Draught Works Brewery owners Paul Marshall and Jeff Grant were busy reorganizing their brewing tanks last week to make room for newer, bigger tanks that will be delivered soon.
The new tanks will allow Draught Works, which opened in 2011, to eventually double its capacity, said co-owner Paul Marshall.
The young brewery is thriving in its home on Toole Avenue. But the growth planning at Draught Works continued with Marshall and Grant keeping a weary eye on what’s happening at the 2013 Montana legislative session.
Particularly of interest was a Montana Tavern Association-endorsed bill draft requested by Rep. Jeff Welborn, R-Dillon, which proposed limiting beer sold on premises of small breweries to 10 percent of annual production. The other 90 percent would have to be sold through distributors.
Draught Works sells 100 percent of its beer in its taproom.
“It would kill us,” Marshall said of the “90/10” idea.
The bill has been dropped, but it’s a frightening prospect for Marshall, who noted that the complicated set of state laws under which microbreweries currently operate will heavily dictate how his business moves forward.
“We do think five to 10 years out all the time. The problems other breweries are facing will hopefully someday be ours,” Marshall said. “The thing that kills us in the state is the 10,000 barrel limit. It does just wreck incentives and planning.”
The regulation of the microbrewery industry is an unsettled issue in the eyes of many.
A “small brewers exception” compromise reached in 1999 by brewers, tavern owners and distributors changed state law to allow microbreweries to sell their beer out of “sample rooms” but restricted it to 48 ounces per person per day and limits hours of service to 10 a.m. to 8 p.m.
If a brewery sells its beer on site, it can’t exceed a 10,000 barrel per year production limit.
Several breweries in the state have worked around the 10,000 barrel limit by implementing a “closely held license” business model. Kettlehouse Brewing Co. co-founder Tim O’Leary is close to finishing a deal that will have his mom, Helen, buy a wine and beer license. The separately held license frees up O’Leary’s adjacent brewery to produce an unlimited amount of beer and allows the a new tap house to sell it.
O’Leary has talked in the past of lobbying the Legislature to increased the 10,000 barrel limit. Now, he’s focused on the new model.
“We’re working within current code, current business structures to do what we want to do,” O’Leary said.
The Montana Brewers Association board decided not to pitch any major legislation this session, executive director Tony Herbert said.
Instead, Herbert will “play defense” as the session continues while planning for future solutions.
“We just felt like in spite of the fact we don’t love all the regulations the industry has, we didn’t feel like this is a good time to be requesting changes,” Herbert said. “We believe that the best approach here is to work in this next session with our partners to develop the right next steps as the industry as a whole, not just the craft brew industry.”
The success of microbrewery taprooms has ruffled some feathers.
Montana Tavern Association spokesperson John Iverson said the “sample rooms” – which is what they’re called in the state laws – have become “virtually indistinguishable” from bars, giving the brewers an unfair advantage.
Iverson wouldn’t confirm that the association was involved in the “90/10” idea.
JoAnn Fuller, the president of the Montana Tavern Association, confirmed to the Ravalli Republic that the MTA had endorsed the bill.
Iverson said the association wants breweries to stay true to the “intent” of the 1999 compromise.
“We’re not suggesting they’re breaking the law, we are suggesting some have exceeded the compromise that was reached,” Iverson said. “We should have been more diligent in our compromising, apparently.”
Going forward, “the Tavern Association isn’t asking for special treatment, they’re asking for a marketplace that’s absent of special treatment,” Iverson said, adding that the association is willing to work with “all interested parties” moving forward.
Montana Beer and Wine Distributors Association Executive Director Kristi Blazer said her association recognizes a need for changes in “sample room” laws but hasn’t worked on or proposed any legislation this year. Her association is willing to work with all parties on legislation action, she said.
“At this point we believe something should be done. The Montana Tavern Association and the breweries are both our partners,” Blazer said. “When these sample rooms, which is what they are supposed to be, become just like bars they’re competing with licenses that cost up to $1 million. It seems a little unfair.”
Rep. Ellie Hill, D-Missoula, proposed a bill to allow “license stacking” at breweries, an idea that drew support from the multiple groups, including the Montana Tavern Association. Rep. Mark Blasdale, R-Somers, agreed to co-sponsor the bill, Hill said.
The bill is still in drafting stage and Hill doesn’t know that it’ll be introduced.
Compromise to draft legislation that pleases the manufacturers, wholesalers and tavern owners won’t happen this year. But can it happen in the future?
Craft beer blogger Alan McCormick is skeptical.
A Missoula attorney by trade, McCormick keeps the Growler Fills blog, at Growlerfills.blogspot.com, where he pointed out that two-thirds of the state’s microbreweries would have been affected by the 90/10 bill. The Montana Tavern Association’s endorsement of the bill doesn’t demonstrate it wants to compromise, McCormick said.
Finding a balance, McCormick said, might have to involve going beyond changes to microbrewery laws and revising the state’s decades-old alcohol license quota system.
“The fix isn’t simple and it isn’t easy,” McCormick said.
Draught Works’ Marshall said compromise remains a “huge question.”
“We talk about that all the time. We speculate what it would take for the other two tiers and what they would want,” Marshall said. “From Draught Works’ perspective, Jeff and myself are absolutely committed to working with all interested parties, to try to figure a solution to the problems breweries face in the state, being very sensitive to the interests of the tavern owners and distributors.”