Legislature(2001 - 2002)
05/01/2001 01:40 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HB 152-BREWPUB LICENSES
CHAIRMAN RANDY PHILLIPS called the Senate Labor & Commerce
Committee meeting to order at 1:40 pm and said he would take
testimony on HB 152 now and then move it to the end of the
meeting when there would be a quorum present. There was no one
who wanted to testify.
HB 152-BREWPUB LICENSES
CHAIRMAN PHILLIPS announced HB 152 to be back up for
consideration.
REPRESENTATIVE ANDREW HALCRO, sponsor of HB 152, said:
HB 152 addresses the amount of beer that a person
operating under a brewpub license can brew in a given
year. Years ago, brewpubs were created in the mid '90s
and the licensees became grandfathered in. There's only
a handful.
But over the last couple of years these brewpubs have
lived with very stringent conditions that have been
placed upon them that have limited their growth. But
even with such conditions they have still continued to
grow and the problem exists today that they operate
under a 75,000 gallon per year cap. They cannot brew
and sell no more than 75,000 gallons in a year.
The problem is that some of these operators have opened
second locations and they have twice as many tables and
obviously, twice as many customers, which means that
come September or October, they are going to hit the
75,000 gallon cap. Once they hit that 75,000 cap, they
have two options. One, they can cease production of
their own beer and just sell others' beer or they can
pay a competitor to brew their beer and then resell it
in their restaurant and in some cases, brew that beer
out of state, which means there would be some job loss
with regards to individual breweries.
This is a kind of compromise within the brewer's guild
industry. It provides them with a one-year grace
period, sunsetting June 30, 2002. It allows them to
regroup and take a look at some non-legislative options
as well as possibly coming to some kind of an agreement
with the members of CHAR and ARB and some of the others
to address maybe a legislative fix. But this is just a
band-aid, Mr. Chairman and it is an eleventh hour
compromise.
SENATOR AUSTERMAN said he understood that it was a compromise
coming out of the House.
RERPESENTATIVE HALCRO said he was right. The original version of
HB 152 was far more expansive and dealt with some larger issues.
Certain smaller breweries felt that they needed to have their
problems addressed, too, to create this even playing field in the
market place. That had a tremendous amount of political
opposition, mostly from outside of the Capitol Building. They
decided to put something in place for a year; so, during the
interim so they could get all of the affected people to the table
and negotiate some kind of an agreement. This may include non-
legislative fixes. So, they might not be back next year.
SENATOR AUSTERMAN asked if the "fix" takes them to 150,000
gallons.
REPRESENTATIVE HALCRO replied yes and that basically right now
the cap is at 75,000 gallons.
They can wholesale all of it; they can sell all of it
in their restaurants. There's no limitation as far as
what they can't. The concern is that some competitors
don't believe that they should have the ability to
wholesale as well as sell their beer in their
restaurants. So what we've done is we've doubled the
cap, but we've limited the amount they can wholesale.
Currently, there is no limit they can wholesale.
There's only that 75,000 gallons. So, this does take
into consideration some of the anti-competitive
arguments that are out there. These folks should be
able to do both. We're limiting the wholesale output
through this one-year sunset bill. Are there questions?
MR. GLEN BRADY, President and Brew Master, Silver Gulch Brewing,
opposed HB 152. He said:
I can't support this as a temporary band-aid. There's a
lot of essentially ill will in-house and folks are
tired of looking at this. We're dealing with one group
of people, so this ends up being special interest
legislation to give them essentially what they want.
To say that limiting their wholesaling to 75,000
gallons per year, we're one of the larger breweries in
the state, up here in Fairbanks, and 75,000 gallons per
year is more than we sold in the entire state of Alaska
last year. So, it's essentially no cap; it's no
protection against them flooding the market under a
marketing tool for their retail establishments. So, for
those reasons I'm against this. I think they should
probably be able to get by with what they have on the
books right now.
I do believe that we as a group, brewers, industry
members and the legislature certainly need to take a
look at brewpub legislation. I think there is room for
both breweries and brewpubs, but I don't know if this
band aid is such a good idea in light of many of the
other things that are going on.
SENATOR AUSTERMAN asked if he was a brewer who sold wholesale and
asked if it was correct that he didn't want to see the brewpubs
competing against him.
MR. BRADY answered that was correct.
