Craft Beer Buzzkill
Georgia's antiquated distribution laws are hampering small businesses and sending national brands elsewhere. Why is Georgia refusing thousands of jobs and millions of dollars from this homegrown industry?Thursday January 22, 2015 10:00 am EST
Atlantan Byron Burroughs is passionate about craft beer. In 2007, he turned that passion into a bottle shop with a stunning selection, not only of American brews but imports too, alongside specialty liquors and boutique wines. In 2009, the shop expanded to include 200 bottles and 50 taps, which could fill growlers to go. In 2012, he added a brewpub to the mix, where he and his team could make and sell their beer alongside world-class brands. Their beer was good, so they sold a lot of it. Because it was such a hit, earlier this year they opened a production facility with a tasting room, so they could distribute their beer locally. You might say business is good.
Here's the thing, though: Atlantan Byron Burroughs had to move away from Atlanta, indeed, Georgia altogether, to live his small-business dream. His once-humble project, Proof Brewing Co., has been thriving in Tallahassee for seven years now. In 2015, Proof will make more than 2,000 barrels (62,000 gallons) of beer. Proof is leading a craft beer renaissance of sorts in Tally. Since it opened in 2007, others have followed the hybrid business' lead. Excellent beer bar Fermentation Lounge, which brews in-house, opened in 2008. Another production brewery, GrassLands, is on the way. A brewery that can sell direct, and have a brewpub, and have a bottle shop isn't possible in Georgia, though, where the laws are too restrictive. So Proof started up in a different town, in a different state. There, it was a pioneer. There, it started a revolution.
"Being from Atlanta, we definitely considered opening there," Burroughs says. "Unfortunately, there is such an antiquated system in place that seems resistant to change and positive growth that it seemed too much of a financial risk."
Georgia is one of only a handful of states in the country that don't allow some form of direct sales. No pints on-premise at the brewery. No six packs, growlers, or cases to go. Georgia breweries may sell almost anything directly to their customers that isn't beer, including glasses for beer, T-shirts advertising beer to wear while drinking beer, bottle openers for opening beer, koozies that hold beer cans, dog treats made from beer, etc. Breweries are allowed to give away for free the product they make, so long as they don't give away more than 32 ounces per person and that person participates in an "educational" and/or "promotional" tour. The regulatory language is vague, perhaps purposely so, but it's clear that breweries, unlike, say, wine makers or cheese makers (and many other Georgia small business owners), cannot sell their product directly to their customers.
The three-tier system of alcohol distribution was federally enacted just after Prohibition. The system splits the booze infrastructure into manufacturers, distributors, and retailers. Originally it was intended to prevent large breweries and distilleries from creating monopolies by opening saloons for their products and their products only. But each state can tweak the three-tier law as it sees fit, and Georgia grants sole sales power to the distributors. Instead of breweries serving all of their customers directly, they're forced to serve one customer: the distributor. In Georgia, the system that was supposed to prevent monopolies by producers has created one for distributors.
"It's a hindrance to the beer producers to not allow sales directly to consumers in Georgia," says Sweet Grass Dairy co-owner Jessica Little. "I hope brewers are able to sell directly to consumers soon. I cannot imagine what our business would look like if we did not have the ability to do so. We value greatly the ability to share our cheese with the final customer. It keeps us connected to the product through the eye of the consumer, not just the middleman distributor."
***Fun fact: You can buy beer at bottle shops, liquor stores, grocery stores, farmers markets, gourmet kitchenware outlets, convenience marts, gas stations, cheese stores, butchers, and candy shops, but not breweries.***
Steve Hindy, a former journalist and founder/president of Brooklyn Brewery, took to the New York Times' op-ed page in March 2014 to discuss franchise laws, another onerous aspect of the brewery/distributor relationship. But his words apply to Georgia's fight for direct sales as well.
"Craft breweries may be a big story in the media these days, but they face much tougher challenges than most other small businesses," he begins.
For more than 700 words, he discusses those challenges at length, starting in the 1970s, and tracing the industry's growth to the present day. But he ends on an ominous note — one that he may not have meant for Georgia, but which applies nonetheless.
"As the craft-beer sector expands, states are waking up to the economic benefits it offers — in jobs, tourism and taxes," Hindy wrote. "Many states now offer subsidies and regulatory assistance for new breweries. But too few states have taken on the tougher job of pushing against distributors and their lobbyists."
