of years to make the decision: if they want to continue to grow their business in making beer for off premise or close their taproom; they would have to make a choice,” said Josh Townsley, president of the Montana Brewers Association and owner of Lakeside-headquartered Tamarack Brewing Co.
A 1999 compromise between brewers, tavern owners and distributorscaps Montana breweries at 10,000 barrels of beer per year if the brewery operates a taproom in which their beer is sold. Taprooms can only be open from 10 a.m. to 8 p.m. and may not serve any one customer more than 48 ounces of beer per day.
If a brewery produces over 10,000 barrels of beer per year it can provide only free samples in its taproom.
According to Townsley, several breweries around the state are pushing the 10,000 barrel limit.
“Last session, zero breweries were up against it, this session you probably have four, by next session you could have 10,” Townsley said.
To brew more beer for distribution and expand its customer base, a brewery would have to close or alter operations in its taproom.
Townsley said no one wants to take the option of expanding at the expense of firing taproom staff and tell customers it is closing.
Blazer said the MB&WD are looking into supporting a bill some brewers are hoping to introduce that would raise the 10,000 barrel limit to a yet undecided number, but would make no other changes.
That bill would solve the brewers concerns about expansion, while maintaining separate entities, Blazer said. She said no one has agreed to carry the bill yet, but one legislator has expressed interest.
The problem with the “license stacking” bill, Blazer said, is that it would create vertical monopolies — an entity that controls creation, distribution and sale of a product. Breweries under 10,000 annual barrel production are already allowed to create, distribute and sell beer, but Blazer said stacking licenses would allow large breweries to sell their beer at low prices and outcompete smaller producers.
“What you end up doing is creating a system where a few rich players are going to dominate,” Blazer said.
She said Montana is a “darn good place to be in the beer industry.” Citing a 2014 survey by The Motley Fool, a multimedia financial services company, Blazer said Montana is ranked as the number one beer friendly state. She said the survey stated Montana ranks third in per capita beer consumption, third in breweries per capita, first in bars per capita and is tied for the sixth lowest beer excise tax.
“You’re taking a perfectly good system and you’re wrecking it just so some players can have a larger slice of the pie,” Blazer said.
“It’s the system that we’re trying to protect, because we believe that it leads to great beer economy … and it leads to treatment of all players in the industry fairly,” she added.
Blazer said it was after she felt like those concerns were not being heard that the MB&WD withdrew from the Alcohol Beverage Coalition to make a point.
“No one wanted to see the wholesalers walk away from the coalition. They’re our partners in this industry, no one's self distributing 10,00 barrels of beer. The distributors are a key component to the industry as the whole, I wish they were back at the table,” Townsley said.
Mike Hope, president of the Montana Tavern Association, echoed Townsley's statement that distributors are important to his industry.
“We’re not changing anything that’s out there. Everyone can continue doing exactly what they’re doing, but it puts another option on the table,” Hope said.
He said there is interest among tavern owners statewide to get into the craft brewing business, and the stacking bill would allow them that freedom.
Chelsey Frank, owner of Helena-based George’s Distributing, said she agrees with Blazer and the MB&WD. She said she wants to keep the current system that does not allow a brewery owner to also own a license.
“I feel like if it’s not broken, don’t fix it,” Frank said.
Frank said she is not worried about losing her customer base. George’s has a good relationship with the breweries it distributes for and will continue to flourish no matter the legislature’s decision, Frank said.
Max Pigman, owner of Lewis and Clark Brewing Co., is one of several Montana brewers who has navigated the complicated system and figured out a way to brew beyond the 10,000 barrel limit, still serve beer in his establishment and keep his doors open past 8 p.m.
To do it, Pigman paid $200,000 to obtain an All-Beverage license that allows him to sell beer, wine and alcohol for consumption on site. His license included gaming, which inflated the price, even though Pigman said he has no plans to offer gambling in the establishment.
Pigman’s operation is legitimate because the brewery and the room where he sells beer are now separate legal entities. He owns the license for one, and an acquaintance owns the other.
He can now brew more than 10,000 barrels per year without having to worry about changing taproom operations.
“That’s the primary reasons we bought a license, wasn’t to open a bar, it was to produce more than 10,000 barrels,” Pigman said.
Because of his success, Pigman said he no longer has a vested interest in the outcome of the bill. He said it would have been nice if the system operated differently. It would have saved him $20,000 in legal and consulting fees while navigating the complicated law, Pigman said.
Brian Smith, managing partner at Blackfoot River Brewing Co., said he opposes license stacking because he said it is bad for the craft brewing industry in the long run.
“There’s a lot of unintended and unforeseen consequence that would happen from stacking,” Smith said.
Under the state quota system, on-premise licenses are limited by an area's population. That could lead to creating an unfair field for breweries, because some breweries would be able to obtain a license possibly years before another, Smith said.
Breweries with a license would have a competitive advantage over those not able or opposed to obtaining one, Smith said. "Large industrial brewers" who did obtain both licenses could operate vertical monopolies and stifle competition by dominating distribution channels, he added.
The bidding war for brewers seeking to obtain an on-premise license would drive liquor license costs to new heights, especially in the larger Montana cities, Smith said.
"Our company could greatly benefit financially from this proposal, however, we still oppose it because we believe its bad for the local craft brewing industry and consumers," Smith wrote in an email.