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Nevada Craft Brewers Face Off With Big Liquor on Production Cap Issue

A half-dozen craft brewers urged a state legislative committee this week to triple their annual barrel production limit. The proponents of Senate Bill 130 said the current cap of 15,000 barrels stifles investment, and has forced Nevada’s largest breweries to cease pub operations as they get too close or exceed the cap.

The Nevada Wine Coalition testified in support of the brewers, meeting with opposition when its executive director said the group will seek an amendment extending to wineries.

SB 130 is sponsored by Senator James Settelmeyer, R-Dist 17, to pave the way for a growing sector to contribute more to the Nevada economy, he told the Senate Committee on Commerce and Labor. Settelmeyer said he arrived at 45,000 barrels by averaging the production caps in other states with higher limits, and boosting the figure to put Nevada slightly ahead.

Great Basin Brewing Co. owner Tom Young told the lawmakers his operation is very close to the limit. If the brewery exceeds the limit, Young would be forced to apply for a different license, the brewer’s license, which would preclude public interaction. The company would no longer qualify for its pub license, and would lose the ability to sell on-premise.

The other route for a brewery that hits the barrel limit is the one chosen by BJ’s, which Young says still has brewpubs in Nevada, but moved its excess production to Texas.

Young compared the tap room experience to the branding of wine in California Wineries.

“If you had a restriction like this in California, you would not be able to visit the wineries in Napa Valley,” he said. “Because that’s where you go to sample the wines, and if you like them you go home and buy them more.”

Young said he’d like to continue winning customers by serving Great Basin products in the brew pub, and selling the excess to Nevada distributors, who also profit from the brand’s success.

Other brewers touted the burgeoning industry’s ability to draw tourists, and its appeal to cities as a redevelopment tool. Reno has revitalized abandoned commercial properties on its Fourth Street corridor by zoning the area for brewpubs, proponents said.

Nevada’s distributors want to maintain the integrity of the three-tier system, said a representative for Southern Wine and Spirits. Alfredo Alonso, testifying on behalf of the distributor, argued for “managed growth,” and called into question whether beer is even a growing category. He cited shrinking federal excise taxes per capita in the United States on beer. He said the distributor would not support tripling the cap as provided in SB 130.

Alonso told lawmakers raising the limit would result in an unfair business practices by the small brewers, and suggested that selling more beer on-premise would put tap rooms in unfair competition with full-service bars.

“If you are indeed a brew pub and you plan to sell beer, and try to get it to the marketplace and succeed, then you shouldn’t have several locations that basically end up being a series of bars and restaurants that can do something no one else can.

“There has to be some cap on what is sold on premise,” Alonso said, “because then you cease to become a supplier and you become a glorified bar. That’s not fair to the existing system, it’s not fair to my clients, it’s not fair to bars that also work hard to get clients.”

Challenged by Settelmeyer to find a way to help the craft brewers grow, Alonso said a separate bill is being written to loosen contractual restrictions that force distributors to favor the big beer companies over the small Nevada brewers. Currently, the big brewers can penalize distributors who don’t give primacy to their brands. The provisions of the other bill would prohibit the penalties.

Alonso also suggested the cap increase is unnecessary for Nevada.

“We’re basically tripling our cap right now and only one person in our state is even close to that number,” he said, in reference to Great Basin. “About 93 percent of the craft breweries in the country are under 7,500 barrels,” he said.

Young from Great Basin countered that there are six Nevada brewers with the capacity to produce 15,000 barrels.

”I think you have to keep in mind that every single brewer in the state wants the ability to grow,” Young said.

Settelmeyer told the panel that 10 other states have no production limits for breweries. The remainder have average of about 36,000, which amounts to 236 barrels. He said the math shows that even under the higher cap, breweries would send out less than one truckload per day.

The Nevada Wine Coalition will seek a friendly amendment to raise production caps on wineries, said Executive Director Randi Thompson.

Alonso said the distributor will be “adamantly opposed” to a wine amendment.

“That was a deal that was hard fought last session, and now they’re coming back to basically break the agreement that was made last session,” he said. “We simply couldn’t support that.”

Thompson says the objection is premature, since no amendment exists yet, and nobody knows what it will contain when it is submitted.

The 2015 legislature changed state law was changed to permit wineries to operate in Nevada’s two urban counties, Washoe and  Clark. The law still carries significant restrictions that the Wine Coalition will try to amend.

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