Legislature(2005 - 2006)CAPITOL 17

03/29/2006 03:15 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Meeting Postponed to 4:00 PM Today--
+= HB 240 BREWERY & BREWPUB LICENSES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 350 UNFAIR CLAIM SETTLEMENT PRACTICES TELECONFERENCED
<Bill Hearing Postponed>
+= SB 273 MOTOR VEHICLE SALES TELECONFERENCED
Heard & Held
HB 240-BREWERY & BREWPUB LICENSES                                                                                             
                                                                                                                                
4:29:27 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE BILL  NO. 240, "An Act relating to  brewery and brew pub                                                               
licensing."                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOTT made a motion  to adopt CSHB 240, Version 24-                                                               
LS0734\P,  Finley/Luckhaupt, 3/28/06,  as  the working  document.                                                               
There being no objection, Version P was before the committee.                                                                   
                                                                                                                                
4:30:00 PM                                                                                                                    
                                                                                                                                
CRAIG  JOHNSON, Staff  to  Representative  Lesil McGuire,  Alaska                                                               
State Legislature, on behalf  of Representative McGuire, sponsor,                                                               
explained  that HB  240  was  introduced at  the  request of  the                                                               
Brewers  Guild  of Alaska  (BGA).    He  explained that  the  BGA                                                               
consists of  six breweries and  five brewpubs.   This bill  is an                                                               
effort to  foster a "level  playing field" between  breweries and                                                               
brewpubs.   He explained that currently,  brewpubs are authorized                                                               
to sell  products to consumers  for consumption on  the premises,                                                               
and to sell limited amounts  for consumption off of the premises.                                                               
In  addition, brewpubs  may  sell to  other  licensees through  a                                                               
distributor.  He went on  to explain that breweries may currently                                                               
sell   products   for   off-sight   consumption   to   consumers,                                                               
wholesalers, or  licensees, in addition to  offering free samples                                                               
of products on the premises.                                                                                                    
                                                                                                                                
MR. JOHNSON  went on  to say  that HB  240 increases  the brewpub                                                               
production  cap from  150,000  gallons to  465,000  gallons.   He                                                               
noted  that this  cap is  accepted  throughout the  country.   In                                                               
addition, the amount of product a  brewpub may sell to a licensed                                                               
wholesale distributor is increased  from 15,000 gallons to 45,500                                                               
gallons.  He  pointed out that out-of-state brewpubs  do not have                                                               
restrictions on the amount of product sold within the state.                                                                    
                                                                                                                                
4:32:12 PM                                                                                                                    
                                                                                                                                
MR. JOHNSON  said that  HB 240 would  allow breweries  [to charge                                                               
for samples  on the premises],  which is common in  tasting rooms                                                               
in other  states.  He noted  that while there have  been concerns                                                               
regarding breweries acting as  taverns, this legislation includes                                                               
restrictions such  as limited on-site sales,  restricted hours of                                                               
operation,  and a  well-defined environment.   In  addition, only                                                               
products of  the brewery may be  sold.  Mr. Johnson  related that                                                               
HB 240 would allow brewpubs  to self-distribute up to 200 barrels                                                               
of product  per year,  and he  added that  there is  a population                                                               
limitation  of  75,000 in  place,  which  would prevent  harm  to                                                               
smaller breweries.  He said  that under current law, brewpubs are                                                               
required to use a wholesaler  to distribute product off premises;                                                               
however, this  may not be  profitable for the  wholesaler, making                                                               
it difficult to get the product on the market.                                                                                  
                                                                                                                                
4:34:52 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON noted that there  would be testimony both in favor                                                               
of and in opposition to HB 240.                                                                                                 
                                                                                                                                
