Craft brewers, distributors clash over tasting room bill

8 March 2023

Who gets to be in charge of how craft beer gets from a brewery to a taproom? 

Therein lies the core of SB108, a bill sponsored by Sen. Rochelle Nguyen (D-Las Vegas) that would allow craft brewers to move product from their breweries to their own tasting rooms or taprooms without first selling that beer to a distributor, often referred to in legal terms as a wholesaler. The existing arrangement is a function of state laws meant to prevent vertical integration for the alcohol industry. 

The bill would also expand the legal definitions of a “special event,” at which brewers can sell their beer, to any event up to three days long that has been approved by the county. 

Wyndee Forrest, head of the Nevada Craft Brewers Association and owner of Henderson-based craft CraftHaus Brewery, told the Senate Commerce and Labor Committee Wednesday that her tasting room cannot serve beer (brewed in Henderson) in its downtown Las Vegas tasting room without first selling it to a wholesaler — then buying it back at a markup. 

Just how large that markup is was disputed Wednesday — Forrest alleged 38 percent in testimony, while lobbyists for the wholesalers pegged the markup ceiling closer to 25 percent.

The bill drew the backing of a raft of craft brewers in Las Vegas and Reno, who argued that, despite good relationships with distributors, limits like the ones lifted by SB108 have artificially stifled the state’s craft brewing industry in favor of out-of-state corporate brewers. 

“In 2021, Nevada breweries produced just over 70,000 barrels of beer and contributed $520 million in economic impact for our state,” Forrest told the committee. “However, 3 percent of total beer sales are made up of Nevada beer sales. So that means that we’re flooding our state with beer that’s not made here.”

But the bill drew an outpouring of opposition from wholesalers — including lobbyists, managers and drivers — who charged that the bill threatened to upend the delicate ecosystem of beer distribution in Nevada, shorthanded as the “three-tiered system,” that separates producers, distributors and retailers. 

“Make no mistake, Senate Bill 108 will be a job killer,” Gabriel Townsend, a delivery driver, told the committee.

Historically, three-tier systems were developed nationwide after the repeal of Prohibition as states sought to quickly regulate alcohol. In Nevada, the system functionally prevents vertical integration, or any company that would operate on more than a single level in the chain of producer, distributor and retailer.

Lawmakers softened the edges of that system in 1995 with the creation of “craft” exceptions for brewpubs, or brewers that could brew and sell product in the same location. In 2017, legislators increased the annual production limit to qualify as a brewpub, raising it from 15,000 barrels annually to 40,000 barrels.

Nguyen sought to alleviate concerns over touching the three-tiered third rail, calling her bill “narrowly tailored” in a bid to avoid “unintended consequences.” 

“I just want to say this upfront and first and foremost, I am not looking to undo the three-tier system,” Nguyen said. “In fact, I think that it serves a great deal in our state to have that system in place.”

But opponents also raised a host of other concerns, charging that craft brewers can already bypass the three-tiered system by operating brewpubs — distinct from tasting rooms because beer brewed on site is sold on site, precluding the need for transport or a wholesaler. 

They also noted that craft brewers rarely, if ever, approach the 40,000-barrel production cap or a 5,000-barrel cap on distribution at brewpubs or tasting rooms (two statutory limits left untouched by the bill), and that the bill would reduce avenues for the state taxation department to audit the beer industry by removing distribution to those tasting rooms from regular reports. 

Critically, they also argued that the bill could open up a tasting room Pandora’s box — inadvertently opening the door to larger, out-of-state brewers skirting the state’s three-tiered system by opening their own tasting rooms. 

“This does affect the big guy. The largest of the large would love to come in here,” Alfredo Alonso, a lobbyist for the Nevada Beer Wholesalers Association, told the committee. “Five thousand barrels at a time at a location — that’s a huge amount of beer.” 

The state’s wholesalers are perennially among the top campaign donors to Nevada lawmakers from the alcohol industry, often giving legislators from both parties tens of thousands of dollars in contributions. Last cycle, for instance, the Nevada Beer Wholesalers Association gave $57,000 — second only to Budweiser-maker Anheuser-Busch at $77,000, according to an analysis of legislative campaign fundraising by The Nevada Independent.

After a near-90-minute hearing, Nguyen agreed, in part, with bill opponents, acknowledging again that the language needed to be “narrowly tailored.” Still, she argued, if craft brewers had any advantage, it should have already manifested under the state’s looser brewpub rules. 

“To give you a perspective, I just Googled up how many craft brewers are there in the Seattle area. There are 250 alone in that city, not that surrounding city, like the city of Seattle … and we have 51 in our entire state,” Nguyen said. “So I think that shows you that they are clearly struggling to expand the Nevada-made, Nevada-grown beer market.”

The post Craft brewers, distributors clash over tasting room bill appeared first on The Nevada Independent.

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