Wednesday, February 29, 2012

Good laws for good beer in Virginia

Hey, Virginia beer fans: Would you like to drink a pint of a brewery's beer after you've toured the brewery? Currently, you are not allowed to do that, even though you may sample wine at a winery. Or, as a business: Would you like to sell your own beer if someone else makes it for you? You currently must sell it to a third party, and buy it back, usually at a mark-up in price.

The good news is that two bills have passed major hurdles in the Virginia Legislature in the last few days HB 359 and SB 604— that may do just that.

To learn more, I interviewed two of the respective proponents. Sten Sellier is the President of Beltway Brewing Company, a soon-to-open production brewery in northern Virginia. Mike Killelea is the Chairman of the Virginia Craft Brewers Guild.

First, Sten.


What does HB 359 accomplish?

A production brewery will now be able to sell beer DIRECTLY to the beer’s “brand owner,” as long as that “brand owner” is appropriately licensed as a brewery or wholesaler. In other words, a business with a brewer’s or wholesaler’s license will be able to pay a brewery directly to produce its own brand for them, and then take immediate ownership of that beer for distribution through their own channels.

How did you get involved?
After I spoke with a distributor down in Richmond while doing market research back in September, I was introduced to a friend of his named Neil Burton, who has start-up brewery plans of his own. Neil and I had common interests in getting some form of the TTB's (Federal Tax and Trade Bureau) "alternating proprietorship" arrangement legalized in Virginia, or at least brewery-to-brewery direct sales, or “transfers,” legalized.

What is an 'alternating proprietorship arrangement'?
An “alternating proprietorship” is an arrangement in which two or more people take turns using the physical premises of a brewery. Generally, the proprietor of an existing brewery, the “host brewery,” agrees to rent space and equipment to a new “tenant brewer.”

How did you get the bill introduced?

We articulated exactly what we wanted to get accomplished and set to work figuring out how to get the law changed in Virginia. Neil’s wife got us in touch with delegate Jennifer McClellan and we explained to her our goals. Delegate McClellan was able to get the legislative services department to draft a bill for us that would accomplish our goals.

Beer wholesalers, the second-tier of the three-tier alcohol distribution model, might have concerns.
Yes, so we shared the draft bill with the Virginia Beer Wholesalers Association. After they voiced some concerns with the bill as written, we decided a face-to-face meeting with all parties would be the best course of action. Delegate McClellan hosted a meeting in her office in mid-January; included in the meeting that day were Denny Gallagher (president of the VBWA), general counsel from the VBWA, Curtis Colburn (COO of the VA ABC), a lawyer for AB-InBev, a lawyer for Miller-Coors, Tom Lisk (an ABC expert attorney), and the two of us. We stated our case and what our goals were, then Denny and his attorney voiced their concerns amicably. By the end of the meeting, Curtis Coleburn offered to edit the verbiage of the bill to make all parties happy in a form likely to glide through the House and Senate.

What happened next?
Curtis delivered as promised and the edited bill was re-submitted by Delegate McClellan to be considered by the House. On Feb 2, we went to speak on behalf of our bill as it was presented to the House General Laws Subcommittee on ABC/Gaming (the most scrutinizing body that would examine our bill) – to our delight, after we spoke, the attorney for the VWBA stood up in support of the bill and no one spoke in opposition. The subcommittee voted unanimously to approve. After that unanimous decision, the bill passed through the General Laws Committee, then the House of Delegates, then, as of last Monday, the Senate, all with unanimous approval.

How would this affect you, Sten, and other small breweries and brewpubs in Virginia?
As you can imagine, this is HUGE for Beltway Brewing Company’s business model, huge for start-up breweries interested in starting their business with lower up-front costs, and huge for existing breweries with excess capacity who will now more easily be able to contract out their excess capacity.