I don't want to see a brewpub competing with me in the
wholesale marketplace where I am prohibited by law from
competing with them in the retail marketplace. That's
been kind of the crux of the breweries' issues all
along.
We do believe generally speaking that the brewpubs
should have their production cap lifted. They should
not be penalized for being successful and certainly
Moose's Tooth has been very successful. My hat's off to
them. However, the issue we have with the production
cap is the wholesale portion that goes out into the
market place. That's to them a marketing tool. It's a
very small part of their business. For us that is our
only source of revenue. That's our bread and butter.
So, it's a difficult situation for small brewers.
CHAIRMAN PHILLIPS asked who else opposed this bill.
MR. BRADY replied that he is speaking for himself, he is on the
Board of Directors of CHAR, and this is something they as a group
have discussed. The Board is also against this, however he could
not speak for them.
CHAIRMAN PHILLIPS asked if the board had voted on it.
MR. BRADY replied that the board voted to support the original
language doubling the production cap of a brewpub with the
exception that above 75,000 gallons per year, they would give up
their option to wholesale.
MR. LARRY HACKENMILLER, Chairman of the Board of State CHAR, said
he also is a bar owner in Fairbanks and opposed the bill as
written.
The CHAR Board voted, I think it was unanimous, to
support the bill on the 150,000 gallons provided the
wholesale item was added. Personally, I've done this
for the last eight years - come before a legislative
body and fought this issue, because competition with
brewpubs has been around for years. They started off as
a brewpub, not a brewery and that's specifically to
sell their own type of beer. Each year they come back
asking for more and more and more.
One of the things we haven't gotten away from with
regards to brewpubs is that by law, they can give away
free samples on the premises; they can sell growlers on
the premises. We try to keep that separate. If you have
an off premises package store, you're not allowed to
give away free samples on the premises or sell them by
the drink. Brewpubs could do that. I can't sell off
premises; but brewpubs can do that. So, there's kind of
a disparity there. Every year they keep coming back for
more. Last year when they brought this up, they wanted
a 150,000 cap instead of the 75,000. They indicated why
150 at all? Why don't we just have open?
Well, then, to cover breweries and follow the rules
there, a brewery person cannot sell alcohol, open
container or sell by the drink, on premises. So,
everybody's got restrictions except brewpubs and they
want more. I think that the compromise that the brewery
people came up with, the original one, regarding the
issue of the 150,000 gallons and the wholesale cap was
a good cap. It still allows them to be competitive.
In the House they even had it set up so that the
brewers could get licensed premises. You're just taking
away the whole three-tier system, which involves number
one, the manufacturers, number two the wholesalers and
distributors and we, the retailers. We kept that
separate for a reason, so you wouldn't have monopolies.
I don't agree with the sunset clause especially because
one year from now all they're going to do is come back
and ask for more. They're not going to go back to what
they had originally. You can't expect someone to get an
open cap like this and come back and determine that
you're going to take away this business from them.
That's almost idiotic.
Also, I would like a study to be done before this bill
goes any further with regards to just what the
gallonage is for each location. But be careful, because
what they'll tell is that they use 65,000 gallons of
their 75,000 gallon cap, so therefore they need more.
Yet, how much are they wholesaling off premises? If
they are taking 20,000 gallons of that and selling it
off premise or in a different location means that if
they stopped that, they would still have that 20,000 to
sell on their premises. Again, the CHAR Board will not
support this bill and voted only to support what we
came up with originally - the 150,000 gallon with a
75,000 gallon wholesale cap.
MS. KAREN BERGER, Owner, Homer Brewing Co., said she agreed with
Mr. Brady in Fairbanks 100 percent. "His comments stand true for
the beliefs here in Homer."
SENATOR AUSTERMAN said he was confused, because the CS does go to
150,000 and caps at 75,000 gallons also.
MR. BRADY asked him to rephrase his question.
SENATOR AUSTERMAN reiterated that this bill says that they may
not do more than 150,000 gallons of beer in a calendar year, sell
not more than 75,000 gallons manufactured on the premises as a
wholesaler. He said he thought that's what he heard Mr. Brady say
he wanted and he thought that's what the bill does.
MR. BRADY responded that the original language that the State
CHAR organization and the Brewer's Guild of Alaska supported was
150,000 gallon per year cap with the language saying if a brewpub
goes above 75,000 gallons per year, they give up all their
options to wholesale, not 50 percent of it, essentially.