4:35:57 PM                                                                                                                    
                                                                                                                                
ROBERT  MCCORMICK, Glacier  Brewhouse,  Brewers  Guild of  Alaska                                                               
(BGA),  said  that the  BGA  represents  six breweries  and  five                                                               
brewpubs  throughout   the  state.     He  explained   that  this                                                               
legislation has been developing for  many years, adding that this                                                               
is the  first issue to  unite the  brewpubs and breweries  in the                                                               
BGA.                                                                                                                            
                                                                                                                                
4:38:17 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  inquired as to  the difference between  a brewery                                                               
and a brewpub.                                                                                                                  
                                                                                                                                
MR. MCCORMICK replied that there  are three tiers in the beverage                                                               
industry:     manufacturing,  distributing,   and  retail.     He                                                               
explained  that breweries  are in  the manufacturing  tier, while                                                               
brewpubs  are in  the retail  tier.   He said  that the  brewpubs                                                               
manufacture beer for  sale on the premises, and may  sell a small                                                               
amount  through a  wholesaler, while  breweries manufacture  beer                                                               
that can be sold through a  wholesaler or directly to a retailer.                                                               
Brewpubs  and breweries  require  different  licenses to  conduct                                                               
business.                                                                                                                       
                                                                                                                                
4:39:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG  pointed out  that brewpubs  are required                                                               
to have a beverage dispensary license.                                                                                          
                                                                                                                                
4:40:43 PM                                                                                                                    
                                                                                                                                
CHAIR  ANDERSON  stated that  over  the  years, there  have  been                                                               
several  changes  to  the statutes  [that  govern  breweries  and                                                               
brewpubs].   He asked for an  explanation of the changes  made by                                                               
HB 240.                                                                                                                         
                                                                                                                                
4:41:19 PM                                                                                                                    
                                                                                                                                
MR.  MCCORMICK explained  that in  the past,  both breweries  and                                                               
brewpubs  wanted the  rights of  the other,  and HB  240 contains                                                               
changes that both  groups agree on.  He stated  that the [brewing                                                               
industry] is  fast-growing, noting that brewery  and brewpub laws                                                               
vary  across   the  nation,  with   some  states   having  higher                                                               
[production and sales]  caps than Alaska.  He said  that having a                                                               
higher  cap gives  an unfair  competitive advantage  in-state, as                                                               
there is  no limit on  how much  beer an out-of-state  brewery or                                                               
brewpub can sell in Alaska.                                                                                                     
                                                                                                                                
4:43:42 PM                                                                                                                    
                                                                                                                                
MR. MCCORMICK went  on to say that during the  past year, the BGA                                                               
held meetings  to re-work the  legislation, to ensure  that other                                                               
members of the industry are not  compromised.  He stated that the                                                               
Anchorage  Cabaret,  Hotel,  Restaurant &  Retailers  Association                                                               
(CHARR) requested  the following  changes:   lower the  amount of                                                               
beer  breweries  can  sell  to  24 ounces;  limit  the  hours  of                                                               
operation; no entertainment,  food service, or fixed  bars on the                                                               
premises; no mention  of "tasting rooms."  He  explained that the                                                               
BGA  agreed  with  some  of   these  requests  and  made  changes                                                               
accordingly;  however,  48  ounces  of beer  was  changed  to  36                                                               
ounces, and there was no restriction  placed on food service.  He                                                               
said  that  the  BGA  feels  it  has  "substantially"  met  these                                                               
requests;  however,  he is  aware  that  Anchorage CHARR  is  not                                                               
satisfied with these changes.  The  concern, he said, is that the                                                               
law may  be misinterpreted and  breweries may turn  into taverns;                                                               
however,  with the  aforementioned  restrictions  in place,  this                                                               
will not happen.                                                                                                                
                                                                                                                                
