Clarifications on Breckenridge Brewery's Sticky Situation

Today the Denver Business Journal reported that Breckenridge Brewery is looking to expand out of state due to Colorado laws that prohibit an in-state expansion. We posted a link on our FB page to the Denver Business Journal article that brought it to our attention, but I thought I'd share it here too in case you didn't see it. I also want to try to wrap my head around all this and put a bunch of information, from multiple articles all on one page, and to clarify a few questions in my head. A good amount of the information here is from the Denver Business Journal, but I also borrowed from Westword, and I quote from emails with Breckenridge Brewery and the Colorado Beer Distributors Association.

Breckenridge Brewery has been looking to expand it's capacity from 45,000bbl/year to 60,000 this year, and 130,000 by 2015 but may need to look outside of Colorado for their expansion. There is a law in place from 1995 that limits the production of brewpubs to 60,000bbl per year. Breckenridge is near that capacity and has sought to expand beyond the cap. House Bill 1347 would have raised the limit to 300,000bbl per year and the expansion would have brought 50+ jobs to Colorado. Apparently though, the bill was not voted on and will put Breckenridge in the sticky situation of possibly looking elsewhere for expansion. The DBJ says the East Coast is where they're looking. The Denver Westword reports "Not so fast, says Todd Usry, brewmaster and operations manager. 'We will be evaluating all of our options over the next couple of days.'"

Breckenridge may be one Colorado brewpub to approach this cap, but in all honesty, the way things are going there could very well be other craft brewpubs in the near future that would like to expand beyond the cap as well. What's that mean for them? Must they change business models?

Some might say this is the fate of a brewpub in Colorado. I was surprised to read that Colorado Beer Distributors Association opposed the bill. A lobbyist is quoted on the DBJ saying changing things would upset the balance of the three-tier system, and Steve Findley, president of the CBDA says it would open up the possibility of larger beer manufacturers to join in on the brewpub scene and "create a chain of brewpubs serving nothing but their beer and dominate Colorado’s market." The Denver Business Journal further reports:

But Rep. Beth McCann, D-Denver, questioned that logic, noting that very large breweries like Anheuser-Busch and MillerCoors operate under a manufacturing license in the state now.

Brewers can’t hold both a manufacturing and a brewpub license, and giving up a manufacturing license would mean they could not have major financial interest in distributorships, as both breweries now do, she said.

But I suppose Breckenridge could become that company that dominates the market in this case? This could give advantage to Breck over smaller brewpubs.

The crazy thing to me though, is that larger beer manufacturers like MillerCoors and Anheiser-Bush ALSO oppose the bill! Terry Usry, Public Relations at Breckenridge says "The proposed legislation included these changes to brewpub licensing: Raise the 60,000 cap to 300,000 barrels annually for licensed brewpubs. Those brewpubs over 60,000 barrels forego any rights to self distribute and would have to use a licensed wholesaler for all distribution." In other words they would have to get a third-party distributor to sell off-premise. State Rep. Jim Kerr, R-Littleton, who proposed HB1347, thinks the fear from the two large manufacturers "arose from fear of increased competition...He added the clause requiring third-party distribution because both companies own distributorships in the state".

A lot of consumers seem to be pretty upset by the whole situation. They're asking What's a growing brewpub gotta do? Stay the same, don't expand? Hey Breckenridge, you're causing too much trouble for the big guys and you just might cause problems for little guys? People want homegrown Breckenridge Brewery to expand production here.

To be fair, I emailed Steve Findley, executive director of the Colorado Beer Distributors Association and asked him to clarify the reasons for any opposition to the bill. He replied,

As for our opposition to the HB 1347, it had nothing to do with fearing any increased competition or keeping Breckenridge from reaching their potential in Colorado. The brewpub bill's original intent was to give special privileges to the smallest producers to get established. Raising or removing the cap would be extending those privileges to very large producers...The CBDA Board of Directors – and a coalition of like minded industry members – didn’t think it was fair or advisable to allow one brewpub to seek special exemption from the law.

A brewpub that produces 60K barrels or 300K barrels is no longer small. Take a look at the Brewers Association's definition of a brewpub- Breckenridge is considered a regional brewery. Moreover, there is at least one example of a brewpub in Colorado that has switched to a manufacturer's license is doing quite well. That's the point. There are options available for successful brewpubs that want to become brewers, and not restauranteurs.

One important note: this is nothing personal against Breckenridge. We distribute their beer, love selling their beer and they are a great supplier.

This makes sense to me, but I also can't fault Breck for trying it out. I'm curious to hear your responses?

Breckenridge Brewery has been using their social media efforts, and a recent press release, to clear the air of any misunderstandings, they are not leaving Colorado, as far as I can tell no one at the brewery said anything about an actual relocation, they're looking into their options. Their email says "Breckenridge Brewery is proud of its Colorado heritage and is thankful for the interest in its future plans. We're exploring all of our options as we continue to grow our business in Colorado and across the U.S. We look forward to sharing more information on our plans as they progress."

Do you have thoughts on this topic?

Some of this information was gathered from three Denver Business Journal articles, all written by Ed Sealover, in chronological order, from here, here, and here.

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