Trouble brewing

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January 2, 2012
By: Jeremy Zoss
Jeremy Zoss
Minnesota laws are holding back a local business’ expansion plans

SEVEN CORNERS — The Town Hall Brewery has won 12 medals at the Great American Beer Festival since first entering in 2000, making it the most-awarded brewer in Minnesota.

According to founder Peter Rifakes, he’s contacted nearly every month by distributors around the country who are interested in selling his beer and bringing it to the national craft beer market.

But he can’t. Minnesota law won’t allow it.

“Local craft beer demand is growing, and local companies can’t meet it — legally,” said Rifakes.

While the tap room bill or “Surly Bill” that was signed into law last year allows production breweries to build tap rooms to sell pints of beer and food, the law does not allow brewpubs like Town Hall to bring its beer to retail via the three-tier liquor distribution system. Breweries like Surly and Summit will be able function like a brewpub, but brewpubs won’t be able to function like breweries.

Frank Ball, executive director of the Minnesota Licensed Beverage Association, said his organization would love for brewpubs to be able to sell their beer to distributors. But he doesn’t support changing existing laws. Nor does Mike Madigan of the Minnesota Beer Wholesalers Association. “The concern they have is that it would expose Minnesota’s laws, particularly the alcohol regulation laws, to a legal challenge and could ultimately lead to production brewers owning retail facilities.”

In other words, both organizations fear a massive international brewery like Anheuser-Busch InBev buying a restaurant chain like Applebee’s and shutting competing products out. Madigan said that only allowing in-state brewpubs to sell in liquor stores would violate the commerce clause of the U.S. Constitution, which prohibits states from favoring in-state businesses.

But many states allow brewpubs to sell their beers to liquor stores via distributors. In Minnesota, craft beer fans can buy beer from brewpubs in California, Wisconsin, Oregon, Michigan, Colorado, Ohio and more. None of these states have had their laws challenged under the Commerce Clause.

“Right now, Minnesota is behind the curve,” said Rifakes. “Most of all, it’s hurting the customers. And secondly, it’s hurting small business.”

Both Ball and Madigan suggested that a brewpub interested in selling its beers at retail could simply re-license as breweries rather than brewpubs. But brewpubs are generally located in commercial areas, while breweries are typically
in less expensive industrial areas. Simply retooling the business into a brewery would be prohibitively difficult and expensive. “We could eliminate the sales of liquor and guest beers and re-license as a brewery, but the downfall in that is that we’re in an expensive location that wouldn’t make sense for building a brewery,” said Rifakes. “We’ve got a lot of money tied up in the capital that we’ve already spent.”

Minnesota law allows brewpubs like Town Hall to add new locations and distribute to those satellites, such as Town Hall Tap. But adding additional retail locations is an expensive and risky way to grow.

“A brewpub is a restaurant,” said Rifakes. “You’re looking at a location that’s generally going to be a higher-rent location. The aesthetics of your space is going to be a little bit different, so it’s going to cost more to build out your space. You have more money tied up in labor — there’s serving, the kitchen. If you’re strictly going to be a microbrewery that distributes, you could be in a warehouse, you can basically be in any location.”

State Sen. Sandra Pappas (DFL-65) is working with Rifakes on legislation to change the law, which she intends to introduce in the upcoming legislative session.

“Why shouldn’t he be able to retail his beer?” asked Pappas of St. Paul. “Why should he also be able to have a full service bar? What’s the public safety issue? Who are we trying to protect with
this legislation?”

While the local craft beer industry is in growth mode, Minnesota lags behind other states. “The craft beer industry is really growing, although it’s growing much faster in other states because they actually support and appreciate it,” she said. “So it’s frustrating that we have this ingrained system that is pretty outdated.”

If Rifakes’ lobbying efforts are successful, he has aggressive plans for Town Hall Brewery he said would add both temporary construction jobs and permanent positions in his company. Rifakes is looking at a property next to Town Hall in order to expand the brewpub’s production capacity. If it is allowed to distribute and raise its production capacity, Rifakes is confident that Town Hall could be the next big name in the craft beer world.

“If the law was changed just to allow us to sell to distributors, we could distribute up to 3,500 barrels in a year,” said Rifakes. “If they would allow us to distribute and increase our capacity to 5,000 or 10,000 barrels, we could hit that as soon as we could expand next door. If they were to change the law that would allow us to build a production facility, then the sky’s the limit.”

Reach Jeremy Zoss at jzoss@mnpubs.com.