How Current Laws Suppress Craft Beer in Michigan

July 8, 2008

Guest Post by Todd Parker  – Master Brewer for Copper Canyon

When I was first approached about this topic by Kevin Nash, I enumerated 5 different legal issues that make it more difficult for Craft Brewers in Michigan (this is not an all-inclusive list).  In no particular order, here they are:

            1.  An owner cannot own more than 3 brewpubs.
            2.  An owner cannot own a brewpub and a micro
            3.  Brewpubs cannot distribute
            4.  Micros cannot self distribute
            5.  Technically brewpubs are not allowed to be at the Summer or Winter Beerfest- or any others for that matter.

To begin with, I should probably introduce some history into why these laws were created.  Before Prohibition in the United States, there was very strong political pressure to rein in the sale and production of alcoholic beverages.  A seedier side of the alcohol industry that helped lead to Prohibition was the “tied houses” which were common.  At the time, many taverns were “tied houses” (which are still common in England),  where the tavern owner was lent money, given supplies (furniture, glasses, decoration, or advertising) or actually rented their location from a brewery (breweries at the time were also real estate moguls) and thus were “tied” to carrying only that brewery’s beer.  This led to some predatory type lending with some strong arm tactics to keep the system in the brewery’s best interests.  It also created an environment where the tied house pushed the alcoholic beverages more than they responsibly should have, which in turn led to the aggravation of the local communities.  Then came Prohibition and its repeal. The federal government left it up to each state to make its own alcohol laws.  Many states set up “three-tier” systems, where a producer has to sell it to a distributor who then sells it to the consumer. This was to avoid tied house situations.

Having worked as a brewer in California, Wisconsin, and Michigan (and have seen how different each state is in respect to how it regulates Craft Beer) I will endeavor to explain what makes it much more difficult for the Craft Brewer in Michigan.

1.  An owner cannot own more than 3 brewpubs.This rule was established to avoid the system of tied-houses.  This law punishes effective owners. If an owner is good enough to own more than three, most likely he is doing something right. If beer from one of three U.S. megabreweries can be found in 97% (assumed number) of all establishments serving beer, any laws trying to keep monopolies out aren’t working.

2.  An owner cannot own a brewpub and a micro. This is also a strategy to avoid the tied houses, but it again punishes effective owners.  When I was the Head Brewer at the Royal Oak Brewery (a brewpub), I had distributors tell me that they had been asked by their customers for my beer.  Imagine if your brewpub brewer creates a wildly popular brew and you want to take that to the masses via a microbrewery. You can’t. You have to have it contract brewed by another company.

3.   Brewpubs cannot distribute. I do not know why this legal issue was created. It does not in effect set up a tied house type of situation.  This issue penalizes those brewpubs with excess capacity that they could otherwise sell on the open market.  It makes a new owner decide whether they want to be a microbrewer which can distribute, but cannot sell liquor or any other beers, or a brewpub, which has to have a full service kitchen and have 25% of their gross sales in non-alcoholic items.  When I worked in California at BJ’s Brewpub, we distributed our excess beer to other non-brewpub BJ’s restaurants.  Our brewpub supplied several other BJ’s taprooms with our excess beer.  In using this system, BJ’s is now one of the biggest chains in the United States.  In 1996, they had only 7 restaurants, they just recently opened their 73rd.

4.  Micros cannot self-distribute. This legal issue was designed to avoid the strong arm tactics that some breweries used pre-prohibition.  On a large scale, distribution is a difficult job for any brewery to conduct.  However, if you are a small microbrewery, there are limited numbers of distributors, and should you be carried by one, you are then a small fish in a very large pool.  A lot of time, your beer gets lost or forgotten by the distributor salesperson or worse, your taps are lost to another brewery (within the same distributor) who paid a “reward” for new tap accounts.  Many small micros lack the advertising budgets or extra money needed to pay these rewards.  The micros have a limited sales force that can go out and try to help sell their products to the distributors customers.  When I worked in Wisconsin (where limited self-distribution is legal), we had a region of the state which was not covered by a distributor and one day a week I would go and make deliveries to these locations.  I effectively became our 2nd biggest distributor (bigger than our Milwaukee or Madison area distributors which had over 10 times the population), because I was not competing with 100 other beers in a distributor’s catalog. Limited self-distribution is a very viable way to do business. However, it is unfeasible for the micro to do it beyond a certain point.  It is a boon for the distributor also, who the micro will need once they do make it to that point, and the micro will be feeding the distributor with plenty of their already garnered clients.  There is no evidence that the breweries will not pay their taxes or that they will sell to others without liquor licenses or to underage kids.

5.  Technically brewpubs are not allowed to be at the Summer or Winter Beerfests - or any others for that matter.This is effectively a byproduct of issue 3.  This is currently being lobbied in Lansing and hopefully we will have a solution soon.

Every state has crazy beer laws that are left over from the days of Prohibition, most states have tried to clean some of these off of their legal rolls. In fact, Virginia just passed a law allowing sangria.  This state needs to fix a few to help keep Michigan the Great Beer State. Our Michigan Brewer’s Guild is working to help fix some of these laws, unfortunately, there are bigger lobbies working against us.

Posted in Beer Laws