Reform on Tap Task Force: Maryland Brewery Production and Taproom Limits (2nd Meeting)
Editor’s Note: In full disclosure, I am a member of the Reform on Tap task force and not a third-party observer.
The Reform on Tap task force is scheduled to convene later this afternoon for its third meeting at Monument City Brewing in Baltimore. But before that gets underway, I want to share my “(un)fashionably late” recap of what happened a couple of weeks ago at Calvert Brewing Company in Upper Marlboro, which graciously hosted the task force’s second meeting – and provided a lot of good beer.
As I mentioned, the first meeting was more of a table-setting exercise. A very necessary one, I might add. Given the complex subject matter – and the anticipated representation of diverging viewpoints around the task force table – it was important to kick things off by establishing a shared understanding of Maryland laws and what brought us to that moment.
(If you’re interested and haven’t done so already, I highly recommend you review the presentations from that meeting. They cover everything from pre- and post-Prohibition history, the goals of brewers, national regulatory context and more.)
This second meeting – which focused on production and taproom regulations for Maryland breweries – was where the real, tangible discussion that I think some were hoping for in that inaugural meeting got underway.
Welcome to Maryland, the Land of Rules on Rules on Rules on Rules on Rules on…
I want to start by sharing what I believe to be a very powerful visual:
While it was touched on somewhat in the first meeting, Comptroller of Maryland Peter Franchot’s Field Enforcement Division Director Jeffrey A. Kelly spent his time reviewing the regulations and restrictions that are currently in place – or will be going into effect on July 1, as a result of House Bill 1283 – for Maryland breweries.
Specifically, the rules governing production, contract brewing and sales through taprooms.
The reason why I chose to highlight the above handout regarding taproom sales is because it illustrates one of the biggest challenges small, independent craft brewers – and perhaps many other small businesses in the state – face.
Where other states seem to streamline their rules or embrace no limits around breweries, Maryland is a proverbial Smith Island Cake of layered regulatory complexity and confusion. (Many layers of chocolate and cake is awesome; many layers of rules that are completely divergent from national norms is a headache.)
This legal circus is then further compounded by county home rule. For those unfamiliar, this means that Maryland counties can govern certain aspects of state laws as they see fit, based on their own county code. (That’s why Anne Arundel County didn’t allow Class 5 breweries – which were legal at a state level – until room was made for them as a “permitted use” in the county’s zoning code a few years ago.)
For example, Class 5 breweries (ex: Flying Dog, Jailbreak, Heavy Seas) that are currently operational – or had their paperwork completed by a certain date – are grandfathered into the operating hours afforded to them at a county level, based on their licensing. But thanks to House Bill 1283, new Class 5 breweries in planning will be held to a statewide standard going forward, that will put them at a competitive disadvantage against other older Class 5 breweries who may be allowed to stay open later, depending on their county.
Because that seems fair and makes sense.
Wait, What Does the New Contract Brewing Law Even Mean?
If you haven’t had the pleasure of hearing Kelly speak about Maryland alcohol regulation, let me assure you the man is a wealth of knowledge – both from a current enforcement perspective, as well as historical context.
Which makes the video below so important.
On the one hand, as Kelly rightly points out, making contract brewing legal in writing at a high-level was one of the positive outcomes of House Bill 1283.
On the other hand, well… the footage from that meeting speaks for itself.
In order to explain the laws, Kelly had to note that he was pretty sure he understood the law, but also mentioned that if you asked five people, you may end up with five different variations regarding what the new law actually says.
Here’s the short version (if there is such a thing): If you’re brewing beer for yourself, you’re fine. Serve it up however you’d like.
If you’re a Class 5 brewery brewing beer on behalf of someone else, it starts to get a bit messy.
For instance, if you’re a Class 5 contracting out to another Class 5, that brewing partner of yours can no longer pour a single drop of that beer in their own taproom starting on July 1. No exceptions.
If we’re not talking about Class 5-Class 5 contract brewing relationships, it’s allowed, but it’s also very, very complicated. If you’re a Class 5 brewery who has been contracted to brew on behalf of another non-Class 5 brewery, you can sell some of that beer, but there are limits.
The total sale of contracted beer through your taproom can’t be greater than 25 percent of the total amount of beer sold through that taproom for the entire year.
Kelly gave this example for context:
“If you 100 percent contract brew – you make nothing physically, you contract all of it – 25 percent times the ZERO that you physically produce means you can sell none of that [contracted beer] through your taproom.”
“If you sell 75 barrels through your taproom that you make, you can add 25 [barrels] of the contracted brew, because 25 would be 25 percent of the 100. You could sell that.”
That’s only one of the qualifications. As Yoda said in Star Wars, “There is another.”
If you’re on the other side of the equation – wherein your beer is the one being contracted out to another facility, I would invite you to jump to Kelly trying to explain this particular provision at 23:45 in the above video.
But, again, the short version is the new law makes it really hard to make money in the early stages of standing up a brewery with a taproom, if you’re contracting out your beer, because of the strict limitations that will exist come July 1 around the percentage you can sell.
Which brings me to my larger point about these new rules for contract brewing. But first, a (somewhat simplified) contract brewing primer.
Why Contract Brewing Matters and Supports Growth of Maryland Breweries
Contract brewing in the world of craft beer exists for a lot of reasons. But one of its most important functions is that it can be a stepping stone for many small, independent Maryland craft breweries who are just starting out.
While us consumers are used to breweries opening with big fanfare and a physical location right out of the gate – like Jailbreak in Laurel, back in 2014 – not all breweries are able to do so.
