Another 100K+ bbl/yr brewer, Flying Dog, still seeing strong growth as well; up "mid-teens" thru Jun, CMO Ben Savage shared with CBN in quick update. Recall, co was up 16-18% thru most of Apr and has goal to ramp up to +25% for the full year (see Apr 20 issue). Flying Dog "feeling great" about current position amidst "a lot of competition" and just finished up "a record month" in Jun, said Ben. Now it's "putting the right pieces in place" to finish out 2016 strong. Majority of growth still comin' from a handful of its top brands, including from its summer Mexican lager, "Numero Uno," which is "on fire right now," Ben noted. Enough so that it will "transition to a year round beer." Chalk up yet another craft Mexican lager that's quickly scaling up, albeit off a small base. Then too, two higher abv offerings, The Truth Imperial IPA and Double Dog Double IPA, were also flyin' in IRI data thru May 1, up 300% plus. Bloodline Blood Orange Ale up strong 81% and Flying Dog's two largest brands, Raging Bitch and Snake Dog IPA, both up solid low-double-digits in these channels.  

Alert readers might have wondered "where's 21st Amendment" when looking at list of in-state sales by top Calif craft brewers in our issue last week. So did 21A prexy Dave Wilson. The co sold about 20K bbls in Calif in 2014 and about 30K bbls in 2015, he told us, but all of the 2014 volume and a good portion of last year's came from Cold Spring, Minn, where 21A has long contract brewed (hence not being listed in the Calif stats). So Dave took oppy to update us on its "killer Q1" and strong first half overall: shipments up about 17% YTD, Dave said, with Q1 up big 25% and Q2 "coming in north of 10%." Home-state sales clearly driving lots of 21A growth, now that its San Leandro brewery open. Total depletions in the state up about 49%, Dave told us, including 33% growth for its big Hell or High Watermelon seasonal brand. Handful of newer beers really helping out total performance. Down to Earth depletions up 44% YTD. The co "shipped as much El Sully as we thought we'd sell in all of 2016" in just 3 mos, April-June. Toaster Pastry "also on the move and doing way more volume than we initially thought." Long-time IPA Brew Free! Or Die +10% too.

The co was up 41% by $$ in Calif foodstores for 21 weeks thru June 19 (so almost YTD). And in NorCal foodstores alone it grew 37%. It passed Sierra Nevada to have biggest canned craft portfolio in NorCal by $$. 21A can sales for 21 wks were about the same size as that of #3-12 craft can suppliers in NorCal scans combined. That data also showed that craft $$ in NorCal foodstores up 7.4% for 21 wks, gaining another 1.9 share of beer $$ to 35.6. It's easily the largest segment by $$ in NorCal grocery, about 25% bigger than imports (up just 1.6% here) and almost 60% bigger than premium brands ($$ -6%). For total Calif foodstores, craft up 11.1%, 2.4 share to 25.2. Not bad.  

Double whammy of calendar effects and definitional disagreement further complicates isolating a clear craft trend mid-way thru 2016. Data we're seeing continues to point to an overall slowdown of craft's growth pace. Issues with timing and what's considered craft in those datasets do impact those trends, just not quite clear how much. Latest batch of Nielsen off-premise data shows craft $$ up 6.5% yr-to-date thru July 2, volume +3.1%. However, with the way weeks line up, that trend is in comparison to a period that included July 4 holiday last year, but not this year. We'll get clearer picture of how this holiday played out next week. Again though, Nielsen includes brands like Blue Moon and Shock Top with craft. But starting this period it pulled out Yuengling, which it had been including. So even boundaries of its craft segment shifting a bit.

Those issues and continued softness of some of biggest craft brands put additional pressure on short-term trends. Still notable that Nielsen "craft" didn't gain any share of volume for 4 wks and just 0.2 for yr thru Jul 2. On the other hand, look at another proxy: "Remaining Domestic Brewers" excludes Boston, but includes Yuengling and all other smaller brewers. So that big, big group of brewers driven by craft. It's up over 14% by $$ YTD, volume up 10%. Gained 0.5 share of total beer volume and 3.7 share of craft volume YTD in Nielsen's xAOC + convenience channel. Yet, both those $$ and volume trends for all other brewers about a point slower than they were a couple months ago.