4:46:32 PM                                                                                                                    
                                                                                                                                
LINDA  THOMAS,  General  Manager, Alaskan  Brewing  Company  ("AK                                                               
Brewing  Co."),   informed  the   committee  that  she   is  also                                                               
representing the Brewers Guild of  Alaska (BGA).  She stated that                                                               
the  AK  Brewing Co.  is  in  support  of the  current  committee                                                               
substitute.  She  explained that the BGA has  worked carefully to                                                               
craft  the intent  of the  bill over  the past  two years.   Last                                                               
year, she said,  HB 240 was introduced with the  intent of making                                                               
[brewery and  brewpub] licenses equal,  which is common  in other                                                               
states.   However, due to the  competitive licensing environment,                                                               
[the bill no longer attempts to do  this].  The AK Brewing Co. is                                                               
primarily concerned  with protecting  small breweries  across the                                                               
state.  She  said that the intent is to  keep the "playing field"                                                               
equal between brewpubs  and breweries.  She stated  that when the                                                               
                                               th                                                                               
brewery was founded 20 years ago, it was the 67   brewery to open                                                               
in the  nation.   Currently, there are  over 1,400  breweries and                                                               
brewpubs in the United States.                                                                                                  
                                                                                                                                
4:48:54 PM                                                                                                                    
                                                                                                                                
MS. THOMAS went on  to say that the AK Brewing  Co. would like to                                                               
see  the bill  remain as  it is  currently written.   She  said a                                                               
primary concern  is that  the small  breweries are  not put  at a                                                               
competitive disadvantage.   She  informed the committee  that the                                                               
AK  Brewing  Co. began  with  very  little competition,  however,                                                               
small  breweries  are  currently  having a  difficult  time  with                                                               
outside competition.                                                                                                            
                                                                                                                                
4:50:29 PM                                                                                                                    
                                                                                                                                
MS.  THOMAS  went  on  to  say  that  if  brewpubs  increase  the                                                               
wholesale market  without allowing  breweries to  become involved                                                               
in  the retail  market, then  that  creates a  disadvantage.   In                                                               
addition,  the ability  of the  breweries to  sell samples  would                                                               
help to  defray some  of the costs.   She stated  that if  HB 240                                                               
does  not remain  as-is,  the Alaskan  Brewing  Company would  no                                                               
longer support it.                                                                                                              
                                                                                                                                
4:51:33 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  asked if the sale  of samples by a  brewery would                                                               
negatively  affect other  businesses.   He opined  that this  may                                                               
have a positive effect, as the samples are currently free.                                                                      
                                                                                                                                
4:53:09 PM                                                                                                                    
                                                                                                                                
MS. THOMAS replied  that the AK Brewing Co. has  worked well with                                                               
local retailers  and has  a significant  amount of  tourists each                                                               
year, and offering  free samples has not  diminished business for                                                               
other licensees.   She said that promoting  local breweries helps                                                               
to build the craft brewing industry.                                                                                            
                                                                                                                                
CHAIR  ANDERSON  remarked  that letters  of  support  from  local                                                               
licensees would be instructive for the committee.                                                                               
                                                                                                                                
4:54:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD asked if  breweries, brewpubs, or out-of-                                                               
state breweries enjoy the cost advantage.                                                                                       
                                                                                                                                
4:55:17 PM                                                                                                                    
                                                                                                                                
MS. THOMAS replied  that breweries and brewpubs in  the state are                                                               
generally at a cost disadvantage, due  to the extra cost of doing                                                               
business in Alaska.                                                                                                             
                                                                                                                                
4:56:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD asked if Budweiser  can be sold in Alaska                                                               
for less than it costs to produce Alaskan Brewing Company beer.                                                                 
                                                                                                                                
MS. THOMAS replied that is correct.                                                                                             
                                                                                                                                
CHAIR  ANDERSON clarified  that a  six-pack of  Budweiser can  be                                                               
sold for  less than a six-pack  of AK Brewing Co.  beer, which is                                                               
more expensive to brew.                                                                                                         
                                                                                                                                
