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Why Success Is Killing the Craft Brew Industry

Did we say "acknowledges"? I think we meant "grandfathered in." You see, the Brewers Association is very particular about who's in the craft club and who isn't, going so far as to create "craft vs. crafty" burn lists to separate the worthy from the wannabes. Does your legacy brewery that survived prohibition have an original recipe containing maize, which the Brewers Association considers an adjunct filler? Sorry, D.G. Yuengling & Son, but you're out. Does your brewery have a deal with Anheuser-Busch InBev (BUD) that keeps your 30-year-old pioneering craft brewery independent while giving it access to a big brewer's distribution system? Sorry, Craft Brew Alliance (BREW - Get Report) members Widmer Brothers and Redhook, but you're out, too.

Does your brewery make malt beverages such as Twisted Tea, have breweries in three states and make nearly $600 million in revenue? Then that means Boston Beer is not only in, but the Brewers Association will change its own definition of a "craft brewer" to accommodate you.

The Brewers Association "craft brewer" definition has always been more about who doesn't fit it than who does, but trying to apply that same definition to tax code is not only dodgy, but somewhat self-defeating. The Beer Institute and Brewers Association had a somewhat uneasy peace mostly because the former openly accepts Anheuser-Busch InBev, MolsonCoors (TAP - Get Report) and SABMiller as members and includes their executives on its board and the Brewers Association hides them way down its membership rolls.

While the Association's beloved "craft" brewers are still nowhere near the size of their multinational competitors, they're not exactly all tiny garage-and-barn operations, either. Chico, Calif.-based Sierra Nevada got its start in the late 1970s and has grown to produce roughly 900,000 barrels of beer. Its founder and chief executive, Ken Grossman, told us last year about the company's plan to expand to a facility in Asheville, N.C., supervised by his son. That would push Sierra over 1 million barrels of production and make Sierra a legacy brewer along the lines of Yuengling, Coors and even Anheuser-Busch.

New Belgium Brewing co-founder and Chief Executive Kim Jordan told us just last month about her brewery's own expansion plans in Asheville and what they'd mean to the company she helped start in 1991. Currently brewing about 750,000 barrels a year, New Belgium's production would also easily exceed 1 million barrels once the facility is completed in 2015.

The growth just continues, as Lyons, Colo.-based Oskar Blues is already brewing in Asheville and California-based breweries Lagunitas and Green Flash announced plans to open brewing facilities in Chicago and Virginia Beach, respectively. Does the Brewers Association exclude any of them from their ranks? On the contrary, it credits them with spurring craft beer's 15% growth by volume and 17% growth in dollars. According to the Brewers Association, craft beer now accounts for 6.5% of all U.S. beer by volume and 10.2% of U.S. beer sales.
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