US. Small craft beer brewers on cusp of toasting potential victory

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A bill designed to protect the state’s smallest craft brewers is poised for Gov. Pat Quinn’s approval, but not everyone is celebrating. The legal battle that led to legislative intervention has created problems for one popular brewery and has brewpubs wondering why they shouldn’t enjoy the same privileges as small breweries.

Under SB 754, which was approved by the House this week, fledgling brewers producing up to 15,000 barrels of beer each year would be allowed to self-distribute as much as half their volume. Quinn has signaled he would sign the bill, to the relief of the state’s smallest breweries.

“It’s really important for small brewers and a small step forward for breweries in Illinois,” said Chuck Stuhrenberg of Murphysboro-based Big Muddy Brewing, the state’s smallest brewer, which will produce 500 barrels this year. “The first couple of years are critical stages when you’re pouring all of your money and profit into the business to help it grow, to have enough business to turn it over to distributors, so it’s definitely a positive bill.”
In most states, including Illinois, the alcohol business is divided into three tiers — a manufacturer, a retailer and a distributor. The system, put in place at the end of Prohibition, was designed to ensure a properly regulated market.

Several years ago, the Illinois Liquor Control Commission began granting distribution licenses to craft brewers, causing confusion about the issue of self-distribution, said Bill Olson, president of the Associated Beer Distributors of Illinois.

The bill at Quinn’s desk would assist small breweries, which maintain that getting distributors to carry their little-known products is nearly impossible. They say they need to peddle their beers directly to establish a following. But the legislation would not extend the self-distribution privilege to brewpubs, unless they’re willing to invest in a separate brewing facility.

“It’s very confusing to say (this bill) protects craft brewers,” said Josh Deth, managing partner of Chicago brewpub Revolution Brewing Co. and director of the craft guild. “This was a distributor’s bill. This was their language.”

While Revolution is building a $3 million brewing facility, many other brewpubs can’t afford a separate facility or wouldn’t sell enough beer to justify one.

Brewpubs are classified as restaurants that make beer on premises. They weren’t legal in Illinois until the 1990s. Brewpubs are allowed to sell 30,000 gallons of beer for off-premise consumption, including sales from growlers — jugs for customers to take home.

Proponents of the craft beer legislation say giving fledgling brewers the right to self-distribute their products likely will foster new brews and protects the state’s two smallest beer-makers from being squeezed out of the market.

David Henkes, vice president at Chicago-based Technomic, said the bill isn’t just “good news for the small craft brewers in the state.”

“It’s a win for consumers as well, who are looking for increased variety in restaurants, bars and pubs.”

The genesis of the legislation was when Anheuser-Busch filed a lawsuit last year after being barred from buying City Beverage-Chicago. The St. Louis-based beer giant noted that several small brewers had licenses to self-distribute and called the disparity “discrimination against interstate commerce.” The matter was referred to the Legislature for clarification, and a bevy of lobbyists descended on Springfield.

Gary Rutledge, general counsel for Anheuser-Busch, said the company would continue to evaluate its options.

In the meantime, the legislation had an unintended consequence for one small brewer after the liquor commission became aware that the business owns a distributing company.

Warrenville-based Two Brothers Brewing Co. and Windy City Distribution are jointly owned by the Ebel family. Anheuser-Busch court documents filed last month claim that the commission recently asked the family to change the ownership of the distribution company. Windy City distributes more than 45 small craft beers.

The liquor commission declined to comment, but in an emailed statement from executive director Gloria Materre, it said it supported the bill.

Two Brothers did not immediately respond to requests for comment. In an affidavit, Two Brothers co-founder Jim Ebel said, “There would be significant negative consequences from having to sell Windy City, including on its employees.”