Right now the way the bill is written, they can produce
75,000 gallons for sale through a wholesaler and they
can sell an additional 75,000 gallons on the premises.
That's the difficulty we have, because basically in a
market place as small as Alaska, 75,000 gallons of
wholesaling would be comparable to having no production
cap. If this were California, that would not be the
case, but we're limited geographically and population
wise.
SENATOR AUSTERMAN said they were only limited if they stay in
Alaska and sell it in Alaska.
MR. BRADY replied that the production cap doesn't apply outside
the state. "It's only instate."
REPRESENTATIVE HALCRO commented:
We need to keep in focus what we're talking about. The
beer that's brewed by brewpubs in Mr. Brady's company
represents four percent of the total beer sold in this
state. It's a fraction. But more importantly, comments
made by both Mr. Brady and Mr. Hackenmiller - and I
understand them - but the assertion that we've come
back year after year needs to be clarified a little
bit.
I introduced this bill two years ago. It never got out
of Labor and Commerce, but more importantly every year
for the last number of years, these brewpubs, every
year it seems that they have been put under increasing
pressure and increasing regulations. For instance, they
have been living with this 75,000 gallon cap. Two years
ago they accepted a provision that said if they want to
expand and open a second location, they had to go out
and buy a beverage dispensary license, which allows you
to serve hard alcohol. Even though one of these
organizations had no desire to serve hard alcohol, they
had to go out and spend $150,000 on a beverage
dispensary license so they could open up a second
location. That was one of the requirements that was
pushed by the members of CHAR as they felt it would
even the playing field to make sure brewpubs and some
of these more established bars and eating and drinking
places were on the same level and had the same kind of
investment. So, the assertion that these people come
back to the table every year and want a bite of the
apple is completely untrue. To date they haven't been
given anything. They've simply lived with some of the
requirements and the conditions that have been placed
on them by others.
MR. CHIP DUGGAN, Owner, Duggan's Pub, said he agreed with Mr.
Brady and Ms. Berger, that the CS doesn't limit the brewpubs to
anything.
It gives them 75,000 gallons to wholesale and 75,000
gallons to retail. And that's a very unfair competition
against the breweries in the State of Alaska. I'd like
to state that I'm in favor of, if they do go over the
75,000 gallons, that they do not sell any more
wholesale product after that.
MR. DOUG GRIFFIN, Director, Alcohol Beverage Control Board, said
he would answer questions the committee may have about existing
state law. He said that Representative Halcro had done a very
good job of giving some of the history and his comments are
accurate. He did not have a position on this legislation other
than that the whole area of brewpubs has been in the state of
evolution for the last five years.
MR. CHRIS ANDERSON, Glacier Brew House, supported HB 152. He
said:
The bill, as it raises the amount of production for
brewpubs, there's really only one of us that is really
involved in that type of business right now that it
affects. As a brew house, this bill will not directly
affect me, although for my competitor, the Moose's
Tooth, it will, for which it is a great thing. I really
think this is a good thing for them and overall very
good for the industry…
MR. ANDERSON said he was also tired of this issue coming up. He
said if there was any change to the bill, he would like it to be
a permanent change, not just temporary.
SENATOR TORGERSON asked how much beer he sells wholesale.
MR. ANDERSON replied about 800 barrels per year or about 42,000
gallons.
SENATOR TORGERSON asked if he would have to buy a brewery license
if he wanted to exceed that.
MR. ANDERSON replied that he cannot own a brewery license. "A
brewery together with a beverage dispensary license is currently
illegal in the state. We bought a beverage dispensary license so
that we could go a different route, which was required several
years ago."
SENATOR TORGERSON said, "Maybe we're fixing the wrong thing."
MR. ANDERSON said:
If we look at the breweries in the state, for those of
you who look at this type of thing, the Moose's Tooth,
the Glacier Brew House, Midnight Sun, SJ Kline's place,
Homer, Fairbanks altogether, if we put all of our beer
together, we may do maybe 8,000 or 9,000 barrels of
beer total. That's less than one percent of the total
beer coming into the state. The rest of the beer, as
Jeff Larson does an excellent job in Alaska and he
sells 83,000 barrels of beer, but he's the only true
brewery in the State of Alaska. The rest are just very
small operations of less than 2,000 barrels.
MS. MARIKA HEATWALL, Moose's Tooth Brewpub, said she wanted to
answer two questions and wanted also to impress upon them the
importance of raising the 75,000 gallon wholesale cap.
