A series of bipartisan bills fast-tracked for the state Legislature’s lame-duck session would redefine the laws governing how Michigan-based alcoholic beverage producers operate.
The 15-bill package of legislation, which cleared the state Senate with unanimous support in late November and was being considered in the House as this report went to press, has the potential to upend the business model for some companies in the state that produce beer, wine, cider and spirits, while also clarifying some of the language in the laws adopted earlier this decade.
In some cases, such as for craft distillers, the bills would expand their economic opportunity by allowing them to serve and charge patrons for full pours and cocktails in their tasting rooms, where they previously were allowed to offer only small samples. But the legislation also would impose production mandates and minimum equipment standards for secondary tasting rooms for the state’s craft brewing industry, adding thousands in costs, as well as shift their ability to offer wine and cider.
Under current state law, which does not include minimum production or equipment requirements for satellite locations, a handful of Michigan microbreweries opened secondary taprooms around the state with minimal brewing capabilities and legally transferred in beer from their main brewing operations, helping with economies of scale.
Those transfers would still be legal under the proposed changes, but a brewery would have to brew at least 50 percent of its beer on site at the secondary location, or have installed at least a 3-barrel brewhouse, at a typical cost of around $100,000 or more. Microbreweries licensed before Oct. 1 of this year would be grandfathered in under the proposed law.
Likewise, a brewery with a small wine maker license or a small distillery license would need to manufacture an unspecified amount of wine or spirits on site before being able to transfer in those products from another bonded facility.
Proponents of the bills argue the changes were needed to prevent breweries from unfairly competing with bars and restaurants who pay tens of thousands of dollars for their liquor licenses.
“Independent small bar owners, they’re looking across the street at a microbrewer who is not brewing any beer, who is getting a small winemaker license but not making any wine, who is getting a distiller license but not making any distilled spirits, but selling all that and competing head on,” said Spencer Nevins, president of the Michigan Beer & Wine Wholesalers Association. “They never invested in the Class C license or tavern license. All they did is they went out and got a $100 manufacturing license and then didn’t even put in any equipment.
“They … were operating as a Class C license without making that investment. This package now doesn’t get into making them get a Class C license; we wouldn’t want that. But it now says, ‘Well, you’re actually going to manufacture something.’’
For the most part, existing Michigan microbrewery owners seem publicly supportive of the changes, which had the backing of the Michigan Brewers Guild. That’s true particularly among the craft purists, who believe brewery taprooms should showcase the brewing process to the public.
“The idea of the new legislation is actually to provide some clarity and clear definitions of what is manufacturing, what you can’t and can do, whereas there’s a lot of gray area that people have argued about in the current legislation,” said David Ringler, founder of Cedar Springs Brewing Co. LLC.
However, other brewery owners speaking on background described the bills as a power play by well-connected political interests — particularly from the Beer & Wine Wholesalers Association, but also involving the Michigan Restaurant Association, and the Michigan Licensed Beverage Association — to limit the ability of breweries to open satellite locations and place impediments on transfers that do not go through the distribution tier.
One brewery owner described those motivations as “pretty dumb” and called them an example of distributors being “butt hurt” because they’re not getting a piece of the intra-company or bonded transfers.
“Distributors have no right to that beer. It’s shocking to me that most brewers don’t care, but I think that’s because most brewery owners aren’t capitalizing on the brilliant idea of multiple taprooms, so it doesn’t really affect them,” the owner told MiBiz on background.
For years, Michigan’s small wineries, as well as microbreweries that also held small wine maker licenses, have relied on the ability to buy wine from other bonded producers and transfer those products into their own bonded facilities, as allowed under federal law, to which state law deferred to govern the industry.
Federal law allows a bonded winery to buy wine in bulk or wine that is unlabeled and resell it, without any requirement that they perform any of the actual winemaking process.
However, the new state bills go beyond the federal requirement and would require the receiving winery to manufacture an unspecified portion of the wine it sells. Under the proposed changes to state law, a winery could not simply bottle bulk wine or affix a label to a bottle and count that as producing it.
The new legislation applying to beer, wine and spirits defines “manufacture” as the process to “distill, rectify, ferment, brew, make, produce, filter, mix, concoct, process or blend” the alcoholic beverage, or completing a portion of one or more of those activities. The new definition specifically says the act of bottling or affixing a label to a shiner — an unlabeled bottle of wine transferred from another producer — is not counted as manufacturing.
The transfer issue came up in recent months as Michigan Liquor Control Commission (MLCC) enforcement started writing violations for breweries that followed federal law with regards to wine, but did not manufacture wine or cider on their own premises, as the bills’ proponents say the spirit of the original law intended.
In one case, a brewery in Grand Rapids was fined $1,800 by the MLCC and forced to place its small wine maker license into escrow.
“I think it’s going to clear up some confusion that’s been out there about what is and isn’t allowed,” said Brian Lesperance, vice president at Fennville-based Fenn Valley Vineyards Inc. “If you’re an actual winery, then you should have the rights and the privileges that come along with it, which would include being able to transfer wine between legitimate manufacturers.”
Of the three alcoholic beverage sectors, Michigan’s craft distillers stand to benefit the most from the legislative changes, according to industry sources.
While they must adhere to the same definition of “manufacture” to be eligible to receive bonded transfers, distillers can now serve full pours and cocktails by the glass at designated tasting rooms across the state, beyond just at their manufacturing premises.
The new law capped at five locations the number of winery and distillery tasting rooms that can offer full pours, but they are allowed an unlimited number of licensed tasting rooms that just offer samples not exceeding 3 ounces for wine and half an ounce for spirits and brandy.
Distilleries and wineries also can operate restaurants at their tasting rooms.
According to Jon O’Connor, co-founder of Long Road Distillers LLC and president of the Michigan Craft Distillers Association, language in the bills “cleared up some ambiguity” in the laws governing the sector.
“We hope this provides a clearly defined set of rules that we can operate with,” O’Connor said. “The goal (with the legislation) is to do this right.”
That’s a sentiment echoed by Nevins of the Beer & Wine Wholesalers Association, who stressed that the various trade groups sat down with the producers’ associations and the MLCC to hammer out compromises that would eliminate confusion with the existing law and “put some certainty around just what was required to be a manufacturer of beer, wine, distilled spirits and how you can operate tasting rooms.”
“Anybody who thinks that somehow it’s benefiting the distributor, getting them a piece of that action, that’s inaccurate,” he said of the proposed legislation around secondary tasting rooms and transfers between two alcoholic beverage manufacturers. “We’re not involved in those transfers at all and we never sought to be.”