Why the End of 'Craft' Beer Is Just a Tax Break Away

Updated with clarification from the Beer Institute regarding its stance on the competing legislation and Deschutes Brewing and Matt Brewing's role in the process

PORTLAND, Ore. ( TheStreet) -- Garret Oliver has been brewmaster at The Brooklyn Brewery since 1994. He was the brewmaster at Manhattan Brewing before that and has served as editor-in-chief of The Oxford Companion to Beer, written two other books on beer and continues to make a series of brews that gets all the beer geeks excited.

At some point this year, a person who claims to love beer is going to say that Oliver isn't a craft brewer because of a stance his company took on excise taxes. If that happens in your presence, pull the beer out of that person's hand and pour it over his or her swollen head. They don't deserve it.

Earlier this week, Brooklyn Brewery joined Bend, Ore.-based Deschutes Brewing, Utica, N.Y.-based Saranac brewer Matt Brewing and Kalamazoo, Mich.-based Bell's Brewery in Washington, D.C., to ask Congress to support reducing the excise tax on the nation's brewers. While in town, those brewers offered varying levels of support for the Brewers Excise and Economic Relief Act of 2013 (BEER Act), would reduce the federal excise tax on beer for all brewers and beer importers. The act, introduced by U.S. Reps. Tom Latham (R-Iowa) and Ron Kind (D-Wis.) with 33 original co-sponsors, would help reduce the overhead on Brooklyn and the others and would, ideally, make it easier for new breweries to break into the business. That, in turn, might actually soften craft beer prices a bit for consumers.

The BEER Act is also supported by Anheuser-Busch InBev ( BUD), MillerCoors ( TAP), Heineken USA, Constellation Brands' ( STZ) Corona distributor Crown Imports and Magic Hat and Pyramid brewer North American Breweries. Unfortunately, that makes it a bit of a sore point for craft beer lobbying group The Brewers Association, of which Brooklyn, Bell's, Matt and Deschutes are full members. That group has been working on its own legislation -- the Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act) with members of Congress including Sens. Ben Cardin (D-Md.) and Susan Collins (R-Maine).

Under the Small BREW Act, law that allows brewers making fewer than 2 million barrels of beer annually to pay $7 per barrel on the first 60,000 barrels they produce and $18 per barrel on every barrel thereafter would be amended. Instead, the smallest brewers and brewpubs would pay $3.50 on the first 60,000 barrels. Once brewers grow to between 60,001 and 2 million barrels, the rate would hit $16 per barrel. Any brewer that exceeds 2 million barrels (about 1% of the U.S. beer market) would begin paying the full $18 rate. Even the Washington-based lobbying group The Beer Institute, which is supporting the competing BEER Act, sees some common ground in the Small BREW Act.

"We believe that the beer industry is aligned in opposition to increased beer taxes," says Beer Institute spokesman Chris Thorne. "There are two different bills that attempt to achieve that through different means, but ultimately, we are united in our position against any increase in beer taxes."

Sounds great, right? The problem is that, under the Small BREW Act, breweries with an annual production of 6 million barrels or more don't get the reduced rate. That's why the big brewers' counteroffer, supported by Washington-based lobbying group The Beer Institute, is a bit more broad. Under their BEER Act, the smallest breweries making 15,000 barrels or less would pay no excise tax. That $3.50-per-barrel rate stays in place for brewers making 15,000 to 60,000 barrels. Brewers making more than that would pay $9 a barrel for every barrel from 60,000 to 2 million. The kicker is that big brewers and importers making more than 2 million barrels would see their tax trimmed from $18 a barrel to $9 for every barrel.

That latter legislation is making the Brewers Association surly for several reasons. For one, it gives every brewer a break, not just the ones the association recognizes as "craft." Secondly, it makes a mockery of that group's "craft vs. crafty" burn lists that keep out brewers such as D.G. Yuengling & Son that survived Prohibition and longtime craft brewers including Craft Brew Alliance ( BREW) members Widmer Brothers and Redhook, who signed a distribution deal with InBev. Third, and this is the most prickly part of the whole equation, it implies that Samuel Adams maker Boston Beer ( SAM) is definitely not craft beer, despite the Brewers Association changing its definition of a "craft brewer" just to accommodate it.

Right now, there are only three breweries producing more than 2 million barrels a year and fewer than 6 million -- Boston Beer (2.7 million in 2012), North American Breweries (2.725 million) and Yuengling (2.79 million). The Brewers Association doesn't like Yuengling because its more-than-a-century-old recipe calls for maize and it doesn't like North American Breweries because it's owned by a Costa Rican conglomerate. It loves Boston Beer, however, because its sales keep the numbers up and its founder, Jim Koch, is sincere in his belief that the continued innovation of Samuel Adams styles keeps his beer "craft." Tough to argue that point, but Boston Beer is more than just Sam and its numbers get a big boost from both Angry Orchard cider and Twisted Tea malt beverages.

Though the Beer Institute clarifies that Gary Fish of Deschutes did not attend any meetings with lawmakers on the BEER Act, and F.X. Matt head Nick Matt made clear his position was in broad opposition to beer tax increases, and not specifically in support of the BEER Act, even those small gestures hold big significance. The brewers that crossed the threshold by supporting or refusing to outright dismiss the BEER Act -- and make no mistake, a line was crossed -- aren't exactly lightweights themselves. When the Brewers Association ranked its Top 50 craft beers by volume, Deschutes, Bell's, Matt and Brooklyn ranked No. 5, 7, 8 and 11, respectively. Among all American brewers -- including A-B InBev, MolsonCoors, Pabst and some of the castoffs mentioned above -- they rank No. 12, 14, 15 and 18. Their production is still less than a quarter of Boston Beer's, but they're among the Brewers Association's heavier hitters and are brands that group proudly considered "craft."

More importantly, they helped the Brewers association increase its revenues 23% last year, to $13.4 million. That's nearly double the $6.8 million the group amassed in 2008 and has given the organization a war chest of $1.3 million in cash on hand and $5.6 million in its reserves, according to Beer Marketer's Insights. That's not a huge stockpile in D.C. terms, but it's a huge increase in lobbying power for such a small organization.

The problem is that it's not clear who the Brewers Association is spending that money for. Even its strongest allies are having a hard time fitting the definition of "small" brewers lately. 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.

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. Boston Beer shares have traded publicly for years.

So what happens now? Does the Brewers Association excommunicate the whole lot of them and throw them into the "crafty" pile with Goose Island, Widmer, Red Hook, Magic Hat, Pyramid, Mendocino and all the other breweries it's tried to strip of the "craft" label for esoteric reasons? Or do brewers push drinkers a step closer to ditching the "craft" label altogether and calling it all "beer?"

When those choosing the latter include Oliver and brewers such as Ken and Rob Widmer and Larry Bell -- who've been in the industry for 30 years apiece -- the end of "craft" may be a tax break away.

-- Written by Jason Notte in Portland, Ore.

>To contact the writer of this article, click here: Jason Notte.

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