Day 37- The Montana Senate guts Brewery Expansion Bill

Quotes are taken from two IR articles- Article 1  Article 2

A bill making its way through the Montana Legislature that would allow breweries to increase their production limit from 10,000 barrels to 60,000 barrels and still sell beer to customers on the premises was significantly gutted in a committee Tuesday.

The Senate Business, Labor and Economic Affairs Committee voted to make the limit 12,000 barrels, which would only be a 2,000 barrel increase from the current production cap.

The Montana Brewers Association has argued that the current production cap stifles economic growth and hampers job creation because breweries that hit the 10,000 barrel cap must either stop selling beer in the tasting room or stop canning more beer.

Facey believes pressure from the Montana Tavern Association on lawmakers was the reason the production limit was drastically reduced.

“The reason for the 12,000 barrel limit is to force the breweries to the negotiating table,” he said. “But going to 12,000 barrels doesn’t help anybody because you need to pay (business equipment loans) off.”

The bill would have largely impacted three breweries in the Missoula area. The owners of Big Sky Brewery, which produces much more than 10,000 barrels and must give away beer for free in its tasting room, testified that they’ve given away $4 million worth of beer in the past decade, which they say has cost the state $250,000 in lost excise and income taxes. KettleHouse Brewing Company, which is going to be producing more than 10,000 barrels at its new Bonner location, doesn’t yet have plans for a tasting room at the new location. And Bayern Brewing in Missoula, which is pushing right up against the 10,000 barrel limit, can’t produce more beer while still selling in its popular tasting room.

KettleHouse Brewing posted Tuesday on its Facebook page that the amendments “could effectively force the brewery to shut down its Northside Taproom.”

“They neutered a perfectly good bill,” said KettleHouse owner Tim O’Leary. “It was easy and simple and wouldn’t have hurt really anybody because this 10,000 barrel production cap applies to breweries that are established and are actually helping bar owners provide Montana-made beer to serve in their bars. That helps them compete against startup taprooms. So now if you are at 9,999 you’ll say ‘to hell with it, I’m not going to expand and send beer to Billings or White Sulphur Springs, I’m going to save it for my taproom.’”

Brewers-Infographic-2016-464x600

Brewers and some lawmakers cried foul, saying the Montana Tavern Association leaned on lawmakers to drop the limit and pointing out that the chairman of the Senate Business and Labor Committee is a bar owner. Several of the state’s larger businesses, including Big Sky Brewery, KettleHouse Brewing Co., and Bayern Brewing in Missoula, all are over or near the current limit and said the change would hurt their operations.

Bars and breweries have long butted heads, with bar owners upset that breweries can sell their product from taprooms without having to buy expensive liquor licenses that bars must have to operate.

Thomas’ amendment also would limit breweries to three locations and sell no more than 2,000 barrels annually for consumption on-site. Thomas said that works out to about 400 people drinking about three beers a night.

Breweries are good for the state’s economy, Thomas said, and employ people in small towns and are a popular Montana product both in-state and as an export.

“I’ve seen data that shows when you open your brewery you make money the more beer you sell, but you get to a point where the pub doesn’t make any more money from the tasting room because you are limited by the number of customers you can have and the quantity of beer they can drink and the hours you can be open,” Facey said. “Breweries are limited by hours, then they plateau out. The only way to make more money is by selling it in stores and bars. So reducing this production limit is just truly hurting the number of jobs in the manufacturing industry. So by taking that cap down, it’s not providing any relief to the tavern owners.”

But Sen. Ed Buttrey, who chairs the committee that lowered the proposed barrel cap, said breweries are not artificially stifled by the state and are free to brew as much as they want, given they shut down their taprooms after passing a certain level.

“You’ve all been sold a bill of goods,” Buttrey said. “This is not about increasing production, this is about being able to still act as a bar.”

Buttrey said brewers came to an agreement years ago with the tavern association that they would use their taprooms to help generate revenue as they started their businesses, and as production grew they would close down on-site sales.

Tim O’Leary, who owns KettleHouse in Missoula, said the amendment would let the brewery keep its location on Missoula’s Northside open. He also said his brewery would not have a problem staying under the 2,000-barrel-a-year cap for on-site consumption. That cap does not affect growler sales or anything else sold to be consumed off-site.

 “Tavern owners bent over backward to accommodate growth in our industry,” he said. “We have to respect their business model, and we do just fine on three pints (a day) and (closing at) 8 o’clock.”

So- my opinion on this is simply the Tavern association, especially the members of the Senate who happen to own bars are worried that the growing brewery industry in Montana will cut into their profit margin. So conservative GOP members are all for free enterprise, as long as it is their free enterprise. The hypocrisy of this all makes me so upset. If they really believe in the free market, don’t regulate breweries and welcome the competition.  Montana Breweries are good for Montana. They employ Montanans, they use Montana grains, they keep the money in Montana. Why would you do anything that hurts their growth?

