Dave Coyle expects to sell more beer this year.
However, that could be a problem for Coyle, who owns Arclight Brewing Co. in Watervliet.
Brewers are allowed to self-distribute their products to restaurants and grocers if they produce fewer than 1,000 barrels a year. Beyond that 1,000 barrel cap, they must sign on to work with a distribution company to take their product and sell it on their behalf.
Distributors often take around a 30 percent cut of profits – an obvious obstacle for some breweries. A law change, some brewers say, would give them a fighting chance.
“We don’t have the volume of scale to compete,” Coyle said. “We’re producing a small amount of beer compared to others. Without having the overhead of hiring a distributor, we can be competitive in the market.”
Enter state Rep. Pauline Wendzel, who unveiled legislation at the 2020 Michigan Brewer’s Guild Winter Conference and Trade Show that would increase the amount of product a microbrewery can self-distribute in Michigan.
Wendzel’s proposed legislation would double Michigan’s self-distribution limit from 1,000 barrels per year to 2,000 barrels annually. The bill would also exempt taproom sales from counting toward a brewery’s self-distribution limit.
“Craft beer in Michigan is a booming, billion-dollar industry that supports nearly 10,000 jobs in communities throughout our state,” Wendzel told attendees at the winter conference. “Michigan is the craft beer capital of the world, and my bill will help create an even better environment that allows brewers to grow and thrive.”
Wendzel’s legislation is expected to be introduced in the coming weeks as the lead bill in a larger package that aims to reduce regulatory hurdles to Michigan brewers and distributors.
Scott Graham, executive director of the Michigan Brewers Guild, said the organization began working with Wendzel on what could be included in the bill several months ago.
Based on feedback from brewers within the state, Graham said the house bill would give brewers some breathing room from the self-distribution cap.
“It’s an access-to-market issue. The state has limited self-distribution,” he said. “Most craft beer gets sent out to a wholesaler from a distributor, which gets the product from the brewery. More wholesalers and distributors are consolidating and it’s creating a bottleneck for some breweries that are trying to get their product out to market.”
The beer state
According to data collected by the Brewers Association, Michigan had 357 craft breweries in 2018 – making it the fifth highest total in the U.S. (Total numbers for 2019 haven’t been released yet.)
Broken down, that’s 4.7 breweries per 100,000 adults over the age of 21 in the state.
The brewing industry brought in an estimated $2.5 million to Michigan in 2018, while nearly 900,000 barrels of craft beer was produced that year.
“My local brewers came to me and explained that they were running up against a wall,” Wendzel said. “Nearly all 1,000 barrels of product produced is consumed in taprooms, leaving very little to be distributed to retail outlets. Doubling the self-distribution limit and exempting taproom sales will allow brewers to grow their business to a point where signing a distribution contract makes sense.”
Graham said the house bill keeps self-distribution a possibility for some breweries to sustain business.
“It’s a considerable piece of work to sell the beer and distribute it,” Graham said. “Breweries already work in a heavily regulated environment. All of the rules and laws and taxes apply to a brewery tend to stack up. We need to make sure that as things evolve and change, to have a voice representing breweries at the table.”
Referred to as House Bill 5343, the legislation is expected to be bipartisan and has gained the support of Southwest Michigan craft brewers.
Matt Moersch, CEO of Moersch Hospitality Group – which owns Round Barn Brewery & Public House – said self-distribution wasn’t a thing for the craft beer industry until five years ago.
On the beer side of operations, Round Barn produces about 1,800 barrels, but about 60 percent of that is sold through a distributor, Moersch said.
As the owners of Round Barn Winery, the company was able to self-distribute its wine when the vineyard opened in 1992. Moersch said it was great for them in the beginning.
However, the winery grew big enough to where it sought help in distributing their wine. That would have been the case for Round Barn’s brewery had there not been a low threshold for how many barrels could be self-distributed.
“We little guys have to rely on legislators like Wendzel to have a voice,” Moersch said in reference to wholesaler lobbyists. “This gets them (new breweries) started faster to introduce their products. It helps them in the beginning phases. Otherwise they would have to sell double the amount to wholesalers to make the same amount.”
Coyle got involved through a statewide effort by the owner of Eastern Market Brewing Co., which launched an online petition to increase the barrel production to 30,000 barrels for self-distribution.
Ironically, the top four states in craft beer have self-distribution limits of 60,000 barrels, with the exception of Colorado, which allows 10,000 barrels.
In 2018, only five Michigan breweries produced more than 30,000 barrels, and only Founders and Bells produced more than 50,000 barrels.
“Outside of Founders and Bells, this state is made up of a lot of smaller breweries,” Coyle said.
Coyle reached out to Eastern Market Brewing Co. and was told to contact his local legislators. This interaction prompted him to reach out to Wendzel in the summer of 2019.
Arclight, which opened as a self-distributing microbrewery in July 2014, has become known for its sour beers. As Coyle plans to expand this sour beer production, he said they are more than likely to surpass 1,000 barrels in a year.
“Even with this bill, the interesting thing is we are the lowest among every state in self-distribution limits,” Coyle said. “Most states go with 5,000 barrels. Michigan was the lowest, and with this change, will still be the lowest.
“But it’s a welcome change, don’t get me wrong.”