So slower growth for craft segment pretty clear amidst all the noise. But slew of mainstream media reports at the end of June and early July only added to that noise and may have overstated situation. CBS' Moneywatch wondered if "Americans' thirst for craft beer may be on the wane," while Time's Money suggested that "Peak Craft Beer may be approaching." Eater piled on along with a bunch more local papers and outlets. Not all remained measured or noted the difference between slow growth and no growth. These reports, at least in part, prompted a pair of pieces from folks at the Brewers Assn. Julia Herz explained to members some of caveats to data that's out there, including note that off-premise data typically cited doesn't include on-premise, natch, let alone taprooms or indie accounts where craft either outperforms or represents all volume. And Bart Watson asked members, particularly small ones that don't sell much or any beer thru scanned channels, to participate in its annual half-year survey (BA mid-yr numbers expected in another couple weeks). Meanwhile, we've heard and seen all kinds of trends from individual brewers, including some pretty strong first-half results from a couple of relatively sizeable regional brewers, below.  

"Hot Topic" at this yr's Natl Conference of State Liquor Admins (state alc bev regulators) reviewed crowdfunding options explored more and more by craft brewers, vintners and distillers as alternative to traditional bank and other funding. Crowdfunders generally raise "many small amounts of money from a large number of people," as Delaware regulator Robert Wiest Jr put it. Two basic types of investment here: people send cash for "rewards" like free beer, tours, souvenirs or people buy equity of a company, a "far more serious" issue of ownership. Rewards generally treated like a sale of a product or service, alc bev atty John Hinman pointed out. And like all matters in alc bevs, state laws differ on how this handled. That's even as SEC recently announced federal rules for crowdfunding, atty Josh Segal noted. Rules place limits on amounts that can be invested, restrict transfers, require certain disclosures and more. Fed rules may be "more harmful than helpful," Robert warned, since they may deter individuals from paying attention to state law.

Importantly, and especially if money raised is for any kind of ownership stake, investment "can come under scrutiny," John pointed out. Some states, like Tex and Del, bar any investments across tiers. Tex for example has "one share rule": if you own one share in one tier, you're technically barred from owning one share in another tier. This rule, not strictly enforced, now under legal attack in Tex as state ABC won't allow big distribution co McLane a license since it is owned by Berkshire Hathaway, which also has small stake in a huge retailer called Walmart. Crowdfunding doesn't involve companies this large, but same cross-tier principle applies. Some states handle this by creating caps below which cross-tier investments okay. Others use language like barring "control" by investors. Again, levels of scrutiny and interpretation involved.

"I See This As A Train Wreck," Sez Wary Regulator; Gotta "Do Your Due Diligence," Sez Craft Brewer Jim Ebel, a founder of Two Brothers Artisan Brewing in Illinois, also on panel. He pointed to "huge boom of craft everything," not just beer. In brewing, "many people are just coming out of the garage" and "don't know anything about anything," but still consider crowdfunding. As result, many "probably are not doing due diligence," though they need to. There has to be a "mechanism to hold companies accountable for investors before a license is issued," he believes. It's a "burden, but could become big issue" since "a lot of very small, inexperienced people are getting into the alcohol industry." Robert pointed to a meadery that came into Del, did preliminary work, got contingent approval, ran out of money, needed to raise more and ended up grabbing $16K from Kickstarter without disclosing it, never amending its application in state with very strict ownership rules. "I see this as a train wreck," Robert concluded. Question also arose about a wholesaler investing in a local brewer, even if just for "rewards," (but perhaps never claims them). Is that a "thing of value"? Again, likely to depend on state law and perhaps regulator interpretation. Like lotsa alc bev issues, every situation has its "nuances," Robert suggested, and can't be pre-judged.

All in, while Robert and Jim focused on potential pitfalls, Josh and John viewed this more as issue where communication, education and consultation (with attys who know the laws) can provide resolution. That includes state ABC's clearly disclosing ownership laws on their websites, first place craft owners likely to visit, John suggested. Most operators "want to do it right." Crowdfunders need to be "alert to the fact they need to do the analysis before they do an offering." And states need to publicize their rules, via FAQs and more. "Tell people what the rules are. If you build it they will come," said John. Jim agreed that 99% of companies "want to comply." But if you raise $1 mil, "that's a lot of people" who may have to be tracked and it's not practical to do so, for company or state regulators. Illinois has 5% rule below which cross tier ownership is okay, an "easy work around." But state with "zero tolerance" makes it "very hard" to crowdfund, and it's "harder on regulators than anyone else." One workaround, suggested by Josh: before you do this, "figure out way to buy investors out if there is a violation." John agreed, suggesting companies "put the burden on applicant," via affidavits for example, not regulators, to do the due diligence. In any case, "the burden ultimately falls on licensee," Jim said. If state discovers conflict, the licensee is on the hook. Net-net, message to those coming out of their garages is: "if you are going to crowdfund, you need to know rules," said John, and regulators "should tell them that."  

