Amid rise in craft brewing, legislators mull changes to laws on self-distribution, barrel caps

With the popularity of craft beer on the rise, state legislators across the nation have been re-examining their laws to allow for greater growth in the industry, from statutory changes that help increase production to the removal of restrictions on self-distribution. That trend has continued in 2018, with South Dakota and Kansas among the states exploring proposals to assist craft brewers.

The issue has been front and center in South Dakota ever since Gov. Dennis Daugaard’s State of the State address. 
Laws restricting production and distribution by microbreweries hamper an industry with growth potential, Daugaard told legislators, pointing to the disparity between South Dakota and neighboring states on the number of barrels that small, independent brewers can make — 5,000 barrels a year in South Dakota (one of the most restrictive limits in the nation), compared to barrel caps of 25,000 in North Dakota, 60,000 in Montana, and 50,000 in Wyoming.
At the request of the governor, the South Dakota Senate Commerce and Energy Committee then introduced SB 169, which would increase the barrel cap to 30,000 per year. The bill also would eliminate a provision in state law that prevents craft brewers from selling their product directly to retail stores and restaurants.
But within days of the introduction of that bill, legislators introduced a competing measure. Under SB 173, South Dakota’s barrel cap would be raised, but only to 12,000, and the existing restriction on self-distribution would remain, though microbrewers would be able to sell their beer at tap houses or other licensed premises that they own.
The fate of the two measures (unknown as of early February) will depend at least in part on how legislators decide to balance the interests of brewers versus those of distributors.
In Kansas, meanwhile, HB 2470 would allow microbreweries to begin “contract brewing,” under which craft brewers partner with each other (these arrangements already are permitted in most other states and under federal law). For example, a startup could enter into contract with an existing brewer to use the latter’s production facility, thus allowing for market expansion without the capital outlay needed to purchase and run expensive brewing equipment.
“The micro/craft brewing industry can grow,” says Rep. Francis Awerkamp, sponsor of the legislation. “The important effect of this bill is that it allows for the [contracting] option.”
Across the country, state regulation of the beer industry is built around a system (dating back to the end of Prohibition) that requires three separate tiers: producer, distributor and retailer. Smaller producers, though, have been afforded some flexibility regarding their distribution systems and business models (for example, direct sales to retailers).
But as the recent legislative activity in South Dakota and Kansas show, state lawmakers still face questions about how flexible those rules should be — and to whom they should apply.
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Stateline Midwest: February 20183.14 MB