The Georgia Craft Brewers Guild is pushing back this year. Founded in 2010, the trade organization was established to "promote, protect and further ... the common interests of the members and the licensed brewing industry in Georgia." Since 2013, furthering those interests has included the fight for direct sales. The GCBG and grass-roots consumer organization Georgians for World Class Beer — the same group that helped raise Georgia's alcohol-by-volume cap from 6 percent to 14 percent in 2004 — helped introduce House Bill 314 and its companion bill in the Senate, SB 174, in 2013. HB 314 aimed to allow breweries and brewpubs to sell a limited amount of their own beer (288 ounces, or one case, per person, per day) on-premises to customers for off-premise consumption, but was tabled in 2013 and 2014.
The GCBG is back in 2015 with lobbyist group Thrash-Haliburton and intends to introduce the so-called Beer Jobs Bill in the coming weeks. The bill, which has five legislative sponsors, is a descendent of HB 314 and would allow consumers the ability to purchase pints directly from a brewery, at the brewery, and purchase to-go beer from both breweries and brewpubs. In late 2014, the GCBG made a website, GABeerJobs.com, outlining its objectives and urging interested consumers to sign a petition (it had 13,694 at press time.) And via an Indiegogo fundraising campaign from November to January, the GCBG raised more than $12,000 from those interested in helping pay for the lobbying services.
The GCBG says that without the Beer Jobs Bill, Georgia beer makers are at a disadvantage versus most of the country's breweries, and particularly to ones in the Southeast. According to a study the GCBG did with a nonprofit national trade group, the Brewers Association, if Georgia were able to raise its per capita beer production up to the national average (currently, the Peach State is 47th out of 50), that uptick in production would result in a projected 1,459 jobs, and a $375 million economic impact.
"Our breweries and brewpubs just want to be able to sell the beer they make to the folks that visit them," GCBG executive director Nancy Palmer says. "The Beer Jobs Bill will make direct sales of pints and packaged beer possible, thus allowing these small businesses to grow and create jobs. It's critical that our breweries be able to make these direct sales; our industry will suffer without the Beer Jobs Bill. Georgia has to modernize its laws to match the rest of the country if we want to stay competitive."
Meanwhile the Georgia Beer Wholesalers Association, a lobbyist group that represents Peach State beer distributors, would like to maintain the status quo. GBWA argues that Georgia's recent beer boom is proof that the system is working; that, if tampered with, the three-tier system in Georgia could break down over time.
"Some of these brewers want to make some extra capital," GBWA lobbyist Martin Smith told WABE in December. "We think they could make that extra capital without potentially jeopardizing or changing the current regulatory system."
Will the Beer Jobs Bill actually create beer jobs in Georgia?
To hear Peach State beer makers tell it, yes. Georgia's oldest craft brewery, Red Brick Brewing Co., which opened in 1993 and currently employs 32 people (17 full time, 15 part time) says it estimates hiring four to five additional full-timers and up to eight part-timers if the bill passes. Georgia's newest brewery, Second Self Beer Company, says it would add two new employees to a full-time staff of four at the young company, which opened in September.
"We would open more than our current four hours a week to the public, moving to five or even six days a week over time with additional staff," says Second Self's Jason Santamaria. "We would need someone to manage the area, handle tours and events, and someone to bartend and fill growlers, sell merchandise. I would love to be able to coordinate with pop-up chefs to do beer and food pairings for special occasions or releases. Outside of the tasting room, we would probably hire one more person on the brewery side for doing small test batches and cellaring."
According to the Brewers Association data, Georgia isn't producing small breweries the way it should — and would — with direct sales.
"Georgia isn't missing 10 breweries the size of Monday Night," Palmer says. "We're missing 30 breweries the size of Burnt Hickory which produces about 13,000 gallons a year, compared to Monday Night's 230,000. The job growth we'll see as a result of the bill passing will be partially in each existing brewery staffing a tasting room, but most of it will be in the new breweries that will open."
That growth might sound like an exaggeration, but it's hardly unprecedented. While North Carolina is deservedly heralded as a craft beer wonderland, some of Georgia's other neighbors are making real strides to reform legislation and, in the process, becoming more attractive to small craft beer businesses than Georgia is.