Montauk Brewing is lookin' for ways to manage growth as co expects to more than double biz to "right around the 15,000-barrel mark" this yr, with lotsa "white space" in the NYC and Long Island areas alone, co-founders (brewmaster) Eric Moss and (sales & marketing director) Vaughn Cutillo told CBN during recent brewery visit. Indeed, Montauk's biggest challenge right now is "not running out" of supply, said Vaughn; a good problem to have, but a problem nonetheless. So it's ramping up production as best as it can with contract brewer, Wachusett in Mass, while simultaneously building out a sales team. Currently Montauk has just 7 full time employees, "most" hired "within the last couple months," Vaughn added.

Building out a sales team is a "primary goal" for co that also recently hired new prexy, craft beer vet Mike Vitale. Mike came up with Brooklyn Brewery from the beginning, became their sales vp for many years and subsequently worked for Sheehan Family Cos before takin' on this new task. Now he'll "drive wholesaler management and growth" lookin' to "build that base." Mike is a Long Island native which was "very important" to us, said Vaughn, since all three co-founders were born and raised on the east end of Long Island. And there's even a bit of a resemblance between Brooklyn and Montauk brands, both with NY legacy that "resonates" beyond their respective locations. M

ontauk took on equity partnership early on after starting biz in mid-2012 with none other than Bret Williams, previous owner of Woodchuck cidery. Recall, Bret sold to C&C for massive $300 mil deal; he originally bought it for a mere $2.3 mil nearly 10 yrs prior. Bret completed deal with C&C in Oct 2012. By mid-2013, he already found Montauk as another investment project. Again, Bret got in with Montauk while biz was still tiny, since then brand has already grown many times over.

Before meeting Bret, founders Vaughn, Eric and Joe Sullivan (head of biz development) had already "emptied our bank accounts" they said. All three co-founders originally worked together at an alternative energy co and all quit the same day knowing that they'd start Montauk Brewing. They were avid home brewers, including in basement of home 1 mile from current taproom. They self-distributed at first; bikes and keg trailers as first mode of beer delivery. Since then, Bret's not only provided capital infusion but also served as a mentor to Vaughn in particular, specifically instilling virtues of patience, numbers, and willingness for founders to get out in the trade, Vaughn noted.

So with financial backbone and mentorship, Montauk built brand from ground up, self-distributing for a year and a half before signing on with Boening Dist for Long Island distribution and just last fall expanding to NYC area with SKI Dist. Just as Boening was "the right group" in Long Island, Montauk felt SKI was "right" for NYC, Vaughn said. Now Montauk "just turned four," and is "growing really rapidly" with 100 plus miles of oppy.

To put it in perspective, Long Island (excluding Brooklyn and Queens) has approx 3 mil population and just 40 breweries, while San Diego has about the same population with 120 plus and counting, Mike pointed out. There are still "so many people in our existing market that probably don't know about us," Eric added. Then there's NYC, "still under-indexed" in craft with "a lot of clutter." Montauk quickly built up a small base of accounts and now Mike is on board to help navigate the city he knows so well, and get them thru to next stage.

"People know we're here now" Mike added. Even in Montauk's tiny 200 sq-ft taproom with small brewery, the company can take in as many as 500 plus people a day during busy summer season. It's a lot of quick visits filled with sampling followed by beer-to-go, tho there is space to hang out in outdoor patio area and ability to bring in food too. But lotsa sampling and lotsa sales out the door, including crowler station just added last November that's really taken off. The brewery is in walking distance of the main strip of the town, acting more as a "test space" for recipes that can eventually get scaled up at Wachusett if deemed worthy. Montauk's 7-bbl brewing system could only cover small % of its volume even if maxed out (about 2,000 bbls). Montauk does vast majority of its production with Wachusett, which is set up for several hundred thousand bbls per yr of capacity after recently putting an additional six 200K-bbl fermenters outside their facility. Even if Montauk were ever to build its own production facility, it couldn't be in Montauk for many reasons, including location (all the way out on East End), prohibitive real-estate costs and fact that there is no sewer system in Montauk.

