California brewers assess political, business challenges (w/video)

Tom McCormick remembers eight years ago when he would head over to the state Capitol and lobby for the California craft brewing industry.

As executive director of the California Craft Brewers Association, McCormick had to help educate Sacramento lawmakers on the challenges faced by the burgeoning industry, legislators who likely couldn’t tell the difference between a growler and a lager.

But as the craft beer industry exploded, his job has become a little easier. That’s what a growing and popular business - which in the Golden State grew by 20 percent in volume last year and contributed $5.5 billion to the state’s economy - can do for your political clout.

“It’s a change of night and day from eight years ago. They (legislators) didn’t know who we are and what we were. And now, they, for the most part, understand us,” McCormick told his members Monday as the trade group met in Santa Rosa for its 25th anniversary.

Sonoma County is a strong force in the industry with 22 craft brewers, McCormick noted, ranging from those with national ambition, like Lagunitas Brewing Co., to those focused on the local market, like Moonlight Brewing Co.

“There has been a real appreciation in the product. … Craft brewers have sort of been leading the charge,” Ken Grossman, founder of Sierra Nevada Brewing Co. in Chico, the second-largest craft brewer in the nation, said in an interview last month. “It’s undergoing quite of bit of evolution. … The barriers of entry have decreased.”

The craft beer industry has prospered without political giving. During the latest election cycle, $2.4 million poured into candidates for state offices from the beer, wine and spirits industry, according to the National Institute on Money in State Politics. But the lion’s share came from more established brands such as Anheuser-Busch InBev, the Wine Institute, and the National Beer Wholesalers Association.

During this week’s conference, McCormick addressed the political challenges that members of his trade group will face in the upcoming year. His group is typically on the defensive as home brewers try to expand their presence in the beer market and wholesalers fight to preserve the current “three-tier” distribution system, which tightly regulates brewers’ ability to sell directly to consumers and retailers. The craft industry has been able to grow thanks in large part to self-distribution, tasting rooms and growlers, large reusable bottles that allow consumers to purchase beer to go.

“There are stakeholders who would love to see those privileges eroded or taken away,” McCormick said.

In the last session, lawmakers tightened a state statute from the 1950s that allowed small brewers to hold an unlimited number of licenses to open taprooms and tasting rooms. Wholesalers, who expressed concern about the erosion of the three-tier distribution system, and local governments, which wanted more control over permits, sought greater restrictions.

Under the compromise signed by Gov. Jerry Brown, breweries that produce less than 60,000 barrels annually can have up to six so-called “duplicate licenses.” Two of those retail licenses can be used for eateries.

“We felt that putting some type of cap on these duplicate licenses was in the best interest of the industry,” McCormick said. “I really do feel strongly about that because allowing an unlimited number of tasting rooms across the state by a brewery could get out of hand in a number of ways.”

While beer wholesalers are on guard to protect their market, home brewers are looking to increase their rights, though they cannot legally sell their product. Many craft brewers started as home brewers, so they sympathize with their plight, but fear encroachment because home brewers have advantages by not paying taxes, nor having business licenses nor health and safety requirements.

For example, a new law expands the rights of home brewers to donate to a nonprofit group. The home brewers can now legally serve beer at events, such as competitions, exhibitions and tastings. But at the behest of McCormick’s group, the home brewers must be in a separate area away from commercial products.

“If you want to sell beer, you need to get a beer manufacturers’ license,” he said. “There has to be a bright line. That’s just good public policy.”

Craft brewers are on a winning streak as a new law signed last month by Gov. Brown will allow them to sell their products at farmers markets, just like the wine industry. It also allows beer manufacturers the right to sell beer and wine on their own premises during private events.

In fact, the craft brewers may push next year for an expansion of the new law to allow sampling of products at farmers markets, which would help manufacturers sell more high-end products, such as those in 750-mililiter bottles, McCormick said. The association also is looking to extend the duplicate license law to breweries that produce more than 60,000 barrels.

Wholesalers may trigger another legislative fight by attempting to limit the ability of manufacturers to buy distributors, he said.

Notably, Anheuser-Busch InBev has been buying wholesalers to drive down its costs. But any limits would be a hard sell within the craft industry. For example, Stone Brewing Co. in Escondido started Stone Distributing Co. to ensure its products and other craft brewers would be able to get their beer to retail establishments among the bigger brands.

“Unless there were a carve-out that would allow for smaller beer manufacturers, we would be concerned,” McCormick said. “That carve-out would have to be pretty damn high, probably a lot higher than the beer wholesalers would be interested in.”

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.