***Fun fact: Despite being named by corporate real estate magazine Site Selection as the best state to do business in both 2013 and 2014, Georgia's unemployment rate was the highest in the nation in August, September, and October 2014. In November, Georgia's 7.2 percent rate was beaten by Mississippi's 7.3.***
Since 2010, South Carolina breweries have been allowed to sell up to 288 ounces of packaged beer — growlers, cans, bottles, etc. — on-premise, per person, for off-premise consumption. South Carolina's 2013 Pint Law allowed breweries in the state to sell up to 48 ounces of beer to customers for on-site consumption. In 2013, South Carolina had eight breweries. An additional 12 have opened since. South Carolina Brewers Guild Executive Director Brook Bristow attributed many of those openings to the Pint Law in his recap of the South Carolina Brewers Guild's economic study. Furthermore, the study's data was used to make an outlook for South Carolina's next five years, and it predicted that the state would have a further economic impact of $70 million, more than 600 jobs, and $24 million in wages by 2019.
"Those new breweries have given South Carolina an additional $13.7 million in economic impact, and created 150 new jobs," Bristow wrote in an email. "Those results are further evidence that reforming antiquated beer laws helps build communities, strengthens economies, and creates jobs."
Alabama has seen big changes since passing the Brewery Modernization Act of 2011, which allows breweries to sell beer on-site as long as it is consumed at the brewery. In the four years since it passed, two taprooms have opened at Huntsville breweries, and three more taprooms have opened at breweries in Birmingham. For Good People Brewing Company, the BMA has been game-changing.
"It helps with an influx of cash as the small businesses learn the craft business," says Good People co-founder Michael Sellers. "A lot of people who are starting breweries are not well versed in the business. It takes time, and that direct sales revenue allows you to make mistakes and learn without the ramification of closing your doors when you screw up. The tasting rooms allow for more margin for error."
Sellers says Good People has "probably doubled its staff" since the BMA passed, and that the brewery employs eight people in the taproom in the winter, 12 in the summer. Before 2011, that number was zero in all seasons. On-premise sales account for 20 percent of Good People's revenue. When asked whether the ability to sell on-premise has increased the amount of beer Good People sells through wholesalers, Sellers was adamant.
"Absolutely," he says. "We've broken our records every year. We're up 30 percent in our local market this year, and this is our seventh year. People know what our beer is — they can come sample it."
Sellers says the legislation has allowed Alabama to compete with increasing beer markets in neighboring states like Georgia. "If not for the Brewery Modernization Act, 90 percent if not all Alabama breweries would be out of business by now," he says.
Bottle release days are another way Georgia's breweries miss out because they're not allowed to sell directly. Companies bring in substantial revenue by making a bottle release into an event. North Carolina's Foothills Brewing Company did $48,000 in one day for an Imperial Stout release. South Carolina's Westbrook Brewing Co. logged $102,000 in one day for an Imperial Stout release. Indiana's 3 Floyds Brewing Co. sold more than $200,000 in tickets alone for a festival and bottle release called Dark Lord Day. Florida's Cigar City Brewing brought in $350,000-$400,000 for a bottle release and festival called Hunahpu's Day. This kind of substantial cash injection allows breweries to keep the lights on and make payroll while they're waiting on checks from distributors.
"We're brewers, not party planners," 3 Floyds president Barnaby Struve says. "We're just trying to sell beer. Dark Lord Day just sort of organically grew into this. Munster is a very conservative community, and we're not conservative at all. I would've been arrested on sight in Munster 10 years ago. But nowadays, they love us. We're bringing people in, helping put Munster on the map."
Events such as Dark Lord Day and Hunahpu's Day bring visitors from out of state. Tim Dennis, a 43-year-old technical recruiter who lives in Woodstock, Ga., made the trek down to Tampa for Hunahpu's Day 2014. He spent $232 at the brewery on his own, and says that when you add in his fellow travelers, and consider food, beer bars, and various other expenses, the total for their group exceeded $2,500 in revenue from out of state.
In February 2014 Cigar City founder Joey Redner told Creative Loafing that "Hunahpu's Day was a major part of our ability to grow in our first three to four years and helped us get to the point we are now." He added, "We sold out the local hotel, and many people have booked stays at other hotels in the area. A lot of meals, events, cabs, attractions, and merchandise will be purchased locally as a direct result of Hunahpu's Day."
