Brewpub laws relaxed

WASILLA -- A new law that makes it easier for restaurants to brew their own beer and raises a production cap for brewpub license holders will take effect on Aug. 27.

The law could open competition for existing brewpubs such as Great Bear Brewing Company in Wasilla, but Jay Kelley of Great Bear said he and his business partners aren't scared.

"I don't see it as competition at all," Kelley said. "Technically it is, but as you educate more people about quality beer, your market actually expands. So you're actually gaining market share even though you have another player coming in."

In the last decade, sales of locally brewed beer have steadily risen in Alaska; breweries have come and gone, and there have been nearly constant efforts to tinker with Alaska's complicated alcohol licensing laws. In the summer of 2001, a citizen initiative designed to liberalize Alaska's brewing laws was circulated. Great Bear was one of the places where voters could sign the petition over the bar.

"It's been the political battle of the last 10 years," said William Roche, chief enforcement officer for Alaska's Alcoholic Beverage Control Board (ABC). "If things occur that make a certain class of license less valuable or appear to make them less valuable, then that causes problems."

In Alaska there are separate licenses for manufacturing, distribution and retail sales of alcoholic beverages. A similar range of licenses exists in many states, but in Alaska some of the licenses are both transferable and limited according to the population in the area the licensee wants to serve. The licenses became transferable in 1969, the same year when population limits were set, according to Roche.

"The transferability of licenses causes this market which is -- it's not really a real estate market -- it's basically like a limited entry fishing permit," Roche said.

Alaska's basic system of alcohol control has three tiers of licenses, with production, wholesale distribution and retail representing the three tiers. Most states have a three-tiered system, and it's often noted that the three-tiered systems were introduced after prohibition to prevent organized crime from going legit. The idea was to make it illegal for manufacturers to also be retailers or for retailers to also be distributors, and so forth.

In the 1980s, Alaska adopted a brewpub law that allowed bars to brew their own beer. It was a liberalization of the three-tiered system that seemed to be happening for the first time. But in the early 1990s, entrepreneurs discovered that it was legal for a restaurant licensee (without the right to serve hard liquor but the right to serve beer) to simultaneously hold a brewery license. That was a fissure in the three-tiered system that had been around since statehood, but apparently wasn't exploited until the 1990s.

The perceived value of a bar's beverage dispensary license went down because the combination of a restaurant license and a brewery license was less expensive than the bar and brewpub combination. A handful of restaurant licensees started brewing beer before the Legislature and the ABC made the restaurant and brewery license combination illegal and created a plan to license all the brewpubs under the same class of license.

But, unlike a brewery license, the brewpub license class has a limit on annual beer production. In 2001, the owners of Moose's Tooth Brewery in Anchorage expected to brew close to the cap of 75,000 gallons of beer. The company, Chugach Beverages Llc., wholesales through a distributor and sells beer at its three restaurants, Moose's Tooth Pizzeria, Bear Tooth Theater Pub and the Bear Tooth Grill.

"We produced 70,000 gallons last year, and the cap was 75,000," said Moose's tooth co-founder Matt Jones. "We could comfortably double that number and maybe triple it, that would give us a nice wholesale business around Southcentral and a nice in-house retail business."

Last spring Chugach Beverages hired a lobbyist to go to Juneau. The result was an increase in the cap from 75,000 to 100,000 and a 10 percent increase in another cap that limits what Jones can wholesale. The Moose's Tooth lobbyist got the changes by dealing directly with legislators and with the Alaska Cabaret, Hotel, Restaurant and Retailers Association (CHAR), according to Jones.

Jones is also a member of CHAR, but many of CHAR's members are resistant to anything that erodes the perceived value of their license.

"I had meetings with [CHAR] and they never went anywhere," Jones said, "It was frustrating. Maybe it was frustrating for them too, I don't know."

In Wasilla, Kelley said Great Bear is brewing about 30,000 gallons of beer with plans to take production to 50,000. Kelley markets the beer to other restaurants by driving around and serving it from half-gallon jugs called growlers. The growler itself was once in danger because it makes beer available to take away in a package from a business that looks like a restaurant but acts like a brewery or occasionally a bar or a package store. Kelley believes the three-tired system is anti-competitive and will likely be revisited again.

"Number one you've got to look at free enterprise … what should determine your success is the quality of your product," Kelley said. "If we hit it like Moose's Tooth and just exploded, and the demand for my product was 200,000 gallons then why am I limited to 150,000?"