Montana Brewers in Capacity Battle with State

The continued state-by-state fight for taking out laws that limit craft beer growth continues in Montana.

Currently, any brewery over 10,000 barrels per year can not sell beer from a taproom. That means the largest brewery in the state, Big Sky, doesn’t have a taproom while Kettlehouse Brewing uses three separate licenses to operate three facilities with one facility that opened over 10,000 bbls.

Matt Leow, the Executive Director of the Montana Brewers Association, says that HB 541 will remove the obstacle that discourages breweries from growing beyond 10,000 barrels; create good paying jobs in our communities; increase demand for Montana-grown barley; and clear the way for Montana breweries to expand into the regional market.

“The current 10,000 bbl production cap discourages growth in our industry and puts Montana breweries at a competitive disadvantage in the regional market,” Leow told Brewer. “Montana craft brewers produce a high-quality, value added product from Montana ingredients and create manufacturing jobs in 35 communities across our state.  We should be encouraging, not limiting, this type of economic development. The current 10,000 barrel limit discourages growth by taking away a significant revenue stream for breweries that surpass 10,000 barrels of production. Thus, brewers are faced with either limiting production or giving up their taprooms.”

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Right now, Bayern Brewing in Montana has intentionally capped itself at about 9,900 BBLs per year to keep its taproom open. Lewis & Clark Brewing‘s recent expansion has its capacity over 10,000 as well if it brewed to the max. Leow pointed out that several other breweries could grow to that size, including Great Northern Brewing, Red Lodge Ale, Madison River Brewing and Bozeman Brewing with other with the same growth pattern over the next few years.

Leow shared the story of Bayern owner Jürgen Knöller. The Missoula-based brewery grew steadily for 27 years before plateauing for the past three years. Bayern would actually lose money if they grew beyond 10,000 barrels without making a significant leap in production. The taproom accounts for roughly 10 percent of the brewery’s production volume, but it generates almost 25 percent of the sales Knöller said.

“In order to grow beyond our existing net revenue, we would have to produce at least 15,000 bbls, which would require us to invest close to $2 million in building and machinery to produce the additional beer,” he said.

The Montana House of Representatives passed HB 541 recently, voting 85-14 to send the bill over to the Montana Senate. So progress is being made. HB 541 is sponsored by Rep. Adam Hertz (R-Missoula) and cosponsored by Rep. Ellie Hill Smith (D-Missoula) and Rep. Greg Hertz (R-Polson). It would raise the 10,000 barrel production cap to 60,000 barrels

“This bill helps to highlight the bi-partisan support that exists for the Montana craft brewing industry and for HB 541,” Leow said. “The was strong bipartisan support on the House floor. Republicans and Democrats see the value in a growing craft brewing industry. Growing our industry will create jobs and economic development in communities across the state, generate more demand for Montana-grown barley and put Montana breweries in a better position to compete in the regional marketplace.”

The push back, Leow said, comes from the three on-premises alcohol license groups — the Montana Tavern Association, the Gaming Industry Association and the Montana Restaurant Association.

“Montana has a quota system on licenses and those licenses can be transferred and sold in the marketplace for a rate the market will bear,” Leow explained. “That means value has been created in those licenses purely out of policy passed by the Montana Legislature. The primary mission of those groups is to protect the value of those licenses. It’s also important to note that Montana law prohibits manufacturers — breweries — from holding a retail license.”

Before 1999 there were no retail sales allowed by breweries. When the law was changed to allow Montana breweries to sell beer in a taproom the the retail licenses groups used their influence at the legislature to limit the retail privileges of Montana breweries — such as having sales limited to 10 a.m. to – 8 p.m.; no more than 48 oz per customer; and no sales for breweries over 10,000 barrels).

“Today, those groups are trying to hold the line and prevent what they see as any movement to increase privileges,” Leow said. “But from our perspective this is more about encouraging manufacturing than it is about retail privileges. Passing HB 541 won’t result in new brewery taprooms opening up. It will allow breweries to keep existing taprooms open as they grow past 10,000 barrels. That does nothing to hurt retailers. The additional beer being produced is beer that will go out on distributors’ trucks in kegs, bottles and cans to be delivered to bars, restaurants, convenience stores and grocery stores. HB 541 will actually help bar owners who are having troubling getting sought after Montana beer that is limited in supply. Increased production will make it easier for those bars to get the labels they want on tap and help distributors to be able to better serve their accounts.”

Leow noted that he sees plenty of beer on shelves in Montana from California, Oregon, Colorado and Washington.

“They make some fantastic beer in those states,” he said. “But we would love to see more Montana beer on the shelves in those states. HB 541 helps clear the way for that to happen.”

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