A new bill would end a time-consuming bonding process needed to get a license for Michigan-based craft beverage producers and certain out-of-state companies that sell alcoholic beverages in Michigan.
Under the Michigan Liquor Control Code, makers of beer, wine and mixed-spirit drinks need to submit a surety bond of up to $1,000 to the Michigan Liquor Control Commission (MLCC) before receiving a state license. The bond is designed to ensure the company pays the required state excise taxes for the alcoholic beverages it sells in the state.
Craft beverage manufacturers say while the bond itself may not be very costly, the bonding process has become onerous and time-consuming for both the producers and the state.
Senate Bill 320, sponsored by state Sen. Peter MacGregor, R-Rockford, calls for the elimination of that bonding process.
“It’s a cool bill in that it negatively impacts no one that we can figure out and it makes government more efficient in a good way,” said Scott Newman-Bale, partner at Bellaire-based Short’s Brewing Co. and president of the Michigan Brewers Guild, which has been pushing for the move. “They’re a massive amount of paperwork with absolutely no benefit for anyone.”
Passing the bill would offer “a benefit for brewers who won’t have to waste time and expense,” he said, as well as eliminate a paperwork bottleneck at the state regulatory agency, which needs to process and track the bonds.
According to Newman-Bale, lawmakers have been strongly supportive of changing the law to get rid of the requirements.
An analysis included in the nonpartisan Senate Fiscal Agency report on the bill described the bonds as “rarely consequential,” noting the MLCC “has not claimed on a bond in quite some time.”
“Still, even if the Commission did claim on bonds more frequently, the amount bonded for is insignificant for the amount of work that must be done to fulfill the bonding requirement,” Legislative Analyst Drew Krogulecki wrote in the report. “Moreover, some believe that the effort needed to fulfill the bonding requirement outweighs the benefit provided to the State in the event that the State chooses to claim against the retailer’s bond.”
Newman-Bale cited the bonding process as often the most significant roadblock for new breweries trying to secure a new manufacturing license from the state. In the Senate Fiscal Agency report, Krogulecki wrote that eliminating the bond would “streamline the application process” for licenses and “remove additional processing time for the State.”
A separate fiscal analysis determined eliminating the bonding requirement would have “a minor positive fiscal impact” for the Department of Licensing and Regulatory Affairs, of which the MLCC is a part.
“It’s one of those things where the requirements have always been out there and we’ve always had to do them, and when we started asking the question why, no one had a good answer,” said David Ringler, owner of Cedar Springs Brewing Co. and treasurer of the Michigan Brewers Guild. “There didn’t seem to be any good reason.”
The elimination of the bonding requirement also is proving to be an issue where stakeholders in various parts of the industry and the state all agreed that it made sense, Ringler said, noting his company paid about $300 annually for the bond.
According to Ringler, the initial application for a bond required the most paperwork and time for his company, but every little bit of time and money that small businesses such as his can save is important.
“Everybody’s view was that it wasn’t serving any purpose and could be easily eliminated,” he said.
Eric Fouch, co-owner of Thornapple Brewing Co. in Cascade Township, said he’s typically worked with an insurance agent to secure a bond for his company. While that process has been “no big deal” for the company and costs about $450 annually, Fouch said the process is based on “an outdated premise.”
“I support any legislation to have them eliminated,” he said of the bonding requirements.
The bipartisan bill was first introduced in May and was reported out of the Senate Regulatory Reform Committee without amendment in mid June. The bill currently is awaiting a vote before the full state Senate. Supporters expect it to move quickly through the legislative process before the end of the year.
“It’s rare if nonexistent that you ever see a piece of legislation that makes so much sense without any negative impact,” Newman-Bale said.
Some Michigan craft brewers also are hoping lawmakers will consider addressing the state registration requirements for beers sold only in a brewery taproom or by brewpubs, which are not allowed to distribute under existing licensing restrictions. Currently, all beers sold in Michigan must be registered, even if they are only sold at the company’s own premises.
As well, a cadre of breweries are pushing the state to revisit the 1,000-barrel cap on self-distribution. The 2014 law backed by the Michigan Brewers Guild allows breweries that produce less than 1,000 barrels of beer annually to bypass the wholesaler tier and sell directly to retailers, bars and restaurants.
At the time, supporters hailed the move as a win for small breweries, who make more margin on self-distributed beer than they would by going through a distributor.
Now, owners of Detroit-based Easern Market Brewing Co. are leading an effort to expand the cap to 30,000 barrels. In an interview with Crain’s Detroit Business, co-owner Dayne Bartscht said the brewery plans to expand but will soon run into the 1,000-barrel cap, which he said will limit the company’s ability to grow. It wants to keep self-distributing its beers because it doesn’t want to lose 30 percent of its sales to a wholesale distributor.
“We’re kind of at a pivot point,” Bartscht said in the report.
In early July, the company began to rally support via an online petition, which had more than 3,400 signatures at the time this report went to press. Backers cited the higher caps in other states, including across the Great Lakes region, as reason to revisit the current law.
Industry insiders worry raising the cap would create two classes of breweries, since most of the companies that have surpassed the 1,000-barrel milestone have already sold distribution rights to a wholesaler. Some states have addressed the issue by allowing breweries simultaneously to self-distribute and sell beer via a wholesaler.
Newman-Bale hopes to find a balanced solution that expands self-distribution while not penalizing companies operating under the current law that have signed with a distributor. How the issue will wind up in Michigan remains up in the air for now, especially given some of the complexities inherent in the state’s liquor laws.
“My belief is that the guild is supportive of some increase in self distribution. However, it’s a very complicated issue,” Newman-Bale said, noting the guild has been working to avoid getting into adversarial discussions around the issue like it had in the run-up to the 2014 law. “We’ve been engaged in the conversation for many years, but it’s getting closer.”