Moose's Tooth currently at their established rate of
production will hit 75,000 gallons of brew production
late this summer or early this fall. At that point in
time, without this sunset, they will be forced to stop
brewing out of their $1 million manufacturing facility
in Ship Creek. Holding that kind of a facility idle is
very expensive. They would also at that time lose their
contract relationships; they have taps in several
restaurants (they have about a dozen in the Anchorage
area). The reason the language has been crafted the way
it has is to allow them in this one-year sunset to
continue their existing operations.
Senator Torgerson, through the chair, mentioned that
maybe this bill is fixing the wrong thing and I
couldn't agree more. There have been numerous
conversations among the Brewer's Guild and there need
to many many more about what the final outcome needs to
be. I simply hope to clarify that without the language
the way it's written before you now, one company in
Anchorage will have to cease their operations this
summer. We hope that this body sees it's unnecessary to
put somebody out of business. This is complicated;
there are many many regulations affected and lots of
interested parties. We ask simply that we have a year
to work with all the interested parties to resolve the
issue without putting someone unnecessarily out of
business or requiring them to lose contract
relationships with some of the restaurants that they
currently serve.
SENATOR DAVIS asked if she supported the sunset.
MS. HEATWALL answered that she does support it only in that,
"This would allow everyone to stay in business for the year and
to come back to this body with hopefully an appropriate solution
to every bodies' concerns."
SENATOR TORGERSON asked Mr. Griffin, "Why don't we license these
places as breweries?"
MR. GRIFFIN replied:
That is really where we started this whole thing about
six years ago. We did allow breweries to own restaurant
eating place licenses, which is commonly refered to as
the beer and wine licenses. That's how these handful of
what are now brewpubs started out. That was seen as
being an attack on the three-tier system and some
people taking advantage of a loophole. So, the
legislature prohibited that, made it a prohibited
financial interest that you couldn't have a beer and
wine license and a brewery license together. That's
what forced the hand of the Moose's Tooth folks and the
Brew House and Snow Goose to go out and buy a beverage
dispensary license and convert from a brewery to a
brewpub. That was in response to the beverage
dispensary licenses.
It felt that these folks were unfairly competing with
them, because the brewpub or the brewery restaurant
combination had more of a flavor even though their
sales of food still qualified them as being
restaurants. They still felt that because the beer was
such a high lighter of their establishment that they
were unfairly competing with them and so they got the
law changed. Now, unfortunately, the Moose's Tooth
folks and some others are felt to be unfairly competing
with the breweries. So, they're kind of caught between
the beverage dispensary licensees and the brewery
licensees; and they fit somewhere in the middle there.
They've got it from one side and now they're getting it
from the other.
There is a legitimate concern on the part of the
breweries in that their whole means of staying in
business is finding taps and shelf space in package
stores, if they're putting their product in a bottle
and that's what they've got to do. These places that
are brewpub licenses and are also wholesaling have the
cash flow from the restaurant, the theatre operations,
in the case of the Bear Tooth. But the one thing that
does need to be taken into consideration is that all
these guys have had to go out and buy beverage
dispensary licenses, which in the Anchorage market was
about $150,000, plus or minus $25,000 for what a
beverage dispensary license costs. So, they've made
substantial investments in their brewing equipment and
they've had to make investments in licenses. So,
they've gotten some pretty tall orders in terms of
things they had to do to try to stay in compliance with
the law. Now, unfortunately for the Moose's Tooth,
they're sort of a victim of their own success in that
they've been so successful in finding taps for beer as
wholesaler and also selling beer through their
restaurants, that they're up against this cap.
You can attach this problem from the other side and
that might bring us full circle to where we started.
SENATOR TORGERSON said he didn't have the original bill in his
packet so he didn't know where it started.
CHAIRMAN PHILLIPS said he was inclined to hold the bill for one
day.
SENATOR TORGERSON remarked that he didn't have to do it for him
since he probably wouldn't support it, because he didn't think it
was the right way to fix it.
CHAIRMAN PHILLIPS said that was why he was going to hold the
bill.
SENATOR AUSTERMAN said he didn't feel it was the right way to
attack it either, but at this point in time in the legislative
session, it might be the only way we could address the issue
without placing them into a box.
CHAIRMAN PHILLIPS said he would hold the bill one day and
adjourned the meeting at 2:24 p.m.
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