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Update-

Compromise in Hand, Senate Approves HB 541

Thursday morning meeting called by Senator Fred Thomas, (R) Stevensville, with assistance from Senator Tom Facey, (D) Missoula, resulted in a compromise between the industry participants to restore the heart of the bill. Senator Thomas carried the bill on the Senate Floor Thursday and introduced the amendments to reflect the compromise.

The compromise restores the production limit to 60,000 bbl after the Senate Committee had cut it to 12,000 bbl, an increase brewers claimed was useless because the cost of expansion would exceed the revenue generated by the additional 2,000 bbl.

In exchange, the MBA agreed to cap the amount of beer which can be sold for on-premise consumption at 2,000 bbl annually. Additionally, no more than three locations of affiliated manufacturers could have taprooms, and sales at all three locations would count toward the 2,000 bbl limit.

According to one brewer familiar with operations around Montana, no taproom is presently exceeding, or even approaching 2,000 bbl of annual sales for on-premise consumption.  Sales of growlers for off-premise consumption would not be included in the 2,000 bbl limit.

The tax hike added by the Senate Committee remains, as does the new definition of “affiliated manufacturers.”  Taxes on barrels of beer produced above10,000 bbl would increase from $2.30/bbl to $4.30/bbl.

Bayern Brewing Company has capped its production over the past several years to avoid having to give up its taproom. Should the bill obtain final approvals, owner Jürgen Knöller explained he has the capacity to increase production by at least 20 to 30% using his existing equipment.

Big Sky Brewing Co., the only Montana brewery that has never been allowed to sell pints, would be allowed to begin selling beer for consumption at the brewery’s existing taproom.  Co-owner Bjorn Nabozney estimates the brewery has given away more than $4,000,000 in free beer over the past 10 years while limiting patrons to four small samples each day.

The Senate approved the bill 42-8 and must take one more vote on it (3rd reading). That vote is likely to take place on Friday at which point the bill will go back to the House of Representatives for consideration of the Amendments.

According to Sen. Thomas’ discussion on the Senate floor, Representative Adam Hertz, (R) Missoula, the sponsor of HB 541, expects the House to reject the amendments in order to send the bill to a conference committee where the industry participants can affirmatively (and publicly) state their agreement with the compromise.

So it is not over yet

This Missoulian article shares my thoughts on the whole situation

 For politicians who talk a lot about creating jobs and growing the economy, the members of the Senate Business, Labor and Economic Affairs Committee sure have some explaining to do. On Tuesday, instead of supporting a burgeoning industry, they gutted a bill aimed at allowing Montana’s breweries to meet the growing demand for craft beer. The amendment, in fact, might force one of Missoula’s breweries to close one of its taprooms.

The original version of the bill was a sterling example of bipartisan cooperation from two Missoula legislators: Republican Rep. Adam Hertz and Democratic Rep. Ellie Hill. It would have raised the allowable production limit for breweries that operate a taproom from 10,000 barrels to 60,000 barrels.

The representatives of the House found the original version of House Bill 541 reasonable, and approved the bill 85-14 on its third reading. The Senate Business, Labor and Economic Affairs Committee, unfortunately, had other ideas, and voted 7-3 for an amended version that would raise the limit by just 2,000 barrels – a pittance that offers no incentive at all to growing breweries.

 

The arbitrary limits on Montana’s breweries is a discussion we’ll leave for another day. Suffice to say to say that they operate under much stricter rules than bars and restaurants. Breweries, for example, must undergo complex machinations to purchase a license to sell beer and wine; they have curtailed hours and must stop serving by 8 p.m.; and they even have limits on how much they can serve (48 ounces per customer per day).

The laws seem expressly designed to stifle the growth of this one industry. Nevertheless, the popularity of craft beer has soared over the past decade, and new breweries and taprooms have sprouted throughout the state. In fact, at last count, the Brewers Association ranked Montana No. 3 in the nation for its number of craft breweries per capita. Missoula alone counts at least eight.

With so many craft beer fans drinking up their product, it’s little wonder that some of most well-established breweries are bumping up against their 10,000-barrel production cap. Unfortunately, under current law, if they exceed this number they must close their taprooms.

Why does Montana have any cap at all? Doesn’t that just stifle competition? Does a law that forces growing breweries to lay off their taproom employees make any sense?

The Montana Tavern Association seems to think so, and has taken every opportunity to oppose legislation that would allow breweries to grow. It’s worth noting here that the Senate Business, Labor and Economic Affairs Committee chair, Sen. Ed Buttrey, owns a bar.

 

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