Can you elucidate further?
This legislation will allow breweries to more easily lease their unused resources to other licensed breweries to promote growth and steady business. It is a “win-win” for both established breweries and new breweries, as well as for the economy of the Commonwealth of Virginia. For example, Virginia brewery, “A,” that has excess brewing capacity will be able to enter into an agreement with small, licensed start-up brewery, “B,” to use that excess capacity to produce beer for them. This allows brewery “A” to generate revenue with expensive equipment that might otherwise be sitting idle and allows brewery “B” to get product to market without the tremendous initial investment of large-scale equipment. This bill would also enable Virginia breweries to produce beer for out-of-state breweries looking to enter the Virginia market instead of having to ship their product in from great distances.

Beltway Brewing Company
Tell us more about Beltway Brewing Company.
Beltway Brewing Company is a brewery opening soon in the Washington D.C. area (Loudoun County, Virginia) exclusively as a host for partner brewing, contract brewing, and production of private label beers. The mission of Beltway Brewing Company is to professionally produce high quality craft beer for those who cannot build or expand their own breweries. Beltway is currently in the fundraising stage and plans to be open for production by late 2012/early 2013. [Neil Burton is still a little ways out from starting his business so he is not yet announcing any details about his plans.]


Now, to Mike Killelea, chairman of the Virginia Craft Brewers Guild (and a brewer at Legend Brewing Company in Richmond, Virginia). The Guild worked on crafting Senate Bill 604, relating to alcoholic beverage control and privileges of brewery licensees.

What exactly would SB 604 do, if enacted?
SB 604 will allow a brewery licensee to sell beer at retail at premises described in the brewery license for on-premises consumption and in closed containers for off-premises consumption. In layman’s terms, production breweries would be allowed to sell pints to customers. If passed, you could tour a Virginia brewery and enjoy a pint afterwards, much like how you can enjoy a glass of wine at a Virginia winery. This would have no effect on brewpubs.

UPDATE: Both the Virginia House and Senate have approved the bill, on 1 March and 5 March, respectively. It will go into effect on July 1, 2012.

What's the bill's current status?
On Tuesday 28 February, SB 604 passed through both the House Subcommittee on ABC/Gaming (7-0) and then the House General House Committee (22-0). It just needs to pass two more votes – the full House floor and the full Senate floor. Then it goes to the Governor. The Governor’s office is very interested in this bill.

What's the upshot?
Just think, the next time you tour Hardywood, Starr Hill, Lost Rhino, etc., you would be able to sit down and enjoy a pint or two. This would mean more funds for the state and local governments through excise taxes and sales taxes. More importantly, it would me more revenue to the breweries, which in turn will hopefully lead to more capital expenditures and more jobs. It will also make the Commonwealth of Virginia more competitive with other states at luring new breweries.

Virginia Craft Brewers Guild

Tell us more about the Virginia Brewers Guild.
The Virginia Craft Brewers Guild was officially launched as an affiliate of the Virginia Manufacturers Association in December 2010. It organizes Virginia craft brewers for purposes of economic development, business development, supply chain management, tourism, and government affairs. Membership is extended to craft brewers, and associate membership to businesses and organizations that provide support services or products to the industry (e.g., equipment manufacturers, agricultural interests, economic development, etc.).


UPDATE: The bills passed, Virginia Governor McDonnell signed them, and they took effect on the 1st of July, 2012. Congratulations —and hearty thank yous— to Mike Killelea and the Virginia Brewers Guild, and to Sten Sellier and Neil Burton. Their successful ventures into politics-in-action are enhancing the business landscape in Virginia for good beer.

  • The Alcohol and Tobacco Tax and Trade Bureau (or TTB, which until 2002 was known as the Bureau of Alcohol, Tobacco, and Firearms) is the federal agency in charge of US alcohol law regulation. The Obama administration is considering eliminating the TTB, and splitting its duties between the IRS and the FDA.
  • UPDATE: Maryland passed a similar law in 2013.
  • By the way: Happy Leap Day, 29 February 2012. On the last such occasion —29 February 2008— I wrote that it could be an extra Friday evening for a beer. This year, we have an additional Wednesday for a supplementary good pint. Take advantage.

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