Sessionable Portfolio with Summer Element; Watermelon Session Hit; Untracked Growth There's "a big summer component" to majority of Montauk's brands, which generally aim to be sessionable and on the lighter side, in part cause those are the beers Eric personally likes to make and drink. Driftwood Ale is Montauk's lead brand year round, but during summer mos Summer Ale takes the lead despite being only served in cans (no draft), and Session IPA rounds out the core yr-round line-up. It's also constantly rotating experimental brews at its little shop in Montauk and this year found a hit in Watermelon Session Ale. After releasing it in April this yr, response has been "overwhelming" and co has been "brewing it nonstop ever since," said Eric. Currently it's draft only, brewed at its tiny 2K bbl/yr (max) cap facility, sold only at its taproom. Definitely no further plans for package this year, tho they're certainly lookin' into future possibilities.

Gotta note, lotsa Montauk's growth is not captured in scan data. Despite being on 100%+ growth pace, Montauk was actually down in IRI multi-outlet + convenience data thru May 1. However its brands "are not in those stores yet," Mike countered. Rather, all they've seen is "demand" that goes "straight up." Some of its local accounts, like Gurney's Resort for instance, can take a pallet at a time and instantly run out.

All in, Montauk wants to become a "legacy brand that people are talking about for years," said Vaughn. But there's an element of "patience" to it as well, "not trying to do too much" at once. It'll look into different oppys such as new mkts, expanded packaging (current production mix is about 60/40 cans vs draft), new brands and more. But Montauk looks to stay true to company motto, "come as you are," with nonchalant beach town attitude that can "resonate" with consumers everywhere.  

Appalachian Mountain Brewing "revenue and profitability are up significantly, a trend we expect to sustain as our Master Distribution Agreement with Craft Brew Alliance continues to evolve and accelerate," CEO Sean Spiegelman stated in recent shareholder update. Indeed, revenue increased 47% to $511,743 in Q1 this yr, and already in the first six mos AMB "has surpassed its total Craft beverage production for all three previous years combined since the Company's inception (2013-2015) by over 30%." Its flagship brands, Long Leaf IPA and Boone Creek Blonde are the #1 and #2 brands in NC-based Food Lion stores (unclear if that's within craft segment or for package size, 4-pk of 16oz cans). Thruout the state, Long Leaf IPA is ranked #2 and Boone Creek Blonde #4 best-selling 4pk 16oz can, citing Nielsen data thru May 21. All in, growth is "attributed to the company's ongoing distribution expansion" and "is expected to repeat YoY as regional sales increase and potential new markets in South Carolina, West Virginia, Kentucky and Tennessee are explored in conjunction with its Craft Brew Alliance partnership and CBA becomes further entrenched in AMB's marketing efforts."  

>Brief update on TX-based Independence Brewing plans after announcement last week of partnership with Lagunitas. Independence "currently pumps out 18,000 barrels per year, but the team is looking to grow the capacity to 65,000-75,000 barrels over the next few years," reported Culture Map. If co reaches projected 18K bbls this yr, that'd be about 40% growth vs last yr, per Brewers Assn stats.

Once Independence realized it would need "more equipment to keep up with its growth, the team decided to sell off some stock in the company" paper wrote. "We thought it would be private equity groups, but as timing would have it, the Lagunitas folks saw the offering," owner Amy Cartwright told paper. "They were in Austin for SXSW and came by for a visit," and ultimately "just hit it off." "Of course we are going to keep the Independence spirit," i.e. "I don't expect any changes in our approach to brewing," Amy assured. However "I do expect that we will collaborate on some events and charitable activities that we host in our tap room and in other cities in Texas," and she hopes to do beer collaborations down the road, tho Amy acknowledged that Lagunitas has yet to ever do a collaboration brew.  

Even as Olde Mecklenburg expects to brush right up against 25K bbl/yr production cap in NC this yr for brewers that can self-distribute, it will invest another $5.7 mil into its brewery, reported Charlotte Business Journal. Investment includes $4.4-mil renovation "for office, storage and adding 80 parking spots" as well as $1.3 mil "to expand fermentation tank space, make a patio outside the brewhouse usable year round and add a glass-washing room." "No matter what, we've got a lot of competition in town," so "we have to make sure they have the best experience when they come to the brewery," founder John Marrino told paper.

As for the self-distribution cap, "we're certainly not going to go over," he said. But "there's no reason for me to take my foot off the accelerator just yet," since co can still grow over 31% this yr without passing the cap (produced approx 19K bbls last yr) and "we firmly believe we're going to change this law." Earlier in the year co pulled out of Triad area, so it's already had to hold back growth a bit. Yet law change has to take place by 2d quarter of 2017 in order for Olde Mecklenburg to have any growth next year under current self-distribution model, paper noted. Last yr Indiana went thru similar exercise with one of its largest state brewers, Sun King brushing up against 30K bbl/yr cap for brewers that can self-distribute before state ultimately relaxed the cap to 90K bbl/yr. While Olde Mecklenburg and NoDa have rallied up the "Craft Freedom" coalition, gotta note that neither co is anywhere near the largest supplier in-state and this movement generally opposed by NC distribs, whereas Sun King subsequently signed on with in-state distribs post law change. Stay tuned.