Full Tilt Brewing, which is looking to open a brewpub in the near future, is a perfect example. They got their start contracting out of facilities like Peabody Heights Brewery in Baltimore. Having a few years of contracting their beer to be produced and served (to a degree) by Peabody Heights empowered them to get their brand – and their beer – in front of potential beer drinkers, as they gathered the necessary capital required to open their own facility.
In another scenario, a brewery that already has their doors open may find themselves in a situation where consumer demand for a product outstrips their ability to produce it. This is a critical moment for breweries, because the quickest way to stall or permanently halt the momentum of brand development in the market – especially a market as crowded as local craft beer – is to fail to meet that demand. So, in cases like this, a brewery may reach out to another brewery for a helping hand.
That’s not even taking into account what contract brewing means to the breweries who are actually manufacturing the contracted product.
Finally, distributors and retailers also benefit from contract brewing. Because the more breweries are able to either open their doors or ensure they are able to meet the demand for their product, the more their distribution and retail partners will have to sell. It’s that simple.
Let’s Go Back to the new Contract Brewing Laws (and the Video of Kelly’s Explanation)
With this context in mind, I want to go back to the double-edged contract brewing sword that is House Bill 1283.
As I said before, the general presence of contract brewing in this new law – not taking into account the details of the provisions themselves – is a positive.
However, the five(ish) minutes required for Kelly to try and help the audience and the task force understand what those laws meant is a big problem. It’s essentially another manifestation of the Smith Island Layer Cake of regulatory hijinks I shared above with the taproom sales comparison chart – but, of course, much less tasty.
In fact, that was really the theme of the whole day. Maryland may be “open for business,” but like that one “perfect” season for the New England Patriots, there is a glaring asterisk.
Maryland breweries are drowning under a mountain of regulations they need to follow in order to keep their doors open, and a good number of them fall into two buckets: They’re arbitrary, or they’re virtually indecipherable. (Sometimes, they’re that extra potent combination of arbitrary and indecipherable.)
Hogan Declined to Sign House Bill 1283
I want to take a step back from recapping the task force meeting for moment to highlight another related event that occurred in the past couple of weeks.
Although Sen. “Mike” Miller likened Franchot to a voice wailing in the wilderness against House Bill 1283’s never-ending parade of hurdles for brewers (apparently as a result of feeling left out and wanting to clamor for relevancy), it turns out the Comptroller was not alone.
On May 26, Gov. Larry Hogan – in a letter addressed to the Honorable Michael E. Busch, the Speaker of the Maryland House of Delegates – stated he would not sign the bill before it passed into law.
Here is an excerpt:
“…House Bill 1283 contains several troubling provisions, which will more than likely prove detrimental to Maryland’s burgeoning craft beer industry – hampering the economic growth, job creation, and tax revenue it produces.
This legislation punishes new entrants into the market through shorter tap room hours, requires an onerous buy-back provision for breweries seeking to sell more than 2,000 barrels, and places limits on contract brewing, which hurts an integral piece of many brewers’ business models.
It is clear from the debate surrounding this bill that Maryland’s beer laws – dating back to the end of Prohibition – are in need of reform as they threaten to reverse the incredible growth of our state’s craft brewing industry. Failing to do so will possibly force new and existing breweries to look outside of Maryland to expand their operations.
Indeed, Virginia has already seized upon HB 1283 and the unfriendly perception it created to lure not only start-up breweries, but to pursue Maryland’s existing breweries.”
Some consumers consider this letter from Hogan to be “too little, too late” – nothing more than a reactionary, empty, ceremonial gesture. Though I can understand why they see it that way, I don’t entirely agree.
Could he have been a little more vocal earlier on? Sure. But without this bill, Guinness would not come to Maryland. Period, end of story.
This was not only a loss legislators were not willing to consider, but also Maryland craft brewers. Those guys (and gals) were ready to welcome Guinness to the Free State brewing family, because Guinness would elevate the profile of Maryland beer tourism for everyone. Everybody wins.
And, if you consider the alternative of Hogan having vetoed the bill, the brewers would never escape the cloud of blame of losing Guinness for Maryland.
I will spare everyone a relitigation of House Bill 1283, but that’s why this bill was such an impossible and unfair burden for Maryland craft brewers to navigate – where even the small wins paled in comparison to the “compromises” they were forced into making.
So, once the House chose House Bill 1283 as the vehicle to bring Guinness to Maryland, there was no unringing that bell.
Maryland Can Be Great for Beer… and in Many Ways, It Already Is
Michael Scarborough of Calvert Brewing and Julie Verratti of Denizens Brewing.
One of the things that bums me out – for lack of a more polished term – is this whole mess has completely overshadowed the fact that there are a lot of Maryland brewers who are proud to be Maryland brewers. Not only that, they chose to stand-up shop and succeed in Maryland, in spite of its… idiosyncracies.
That’s why I was glad when Julie Verratti, cofounder of Denizens Brewing Co. in Silver Spring, mentioned this during the second meeting.
As a Silver Spring native, Verratti wanted her brewery to be in Silver Spring – it’s home. Additionally, Maryland does have its flaws; but when it comes to matters of equality for the LGBTQ+ community – where Denizens is an inspiring and leading voice among regional brewers – she pointed out that Maryland has a distinct edge over its neighbors.
There is much to be celebrated already about Maryland, which can sometimes be easy to forget. And, as Michael Scarborough of Calvert Brewing so rightly pointed out in his opening remarks, this is not a Republican or Democratic issue. Beer is one of the few things in today’s political climate that seems to cross party lines – for better, or for worse – with ease.
That said, there is still a lot of work to be done.
You can follow along with today’s third task force meeting live on the Reform on Tap Facebook page. It all starts at 3 p.m. Eastern. If you are reading this post after the meeting has taken place, the video will also be archived in a post at the link above.