***Fun fact: According to FollowTheMoney.org, the Georgia Beer Wholesalers Association has given more than $1.1 million in campaign contributions to politicians such as Georgia Gov. Nathan Deal***
If passing the Beer Jobs Bill is going to create jobs and additional revenue for Georgia's small businesses, ensuring the region's continued craft beer growth and bringing tourists to the Peach State, then who would oppose it? The answer is becoming an increasingly common and complicated one for Georgia beer advocates: distributors. The GBWA has dug in its heels as breweries have proliferated and mobilized in recent years. At peak hubris in late August, the lobbying group even took Governor Nathan Deal to breakfast and bragged about it on Twitter.
"What craft brewers aren't telling you is that any changes to the current system could negatively impact the state economy, result in higher-priced beer at fewer outlets across the state, and create less regulation for what is considered a controlled substance," GBWA lobbyist Martin Smith told the Atlanta Journal-Constitution in November.
"That quote is riddled with polito-speak, misinformation, and scare tactics," Jeffrey Stuffings says. Stuffings knows a thing or two about modernizing beer laws, as the brewery he founded, Jester King, helped do just that in Texas last year. The passage of a handful of craft beer bills in June 2013 made it legal for Texas breweries to sell beer on-site for consumption at the brewery, and for brewpubs to sell packaged beer to go. Shortly after the legislation passed, Jester King changed its license to that of a brewpub so it could avail itself of the effects of both bills.
"As a result of the deregulation in Texas, we have tripled our labor force, put in place infrastructure that will triple our capacity, and we're on the verge of taking out our first-ever bank loan, which will immediately be reinvested in structures and equipment that will grow our business and contribute to the economy. Our impact on the Texas economy is sizably larger," Stuffings wrote in an email.
Several Georgia beer distributors, including Savannah Distributing Company, United Distributors, Georgia Crown Distributing Company, and Atlanta Beverage Company, did not respond to requests for comment for this story.
"We have no comment while there is an active bill on the floor," Eagle Rock Distributing Company's Nicholas O'Donnell said.
Leon Farmer & Company emailed to say, “Martin Smith at GBWA is handling all press inquiries regarding the bill.”
Smith declined to comment after repeated requests from CL.
In October 2013, during the run-up to HB 314, Smith told the Athens Banner-Herald that some retailers didn't like the idea of competing with beer makers, and that they would retaliate by not stocking products from those businesses.
Since then, retailers such as Green's Beverages and Hop City Beer and Wine have told Creative Loafing that they're in favor of direct sales for breweries. In a December 2014 email to his customers, Eddie Holley of Ale Yeah! (with locations in Decatur, Roswell, and a forthcoming Kennesaw store) expressed his support of direct sales.
"With better laws to attract more breweries, the state's brewery footprint would increase dramatically, providing more jobs and frankly more beer to sell on our shelves," Holley wrote.
Brick Store Pub and the Porter Beer Bar have donated money to the GCBG's lobbying efforts.
Meanwhile, some distributor employees see the benefit of loosening restrictions.
"This argument is about keeping the monopoly intact that works completely in the wholesalers' favor," says a distributor employee speaking on condition of anonymity. "Our industry will hardly notice the expected loss of case sales, which makes this seem more like a power play than a legitimate financial issue. I don't understand why we as distributors fight this effort. More breweries opening with better self-funded marketing takes some of the burden off of us and increases our revenue through a healthier market of local products to distribute. I think it's only a matter of time before Georgia joins with the rest of the country."
The craft beer industry is undergoing unprecedented growth. According to a Brewers Association report, as of November, there are 3,200 breweries in the country, with more than 2,000 in planning. Breweries are opening at a rate of 1.5 per day. As of June 2014, craft brewing had grown 18 percent over 2013. Analysts are suggesting that the second half of the year will show continued double-digit growth.
