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Your Beermonger: House of Pints

By Nick Anderson

Friday - 3/21/2014, 2:30pm  ET

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Editor’s Note: This sponsored column is written by Nick Anderson, beermonger at Arrowine (4508 Lee Highway).

For all of the annoyances of Virginia ABC laws — and there are many — there is one way the Commonwealth has managed to not mess with beer lovers. Virginia doesn’t “cap” the amount of alcohol a beer can have either by volume (ABV) or weight (ABW), unlike many other states.

Over the past 20-30 years, most states with caps have raised them to the point where there functionally is no cap; it’s not uncommon to see caps anywhere from 14-17.5 percent ABV. There are still low-cap states, though; among them is Tennessee, where an effort to raise the limits of beer strength gives us one example of how breweries small and large are attempting to shape policy to take advantage of the rapidly growing market.

This week saw the release of the Brewers Association’s (BA) 2013 craft beer growth figures, and what they showed was that craft beer’s momentum is far from slowing. Compare to 2012, 2013 saw an 18 percent increase in sales by volume and a 20 percent increase in retail dollar value. Craft beer accounted for 7.8 percent of the total volume of the U.S. beer market in 2013, up from 6.5 percent in 2012.

Even taking into account BA’s definition of what makes a “craft” brewery and the associated controversy and consternation that goes along with it, the 2013 figures are impressive. By the BA’s count, some 98 percent of the United States’ 2,822 operating breweries are craft breweries, and even with the rate of new breweries opening increasing almost exponentially there are still far more openings than closings — with 413 openings to 44 closings occurring in 2013.

With over $14 billion in retail value and over 110,000 jobs coming from craft beer, states with lower ABV/ABW caps are being lobbied to raise those caps in order to generate more tax revenue and encourage new start-ups. Tennessee in particular has stifling regulations for small brewers in-state: they can make and sell beers over the current limit of 5 percent ABW (~6.2 percent ABV), but to do so they must acquire a “high alcohol content” beer license for $1,000 and then pay an additional $4,000 for a “liquor-by-the-drink” (LBD) license to sell said beers in their taprooms.

Not only do those licenses and their fees need to be re-upped every year, but the brewery must have at least 15 percent of its gross sales come from food to keep its LBD license. The proposed changes to Tennessee law would raise the limit to 12 percent, eliminating the license burden for in-state brewers and opening the state to the sales of more popular, stronger beers.

It’s not only small brewers who are trying to change regulations to their benefit. A recent article on The Motley Fool took a peek into the money “big beer” is spending in its lobbying efforts and the numbers were eye-opening even for me: Anheuser Busch-InBev (ABI) spent $4.3 million in 2013 and MillerCoors doled out over $2 million (by contrast, the only “craft” brewer mentioned was Boston Beer Company — $130,000).

According to the article, most of ABI’s millions were targeted toward getting two pieces of legislation passed; the “BEER Act” and the “Small BREW Act.” The BEER Act would lower the per-barrel tax on beer to $9 (from $18) and reduce those excise taxes on “smaller” breweries to levels that would be at nearly zero for the first 15,000 barrels produced. The Small BREW Act would increase the maximum barrel production amount of what is considered a “small brewery” from 2 million barrels annually to 6 million, cut excise taxes in half on the first 60,000 barrels produced, and lower taxes $2 per barrel on the next 1.94 million barrels.

Neither legislation appears to have much of a chance of becoming law — The Motley Fool estimates a zero percent chance for the BEER Act and 2 percent for the Small BREW Act — so why sink so much money into an apparently lost cause? And why the focus on small breweries, when ABI and MillerCoors are so big?

The answer can be found in beer business trends outside of “craft,” which aren’t pretty in terms of sales. Over the first half of 2013, overall beer sales were down 2 percent, with ABI (Stella Artois, Budweiser, Bud Light, etc) down 5 percent in the first quarter of 2013 and another 1.2 percent in the second. Despite the downtick in sales, ABI posted a revenue increase of 3.9 percent for that same second quarter of 2013. ABI’s faux-craft Shock Top label, along with more expensive, specialty products like the ‘Ritas (Lime-A-Rita, Strawber-Rita, etc.), Chelada, Budweiser Black Crown, and it’s ownership of Goose Island mean more money coming in with less product needed.

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