USA: Brewers Association alters official craft brewer definition

The Brewers Association board of directors on October 30 informed members of proposed changes to its bylaws that would significantly alter the trade organization’s official craft brewer definition, and create a new voting member class, Brewbound has learned.

The board also intends to form a political action committee that is aimed at more aggressively lobbying for permanent federal excise tax cuts that currently save craft brewers upwards of $80 million annually.

In an email to BA members, Left Hand Brewing founder Eric Wallace, who also serves as the chair of the BA board, said the organization is considering dropping the “traditional” requirement from the group’s three-pronged definition.

According to the BA’s current definition, which has changed three times since 2007, a craft brewer must be small (less than 6 million barrels), independent (less than 25 percent owned by a non-craft brewer), and traditional (a majority of its total volume must be derived from traditional or innovative brewing ingredients).

It’s the last pillar, traditional, that is under review, in part because an increasing number of craft brewers are already experimenting with non-traditional beer offerings such as flavored malt beverages and hard seltzers. A growing number of BA members have also expressed interest in creating beverages infused with THC and CBD, Wallace wrote.

After reviewing the results of a recent survey that polled 1,000 BA members and was aimed at understanding the types of products they are producing and would consider making in the future, Wallace said it was clear the definition needed updating.

“What we learned from this survey is that nearly half of the membership is already brewing — and more than half would consider making in the future — products that fall outside the existing Brewers Association traditional tier, such as cider or mead or other products taxed as beer (hard seltzers/flavored sugar beverages/sake/alcoholic kombucha, etc.),” he wrote. “Nearly half surveyed said they would consider producing beers containing CBD or THC should the regulatory structure change federally around those potential products.”

In his note, Wallace argued that as long as a craft brewer meets the criteria of being “small and independent,” altering the definition is “logical” in order to account for “unforeseen innovation.”

“By adjusting the definition, we are being more inclusive of the needs of our voting members,” he wrote.

The traditional component of the definition was last altered in 2014. Wallace acknowledged that past changes to the definition have drawn criticism from BA members, the media and other industry stakeholders, but he believes “the spirit of the definition has not changed.” He also argued that the definition is a “living document” that would continue to evolve when “innovation, legislative conditions, or unforeseen circumstances necessitate change.”

But perhaps more importantly, the proposed change would also allow the BA to continue counting its largest voting member, Boston Beer Company, as a “craft brewer.”

In 2017, Boston Beer — which produces the Samuel Adams, Angry Orchard, Twisted Tea, and Truly Spiked & Sparkling product lines — made 2 million barrels of beer, according to BA data. At the time, “traditional” beer was a majority of its total alcoholic beverage output, since the company shipped about 3.8 million barrels of product.

This year, however, Boston Beer Company’s “traditional” beer sales are slowing, and almost all of its current growth is being fueled by hard seltzer, cider, and alcoholic tea. At its current growth rate, the company would no longer be considered a BA-defined craft brewer because a majority of its volume is now coming from non-beer offerings.

If the definition is not altered, and a majority of Boston Beer’s 2018 volume does not come from beer, the BA will be forced to strip the company of its craft brewer designation and, in the process, not be able to count nearly 8 percent of total craft beer volume in its annual industry report.

Nevertheless, the BA board, in an FAQ that followed Wallace’s note, stressed that the move to drop the traditional pillar from the definition was not being proposed because Boston Beer was at risk of being excluded from the craft brewer data set.

“This move was not made because of Boston Beer, but the timing of evaluating and revising the definition is related to Boston Beer,” the board wrote. “Other companies will also be facing a similar circumstance in the coming years and it’s natural that the largest of the smallest would get there first.”

The board also argued that changing the definition to include Boston Beer benefits the entire craft brewing industry.

“Including our largest member, Boston Beer Company, which brings much to the table in terms of greater craft market share, bolsters the association’s arguments for shelf space, government affairs capability, and technical program contributions,” it wrote.

Meanwhile, the BA also announced plans to form a political action committee in order to make permanent the tax credits in the Craft Beverage Modernization and Tax Reform Act (CBMTRA), which will sunset at the end of 2019. President Donald Trump signed the legislation into law in December 2017 as part of Tax Cuts and Jobs Act.

“The time is now to continue our outreach and lobbying to make CBMTRA permanent and not just a two-year excise tax reprieve,” Wallace wrote. “Our fear is that returning to the higher tax regimen in 2020 could possibly cause a surge of brewery failures amongst those already on the brink.”CBMTRA reduced the federal excise tax from $7 to $3.50 per barrel on the first 60,000 barrels for domestic brewers producing fewer than 2 million barrels annually. The legislation also cut the federal excise tax to $16 per barrel on the first 6 million barrels for all other brewers and beer importers while maintaining the $18 per barrel excise tax for brewers producing more than 6 million barrels.

Wallace wrote that having a BA PAC to support legislators on both sides of the aisle could make a difference in establishing permanent tax reform for brewers. He added that more information is expected to come in early 2019.

“While a political action committee seems divergent from our grassroots and bootstraps nature, our efforts in Washington have become larger and louder,” the board wrote in the FAQ. “Our absence on donor lists does not allow us to optimize potential access to members of Congress and their staffs. We can still operate as local constituents, and political action committee donations are a secondary method of demonstrating our relevance.”

Finally, the BA is in the process of reviewing a bylaw change to create a new voting member class for taproom breweries. A taproom brewer is defined as a brewery that sells more than 25 percent of its beer on site, does not offer “significant food services” and produces less than six million barrels annually.

“It is crucial to remaining relevant that we have strong voices for taproom breweries in our governance,” Wallace wrote.

The proposed changes will be discussed further and amended during the BA’s next board meeting on November 29. Prior to that meeting, BA members have been invited to provide input as part of an official “member comment period,” which will remain open until November 12, 2018.

In an email to Brewbound, Bob Pease, the CEO of the BA, said the trade group communicated the proposed changes to its members as “a matter of transparency,” and noted that “nothing has been finalized.”

“We are in a process phase of communicating with voting members and accepting their input,” he wrote.

30 October, 2018