Amid this boom, many of the nation's biggest craft producers are looking to expand east, either because their original locations have maxed out production and/or because they'd like to supply this half of the country with fresher beer. Sierra Nevada Brewing Co. (No. 2 in the country by volume), New Belgium Brewing Co. (No. 3), and Oskar Blues (No. 24) have all chosen North Carolina, and with them have brought or will bring a combined $240 million invested into the state and more than 400 jobs. Recently, Lagunitas Brewing Co. (No. 5) settled on its second location in Chicago, bringing with it a $52 million investment and 125 employees. Stone Brewing Co. (No. 10) has chosen Richmond, Va., where it will invest $74 million and more than 288 employees. Green Flash Brewing Co. plans to open a new location in Virginia Beach, Va., in 2016, and others, like Deschutes Brewery (No. 6), are rumored to be considering South Carolina thanks to recent legal reform in the state.
***Fun fact: South Carolina passed the so-called Stone Law in May, providing more options for on-premises beer and food sales for its breweries. It was passed to attract Stone Brewing Co.'s East Coast location. Though that strategy didn't succeed, the law has gotten the attention of other national brands, such as Oregon's Deschutes Brewery and Florida's Cigar City Brewing, while opening revenue streams and creating jobs for small businesses in South Carolina.***
Ben Halter started homebrewing under the name Bear's Best when he was annoyed that he couldn't get the freshest beer possible from the Georgians who brew it commercially. India Pale Ales, one of Halter's favorites and by far the biggest-selling craft style, are best enjoyed the moment they're brewed because the bitterness, aromatics, and flavor profiles of hops fade quickly. Distribution does an IPA no favors.
"I started homebrewing in 2009 because of Georgia's horrible direct sale laws, and my desire to have fresh, hoppy beers," he says. "I travel a fair amount for work, and was frustrated by visiting other states where I was able to buy growlers of beers I enjoyed at breweries and brewpubs. Hop-forward beers are best enjoyed fresh, and I was unable to address my tastes due to Georgia's antiquated laws."
Halter's Bear's Best brews have earned the respect of beer communities in Georgia and neighboring states, medaling in homebrew competitions such as Peach State Brew Off, Alpharetta's Brewmasters Open, Nashville's Music City Brew Off, and Suwanee Beer Fest. His Coquito Stout — made in collaboration with Twain's Brewpub and Billiards in Decatur — earned positive reviews on BeerAdvocate.com and RateBeer.com, the country's most notable beer review outlets. But he's got a good job and two young children, and he isn't willing to risk opening a brewery.
"Going pro right now seems unlikely," he says. "I couldn't support my family as I do with my regular job. But if we could have brewery-direct sales, I'd likely give the nanobrewery a go as a side project to my regular job."
Halter's humility belies his talent, and good beer sells. If he could try it out at the nanobrewery level, which Georgia's laws make nearly impossible to do, he could experiment on his terms, grow his business organically, hire employees, and eventually sign with a distributor. But without direct sales, his beer will never see the commercial light of day. He'll keep homebrewing for fun, stick to his rewarding day job, and his beer will never earn the state a dime in tax revenue.
Just six hours south of Atlanta, Tampa's Cigar City is looking for a second location to expand operations. In March, Redner made the announcement, and in October he told Brewbound.com that both Carolinas were under consideration.
"We've purposefully skipped over Alabama and Georgia," Redner told Brewbound. "They really don't have the friendliest legislation, so we took those states off the table right away."
Whereas Cigar City plans to skip the Peach State altogether, some homegrown talent is considering moving out. In September, Dan Rosen and Hamp Covington, owners of brewery-in-planning MAZURT, told CL they hadn't settled on an Atlanta location yet, but that they planned to spend the next year or so brewing their beers on commercial brewing systems in three Southern states: Georgia, and two they're not yet ready to disclose. "In those other two states, we will be able to sell MAZURT directly to the public," Rosen said.
Crawford Moran opened his fourth Georgia beer operation, Slice and Pint, in 2014. He also runs the beer programs at 5 Seasons West and 5 Seasons North, and he once ran the now-defunct Dogwood Brewing Company. Tired of having to turn down customers every day when they ask for growlers, Crawford says Slice and Pint could be his final business here if the state fails to catch up with the rest of the Southeast.
"I would like to open something out-of-state if Georgia doesn't make the small changes we need," Moran told CL in January. "If Georgia doesn't modernize our laws, you'll see a lot of breweries close down. We already don't have as many as we should. But without these proposed changes, I don't see all of these new breweries surviving. It is just too difficult of a business if you can't sell direct."
Editor's note: This story has been updated to correct an error. Hawaii passed legislation in 2014 permitting direct sales.