The people who created Minnesota’s craft brewing and craft distillery business are persistent, if not always persuasive.
After winning grudging approval for a critical element of their businesses several years ago — being able to sell their products out of their own breweries and distilleries — opponents such as the state’s Joint Council of Teamsters and liquor store owners have thwarted major expansions of the law.
Today, craft brewers in Minnesota can’t sell beer in anything other than a glass growler or a metal crowler, and they can’t sell those once they reach a certain level of production. The state’s craft distilleries, meanwhile, can’t sell standard-size bottles, relegated instead to selling “novelty” .375 liter bottles.
Both groups would like to change those rules, but with the leaders of the House and Senate committees demanding consensus from every industry group involved in the issue before they will even consider any significant alterations to the current setup, that system is unlikely to change anytime soon.
Adding to the obstacles, at least for those looking to change the laws: The COVID-19 crisis has led legislative leaders to consider shutting down the 2020 session, at least for a while. In fact, plans were being made to handle emergent issues and then go on hiatus. The Legislature could reconvene later in the spring or summer — but that is uncertain. A Friday morning hearing on the liquor bills was cancelled by House Speaker Melissa Hortman.
Legislators to industry players: ‘Work things out’
Rep. Laurie Halverson, the Eagan DFLer who is chair of the House Commerce Committee, said she worked over the summer to find a compromise on raising the production ceiling for craft brewers wanting to sell growlers out of tap rooms. She cosponsored a bill to double the production cap “to help protect the people who are close to going over the top.”
But since then, the small brewers have changed their approach and Halverson is holding back. Instead, she wants the industry to figure out a deal. “That’s what we need,” she said. “We need all the stakeholders to get together. That’s the right way to make change in an industry where so many small businesses are part of this puzzle. The Legislature really can’t be an arbiter of who wins and who loses in small business.”
Sen. Gary Dahms, a Republican from Redwood Falls, is chair of the Senate Commerce committee that has jurisdiction over alcohol laws. He too is requiring the various parts of the alcohol business to get together and bring a bill to his committee.
“Right now I’m not sure we’ll be having a liquor bill,” he said. “I have told several parties that want us to come and make the decisions as to who gets what in the liquor industry that we haven’t had a habit of doing that in the Senate. We tell people to work things out.”
As recently as Monday, craft brewers and distillers hoped some compromise with the Teamsters and liquor store owners might be possible this year. Some have dubbed a potential deal, a “peace in the valley” agreement.
Lauren Bennett McGinty, the executive director of the Minnesota Craft Brewers Guild, said she has been meeting with other groups, including the Teamsters; the Minnesota Licensed Beverage Association, which represents liquor stores; beer wholesalers; and the association that represents municipal-owned liquor stores in Minnesota.
“We found that the conversation was quite productive,” McGinty said of the talks among the various industry groups. “We certainly are still working on what that relationship looks like and if there is somewhere we can move forward. We have been communicating much more than we have in the past so I’m confident we can come to some sort of agreement in support of all three tiers of the industry.”
McGinty said there has been demand for changes, and legislators have asked the various groups to recognize the need to be more flexible. “Consumer demand is going to be a huge part of the rest of the session,” she said. “That could help move the needle.”
Andy Pomroy, a government affairs specialist with the Minnesota Distillers Guild, said they have been meeting with other liquor industry groups, including those that have been opposed to change. But he also said the legislative requirement that players reach agreement on any meaningful changes to the law — especially when one side is content with the status quo — is “not one the legislature tends to place on any other industry.”
“While we will continue to work towards it, if possible, we do not believe that a majority of legislators believe complete consensus needs to be achieved to make changes,” Pomroy said, especially when the changes could benefit distillers, farmers, consumers and even the wholesalers and retailers.
Attempts to contact lobbyists for Teamsters Joint Council 32 were not successful, but last spring, the Teamsters sent a letter to senators opposing any changes, including increasing the cap on brewers that could still sell growlers or allowing brewers to sell bottles and cans out of taprooms. At the time, Edward Reynoso, political director of the joint council, called such proposals a “slap in the face” to the current system that would negatively impact Teamster jobs.
The Minnesota Licensed Beverage Association, or MLBA, which generally opposes any changes to the state’s three-tier system that keeps production, distribution and retail sales as separate businesses in Minnesota, doesn’t specifically oppose craft brewing’s legislative agenda. Its focus has been more on preventing the sale of regular beer and wine in grocery stores, an issue that appears dead this year.
In the past, however, both the Teamsters and the MLBA have argued that craft breweries and distilleries were meant to be incubators, which allowed them to get beneficial rules and taxation — but that they shouldn’t enjoy those benefits when they get big enough.
The fourth-worst regulatory scheme in America?