4:56:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CRAWFORD  stated that  there is  a premium  for AK                                                               
Brewing Co. products,  as it is a "desirable" product.   He asked                                                               
if it  costs less  for Budweiser  products to  be shipped  to the                                                               
state  and sold  than for  in-state  breweries to  brew and  sell                                                               
their product.                                                                                                                  
                                                                                                                                
MS. THOMAS  replied yes.  For  example, she said, the  AK Brewing                                                               
Co. has installed a grain dryer,  as there is no place to dispose                                                               
of  the  grains used,  in  addition  to  a carbon  dioxide  (C02)                                                               
regeneration plant,  due to an  inability to ship C02  to Alaska.                                                               
These are, she  said, some of the issues that  result in a higher                                                               
production cost to do business in Alaska.                                                                                       
                                                                                                                                
4:58:29 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  for  confirmation  that  the  AK                                                               
Brewing  Co.  would  not  support  the bill  if  [Section  2  was                                                               
removed] and [Section 3 remained].                                                                                              
                                                                                                                                
MS.  THOMAS replied  that is  correct.   In  response to  further                                                               
questioning, she  explained that  the brewery can  currently sell                                                               
no more  than two cases  [or] five gallons  of beer per  day, per                                                               
person, [according to current licensing restrictions].                                                                          
                                                                                                                                
5:01:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ROKEBERG   expressed   concern   regarding   the                                                               
integrity of the three-tier system.   He opined that allowing the                                                               
sale of product would turn breweries into retail establishments.                                                                
                                                                                                                                
5:01:55 PM                                                                                                                    
                                                                                                                                
MS. THOMAS  explained that  while the intent  [of the  AK Brewing                                                               
Co.] is not to hurt brewpubs,  the brewpubs would be entering the                                                               
wholesale  market.   She  said  that this  would  hurt the  small                                                               
breweries, unless  they have some  way of reaching  the consumers                                                               
directly.                                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  noted that there  is a provision  in the                                                               
bill which  provides for  465,000 gallons  to be  sold wholesale,                                                               
and 6,200 gallons to be sold on a retail basis.                                                                                 
                                                                                                                                
MS. THOMAS,  speaking about brewpubs, replied  that 1,500 barrels                                                               
would  be  for  wholesale  with   15,000  barrels  as  the  total                                                               
production cap  to be brewed or  sold on the premises.   She said                                                               
that 15,000 barrels is the definition of "micro-brewery."                                                                       
                                                                                                                                
5:06:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KOTT asked what the brewery licensing fee is.                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG said that it is $1000 per year.                                                                         
                                                                                                                                
5:06:50 PM                                                                                                                    
                                                                                                                                
MS. THOMAS, in response to a  question, said that the language in                                                               
HB 240  makes it clear  that breweries  may continue to  offer as                                                               
many free samples as  they desire.  It is, she  said, only if the                                                               
brewery chooses to  sell samples that it would be  subject to the                                                               
restrictions  stated in  the bill.    In response  to a  question                                                               
regarding alcohol  safety, she  said that the  AK Brewing  Co. is                                                               
"very  careful"  concerning  persons  who visit  the  brewery  to                                                               
sample beer, and while she  cannot speak for other breweries, she                                                               
is "fairly  certain" that they  are careful,  as well.   She said                                                               
that breweries have  the same requirements as  other providers of                                                               
alcohol.                                                                                                                        
                                                                                                                                
5:08:59 PM                                                                                                                    
                                                                                                                                
SILVIA VILLAMIDES, Director,  Anchorage Cabaret, Hotel Restaurant                                                               
& Retailers Association (CHARR),  said that Anchorage CHARR would                                                               
be in  support of HB 240  with the following changes:   36 ounces                                                               
of  beer to  24 ounces,  no prepared  food on  the premises,  all                                                               
references to  "the room" replaced with  "licensed premises," and                                                               
a change in  the hours of operation to 9:00  a.m.-10:00 p.m.  She                                                               
said  that Anchorage  CHARR is  working on  an addendum  to allow                                                               
sampling of beer.                                                                                                               
                                                                                                                                
