Montana’s LC1429 / HB616 – An Independent Analysis

First, I want to clear the air.  I have no skin in the game as far as Montana’s breweries go.  I don’t own a Montana brewery, I don’t have any controlling interests in them and my one and only interest in these matters is to protect the interests of beer connoisseurs and Montana’s soon to be beer connoisseurs.

That said, I’ve been awaiting the new legislation – LC1429, now known as HB616 – with baited breath.  I was prepared to fight the good fight (and here) for Montana’s breweries, the ultimate interest being my own and those who enjoy great, local craft brews.  I was against LC1429/HB616 based on hearsay, well before my eyes had even graced the legislation.  It has been my intention from the beginning, though, to represent the interests of Montana’s beer drinkers first and foremost.

Last night, I spent my late evening perusing a draft copy of this new legislation.  I wanted to hate it.  After all, the Montana Tavern Association was behind it, and based on previous experience, I had every reason to be against it at every level.  I truly expected the worst.  This morning, that very same draft legislation was published on our legislature’s site, and at this point, I have no reservations about sharing my absolute opinions on it.  And that is the purpose of this commentary.

I have to say, after reading the bill twice now, there are a quite a few things I like about it.  I give my kudos to the Montana Tavern Association for bringing about a reasonably sensible bill that wasn’t all about protecting their own interests.  As I read through the text of the bill, I found myself both surprised at the potential for opportunity and relieved that it didn’t go overboard by calling out specific practices (like music, food, etc.) that the MTA interpreted as an “unfair” business practice.

First and foremost, LC1429/HB616 provides a mechanism for growing breweries to shed their stigmas and compete at a new level.  By that, I mean that it permits an individual to obtain both a brewery license and a cabaret license, as the same person.  This has been a point of contention for a long time, where if a brewery exceeds 10,000 barrels, they were either forced to close their local tasting room or pursue their distribution interests.  This proposed bill alleviates much of this contention.

Additionally, it provides a mechanism for those who own a beer & wine license to become breweries!  Such a thing would permit the expansion of our beer culture, further expanding the opportunities of business owners to bring us Montanan’s great, fresh beer.  What a thrill!  Can you imagine our local restaurants having their own brewery in the back and serving their own craft brews?   There’s a few other things that I truly like about the bill, that are probably worth mentioning, but I feel an overwhelming desire to get to my point.

I STILL think we need to be against this bill and I’ll explain why in a moment.  Despite the unexpected good that comes from LC1429, there’s a few major exceptions that I take with the legislation.  They are as follows:

• LC1429/HB616 is clearly and unequivocally aimed at curtailing the ability of breweries to serve beer, either paid for or not, out of their tasting room.  It’s primary purpose is to force breweries into a traditional beer/wine license, which admittedly will remove limitations currently placed on tasting rooms, but will ultimately force investments on private businesses that they may or may not be able to sustain.
• This bill will force any patrons out of a brewery, for those that have not paid for a beer/wine license, at 8PM sharp.  There will be no socializing after a beer, there will be no deciding where to go next.  You will get your 2AM treatment at 8PM from a brewery that either cannot afford a beer/wine license or does not feel that is the appropriate avenue for their business.  I have, not ONCE, ever witnessed a Montana brewery neglect the law and serve beers past 8PM.  We don’t need these kinds of absolutes that ultimately affect the customer’s experience, when the industry is more than willing and capable of upholding the law by their own means.
• This bill will prevent new breweries from becoming established businesses and the growth of the industry within Montana will essentially plateau by force of law.  The unfortunate mechanism is that after 300 barrels of production, a brewery will be forced into either bottling & distribution and/or a significant portion (60%) of their sales must be tied to tavern distribution via kegs.  While I’m not entirely opposed to this concept, the 300 barrel limitation is FAR too low.  As a homebrewer, I could produce 300 barrels a year in my garage, albeit not legally, but the point is that I (as an individual who isn’t running a professional brewery) could exceed this limit with a little bit of dedication and effort.  For me to support these limits, this limit should be closer to 5,000 barrels of production, a far more reasonable point where a brewery could be expected to have the profits that allow them to pursue a beer/wine license, product distribution and/or have a competitive edge that is enough to allow them to succeed at selling their product outside of their taproom.
• The bill takes a particular exception to define that a growler sale is defined as a sale within the tasting room, therefore these sales do NOT contribute to a brewery’s overall distribution efforts.  This means that a brewery cannot expand past 300 barrels of production unless they pursue other distribution means.  I personally believe that these off-site consumption sales should be considered to count towards a brewery’s external sales and therefore would permit them to serve more beer within their tasting rooms.  I understand that this contradicts conventional distribution concepts, and it by no means grants rights to individuals to distribute alcoholic beverages, but I think a brewery should optionally be able to track off-site sales as distribution by their own means.
• This bill will certainly cause turmoil within some breweries that have no intention at this time of marketing their beers across (or outside of) our state, at least without significant investment that a small brewery may not be able to afford.  Once they hit the 300BBL limit, they are nearly forced into a $100K license, and after two years, the license will go up to market value.  (Up to $1M in some areas.)  Again, this will curtail the growth of the industry and provide disincentive to small business owners to provide a boon to local industries.  This will negatively affect our grain growers, our electricians, our plumbers, our distributors and countless other industries that the craft brewing industry directly supports.

It is for the above reasons, and the following all-too-import reason, that I continue to oppose LC1429/HB616.  We can have hope to amend the bill in order to correct some basic flaws that are shortsighted of the industry.  But the truth is, this matter is less than a week’s time from a committee vote and less than a few month’s time from hitting our Governor’s desk.  We don’t have the time, the resources or the means to amend the (rather decent) legislation, such that it could be a true melding of the minds between taverns and local breweries.  Even if the MBA (Montana Brewery Association) was on top of their game, this wouldn’t be a practical time frame to organize a concerted, well intended debate about how to fix this legislation.

It is very likely that an owner of an established, profitable and successful brewery might look at this legislation and see a lot of opportunity.  But, the measure of our legislation is whether it would, or would not, permit you to recreate a business’s circumstance.  If you look at this bill, and in reflection see how you could not have recreated your business as it is today, then that is the first bit of proof that the legislation is not right for us.  It is my belief, without doubt, that any of Montana’s existing breweries would not be what it is today with HB616/LC1429 on the books.

If we allow this legislation through and become soft to the good it provides, we will ultimately be left with poor legislation that further harms an industry that provides great benefit to our local economies.  This leaves us, the breweries and the people who enjoy great local beer, with little choice but to oppose this legislation.

I have come to the conclusion that we are close to a better solution, but this matter will have to wait until at least 2015 to be resolved.  At that point, I would hope that the MTA, the MBA and Montana’s breweries have improved their relationship enough such that we could use LC1429/HB616 as a basis for overcoming some of the major challenges that face our taverns and breweries alike.  We truly need a bipartisan, open opportunity to craft sensible legislation that gives way to a business’s capability and provides for rapid and universally beneficial growth.  This shouldn’t be about Montana’s Taverns versus Montana’s Breweries.  This should be about making great beer, attracting tourists that want to try our great beer at our local establishments and ultimately boosting our economy in every way we can.

We are Montana.