Watch now: Craft brewers, distributors at odds over proposal allowing for limited self-distribution | Local Business News

Starting in 2016 with two different beers and a pub in downtown Hastings, First Street Brewing Company’s products were soon flowing from taps across Nebraska.

Then came the coronavirus, and with it public health measures that forced bars and restaurants to reduce capacity or close, pumping the brakes on the state’s growing craft brewing industry.

First Street Brewing had started canning its product before the pandemic and anticipated resuming its growth after the public health restrictions were lifted.

Instead, First Street Brewing lost the distributor that had helped it find an audience in Lincoln and Omaha, said Nathan Hoeft, who co-founded the company with his wife, Jessi, while other distributors he reached out to told him they were uninterested in taking on new suppliers at that time.

“I don’t blame them at all,” Hoeft said in a phone interview last week. “We’re all trying to figure out how to run our businesses post-pandemic, and we are continuing to work on that a few years later.”

While First Street Brewing’s mainstays and seasonal brews can be found throughout greater Nebraska, the company has struggled to get back into Lincoln and Omaha for nearly two years.

As a three-tier state — a system set up in states across the country after the 18th Amendment was repealed and Prohibition ended — producers such as First Street Brewing can only sell their beers to wholesale distributors.

The distributors, in turn, then sell the beer to retail market locations such as bars, liquor stores and groceries.

There’s just one catch, Hoeft said.

“There’s nothing in that law that says (the distributors) are required to pick me up because they are not an arm of the state,” he said. “So, I have distribution throughout much of Nebraska, but I don’t have any presence in the two largest beer markets.”

A pair of bills heard by state lawmakers on the General Affairs Committee would allow craft brewers to distribute their own beers to retailers if they are unable to find a partner willing to put them into a certain market.

But the proposals, both introduced by Sen. John Lowe of Kearney, differ in how much and where the craft breweries could distribute on their own, putting the producers and the distributors at odds in a marathon hearing last Monday.

The first bill (LB1235) would allow a small brewery to apply for a special liquor license to sell up to 500 barrels — roughly 1,000 kegs — of beer annually using the brewing company’s employees and vehicles.

Under the “nanobrewery” license, brewers could only sell their beer in markets where they do not have a distributor, and could only continue selling their beer through the end of the calendar year before they would be required to relinquish their wholesale license.

The second bill (LB1236) would allow breweries to self-distribute an undesignated amount of beer — brewers have indicated they were comfortable with the cap being set at 1,000 barrels — to retail locations across the state while also maintaining relationships with their existing distributors.

Lowe said the bills were the result of unfinished negotiations that took place last year between craft brewers and distributing companies: “A problem exists, and we negotiated in good faith but ran out of time.”

Nebraska’s distributing companies came out in full-throated support of LB1235, saying they recognized the need for Nebraska’s independent beer producers to sell their beer in markets, but said there should be limits in place to ensure “an orderly market” is maintained.

MaryKate Scheinost, general manager and co-owner of High Plains Distributing in Scottsbluff, which works with 17 suppliers and has 250 accounts across 14,000 square miles, told the committee LB1235 was “a fair and equitable solution.”

“Once a nanobrewery has produced and distributed 500 barrels, their finances and efforts are best served by piggybacking on existing infrastructure,” Scheinost said. “If each of us in the beer business does what we’re best at, then we all benefit, including the consumers.”

Other distributors, many of whom told the committee they had taken over multi-generational family businesses, also backed LB1235 as the best option, saying it provided a clear framework for what craft breweries could and couldn’t do.

Dave Tims, president and general manager of Premier-Midwest Beverage Company, a distributor based in Omaha, called the 500-barrel figure in LB1235 “a fair number.”

John Fordham, president and general manager of State Distributing Company in Lincoln, said the distributor welcomed “any and all newcomers in Nebraska” whether they were suppliers or retailers.

“If you need a keg of beer, call me and I’ll deliver it,” Fordham announced.

And Milan Knezovich, president of K & Z Distributing of Lincoln, said distributors are eager to work with small brewers, which make up about 4% of the beer sold in the state.

“If a truck’s going there and I can add one case of beer it’s making me money,” Knezovich said.

But brewers said nothing in LB1235 guaranteed they would be picked up by a distributor once they hit the 500-barrel production cap in a given year, and said LB1236 provided them better access to markets where they were unable to find a wholesaler partner.

Cory Sinclair, a co-owner at Backswing Brewing in Lincoln, said the company started by friends in a driveway was producing more than 500 barrels of beer from its location on West South Street before the pandemic, when it lost its Omaha distributor.

Since then, Backswing Brewing has been unable to find a distributor willing to take on its business, despite being a sponsor for the Bugeaters FC minor-league soccer team, which will be playing matches at Creighton University this spring.

“Right now, we don’t have a way to get it to the soccer stadium,” Sinclair said.

The distributors the company has approached have wanted the rights to sell Backswing to retailers across the whole state or in Lincoln, where the brewery already has a distributor.

Those have been nonstarters for Backswing, Sinclair said. As are the limits on production.

“The second we sell a few kegs, we’re already above the 500 barrels,” Sinclair said. “If LB1236 passes, we can maintain our relationship with the distributor in Lincoln and self-distribute in Omaha where we don’t have a distributor.”