5:11:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG,  in regard to the  activities allowed by                                                               
HB 240, remarked  that listing each activity may  not include all                                                               
possible activities and  may become a problem in the  future.  He                                                               
also  noted that  currently,  live music  is  restricted to  3:00                                                               
p.m.-11:00 p.m. at food establishments.                                                                                         
                                                                                                                                
5:12:58 PM                                                                                                                    
                                                                                                                                
DOUGLAS B.  GRIFFIN, Director,  Alcoholic Beverage  Control Board                                                               
("ABC Board"), stated that he has  not had a chance to speak with                                                               
any members  of the  board regarding  HB 240.   He said  that the                                                               
increased  sale  of beer  at  breweries  is a  "slippery  slope."                                                               
Referring  to Section  3 of  the bill,  which allows  for limited                                                               
self-distribution  by the  brewpubs, he  said that  the breweries                                                               
are currently allowed to distribute.   He opined that this is the                                                               
one   competitive  advantage   of  the   breweries,  among   many                                                               
disadvantages; however,  this advantage  is being  "chipped away"                                                               
by  [allowing  brewpubs to  do  this].    He commented  that  the                                                               
increase  in gallons  for sale  is significant,  and he  remarked                                                               
that a  micro-brewery is  not the  same as a  brewpub.   He noted                                                               
that  the Alaskan  Brewing Company  is, by  definition, a  micro-                                                               
brewery.  He opined that in  the future, new breweries would have                                                               
a difficult  time entering into  the marketplace if  the brewpubs                                                               
have  such  a  significant  advantage;   however,  if  the  small                                                               
breweries in the state feel they  can make this work, he would be                                                               
interested in hearing this testimony.                                                                                           
                                                                                                                                
5:17:09 PM                                                                                                                    
                                                                                                                                
MR. GRIFFIN  remarked that HB 240  does "tear away" at  the three                                                               
tier  system, which  he  would  like to  preserve.   However,  he                                                               
acknowledged that there  is money to be made,  and the businesses                                                               
involved are "good licensees."                                                                                                  
                                                                                                                                
5:18:04 PM                                                                                                                    
                                                                                                                                
GLENN BRADY, President, Silver  Gulch Brewing, Fairbanks, Alaska,                                                               
informed  the committee  that while  he is  also the  Chairman of                                                               
Alaska  Cabaret,  Hotel,  Restaurant, and  Retailers  Association                                                               
(CHARR),  he is  not speaking  on their  behalf, as  Alaska CHARR                                                               
does not  have a position at  this time.  In  regard to Anchorage                                                               
CHARR,  he  stated  that  Anchorage has  many  brewpubs  and  one                                                               
brewery.   He said that  Anchorage CHARR should not  be concerned                                                               
about breweries in  other areas of the state.   He stated that if                                                               
HB 240  passes, the breweries  would not  be "much of  a tavern,"                                                               
due to the restrictions in the  bill.  He said that the valuation                                                               
of  a  beverage  dispensary  license  is  "near  and  dear  to  a                                                               
licensee's heart,"  and HB 240  would not compromise  this value.                                                               
On the  contrary, he opined,  this would ultimately work  for the                                                               
betterment  of the  industry.   He  said "I  see this  as a  good                                                               
thing," adding that fear of change and compromise is key.                                                                       
                                                                                                                                
5:22:31 PM                                                                                                                    
                                                                                                                                
CHAIR ANDERSON  noted that there  are many concerns that  need to                                                               
be addressed and recommended that  any issues be discussed before                                                               
the next committee hearing.                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  Mr.  Brady  whether   he  would                                                               
continue  to  support HB  240  if  Section  2, which  applies  to                                                               
breweries, was removed.                                                                                                         
                                                                                                                                
MR. BRADY said that he would withdraw his support.                                                                              
                                                                                                                                
[HB 240 was held over.]                                                                                                         

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