There are now 150 craft brewers in Minnesota and 40 craft distillers, and they have long been seeking changes in rules that they consider restrictive and say are stunting the growth of the industry in the state.
In 2011, the law known as the Surly Bill made an exception for craft brewers, allowing them to sell some of their beer directly to customers in tap rooms built on site. Distillers received similar, if more restrictive, authority in 2015.
The Minnesota Distillers Guild has called the state’s regulatory scheme the fourth worst in the nation, and it is now asking for several changes. The one that tops the list, though, is bottle size. The 2015 law allows them to sell directly to customers — but only via bottles that are half the size of the industry’s .750 liter standard.
Additionally, the state limits sales to one bottle per day per customer. “One could say we’re at the bottom of the barrel,” said Mark Schiller, chief financial officer of Loon Liquor in Northfield.
The guild is requesting an elimination of the bottle size regulation and an increase in how much distillers can sell to a customer per day — to 4.5 liters, which translates to a six-bottle case.
They also want to increase the production caps that define a craft distillery. Currently, once a distiller produces 40,000 proof gallons a year, they no longer qualify as a craft distillery and must close their cocktail room and pay a $40,000 license fee rather than $2,000. The guild wants that cap increased to 100,000 gallons. Those between 40,000 and 100,000 could keep their cocktail rooms — but lose the ability to sell their product in house. Bills in both the House and the Senate would make those changes.
“We’re the only state with a novelty format,” Joel Vikre, co-founder of Vikre Distillery in Duluth, said of the smaller bottle. Most other states simply cap the amount liquor that can be sold to a customer, rather than require a small bottle.
Even then, the 4.5 liters per day proposal would still have Minnesota at the lower end of state sales limits. And unlike craft brewers, who can keep their tap rooms open even if they surpass the production limit and must stop selling growlers, craft distillers don’t get to keep their cocktail rooms once they hit the production cap.
“It’s your way of connecting with the customer and building a brand,” Schiller said of the cocktail rooms. “If you lose that, it’s a massive hit.”
Jon Kreidler, chief officer of Minneapolis’s Tattersall Distillery, said he is close to the 40,000 gallon cap but is going to do everything to keep the company’s Northeast cocktail room open, even if it means moving production to Wisconsin. “It’s profitable and it’s the face of our brand,” he said.
Vikre said craft distillers have good relations with liquor stores and restaurants and think they all benefit from each other. Customers who visit distilleries and like the products are likely to buy it from liquor stores.
Craft brewers ‘trying to live the American dream’
The Minnesota Craft Brewers Guild has its own set of requests from the Legislature. It wants to remove the production caps that have already forced three brewers to stop selling growlers. It also wants to be able to sell its beers in containers other than growlers and crowlers, including bottles and cans and to be able to have growlers sold out of kegs in other locations. Finally, they want the right to sell collaboration beers — products that are created by different pairs of brewers — at both breweries’ tap rooms, regardless of where the beer was actually brewed.
Currently, any brewer that produces more than 20,000 barrels of beer a year must stop selling beer to go. The Guild is asking that the 20,000 cap be eliminated and replaced with a sales limit: the equivalent of two cases of beer per customer per day in growlers, cans or bottles.
The cap on growler sales has already stopped six brewers: Summit in St. Paul; Surly and Fulton in Minneapolis; Third Street in Cold Spring; August Schell in New Ulm; and Castle Danger in Two Harbors — from selling beer-to-go from their taprooms. Minnesota craft brewers getting close to the cap include Indeed in Minneapolis, Lift Bridge in Stillwater and Bent Paddle in Duluth.
“Right now we’re not able to serve the needs of our communities, we’re not able to serve the needs of our consumers,” said Evan Sallee, co-founder of Fair State Brewing Cooperative in Minneapolis and the current president of the brewers guild. Surrounding states allow any package size from breweries.
“This is what consumers want from craft breweries and this is what we aim to provide,” he said. “Currently Minnesota is lagging behind and our breweries are not able to keep up.”
Dawn Finnie, a cofounder of Little Thistle Brewing in Rochester, said her customers want to be able to buy beer in packaging that is more portable and that keeps the beer fresh. “People want to drink Minnesota beer and they want to be able to do that at their cabins, at family reunions, they want to be able to do it in other places and not just tap rooms,” Finnie said.
Rep. Jim Nash, R-Waconia, is sponsoring the House bill. He said small brewers help revitalize small downtowns, hire local people and buy local products. “If you go to one of the breweries in my district on any day, they’re packed,” Nash said. Small craft brewers, “are trying to live the American dream. They would probably mortgage the dog if they could to stay open.”
But opponents are entrenched and have great influence over many legislators, Nash said. “No one is going to die, no one is going to lose their business, no one is going to go out of business by allowing all craft brewers to sell cans out of their business,” Nash said.