OMB Billboard Ad Campaign, "Now You Know Better," Targets "Bad [Craft] Beer" Olde Mecklenburg recently launched a billboard ad campaign dubbed "Now You Know Better" that surprisingly targets "bad" craft beer, reported several news outlets including Charlotte Five and Charlotte Agenda. One billboard reads "craft beer roulette was fun…for awhile." Another reads "It's not easy brewing beer this delicious. Want proof? Other beer." Both with the tagline "now you know better," along with OMB's logo. While the ads are trying to draw attention and awareness to the importance of "quality" beers, they've come off as "arrogant" to some viewers who don't know as much of the back story, Charlotte Five author wrote. Perhaps this is another sign of the changing competitive landscape within craft. Or is it simply a boldly stated message of quality that hopes to more broadly educate consumers?  

Another banner year for California craft brewers in 2015: in-state craft players collectively gained another 420K bbls to 2.44 mil bbls, +20.8%, we estimate based on state tax records. That growth shared among many of the state's biggest players, as each Top-5 Calif brewer up double digits in home state last yr. In fact, looks like in-state craft brewers gained almost 2 full share of shipments in the state, easily topping 10 share, if we pair this data with state-level shipments reported in our Beer Industry Update. So Calif craft now at 10.5 share, over half of total 19 share held by All Other suppliers (those below top 5: AB, MC, Constellation, Heineken USA, Pabst). Note that in total, All Others only gained 0.9 share, so in-state brewers took a full share point from All Other out-of-state players. Of course, larger suppliers AB, MC and Heineken USA also continued to shed share in largest US beer market.

Another 4 Calif brewers sold over 15,000 bbls in their home state for the first time in 2015. Table below shows bbls shipped within Calif by those 4 and 22 others in 2014 and 2015. This group of 26 alone sold almost 2 mil bbls in the state, over 80% of in-state total and 8.5 share of total state shipments. Indeed, over 550 licensees reported at least 1 taxable bbl of production to the state in 2015 (though that count includes companies with multiple sites and multiple licenses) and about three-quarters of them reported less than 1,000 bbls. Keep in mind, this data set generated by volume reported and taxes paid to state by brewers. It can include contract volume in some cases.



Top Players Add 240K Bbls In State; Sierra & Lagunitas Bigger Than Pabst There Sierra Nevada maintained almost identical growth rate in its biggest market as it did nationally, +14.2% in Calif vs +14.4% across US. Yet Lagunitas continued to catch up, growing at twice that rate. It was again the largest absolute bbl-gainer of Calif craft brewers, growing over 75K bbls in its first home state. Now both those cos bigger than Pabst in the state, with about 1.7 and 1.5 share, respectively. Riding 805 wave hard, Firestone Walker grew over 21% in Calif, closing in on 200K bbls there. It passed Stone, which still grew its home market by 13%. Ballast Point comin' right up behind, of course, again with fastest growth rate, +74% to very near 150K bbls. These 5 big, strong Calif players collectively expanded their home state bizzes by over 240K bbls last year, most of the over 260K-bbl decline MillerCoors put up in the state last yr (for reference, AB lost over 385K bbls there in 2015, a bit less than the 420K bbls of growth by all Calif craft brewers).

Handful of Declines Amid Lots of Strong Growth Yet Anchor, #6 craft brewer in Calif, had tougher year. Its home-state sales dipped by almost 17%, according to this data set. It was one of just 6 of these top 26 Calif craft brewers that declined in state last year. However, compare the relatively modest declines of Lost Coast, Trumer and Anderson Valley to the more sizeable dropoffs at Anchor, Hangar 24 and particularly Mendocino (-23%). In some cases, these Calif-only trends not necessarily reflective of what's goin' on overall for these cos. For example, total production reported to state by both Lost Coast and Anderson Valley increased in 2015. Impressively, all but 3 of remaining 15 top Calif brewers expanded volume by double digits in their home state last year. And those 3 all grew by 5% or more. Many others put up very strong trends, including all 4 brewers new to this list, each of which screamed past 15K bbls in their home state. Pizza Port seriously expanded over just last couple of years and shipped almost 23K bbls in Calif last year, this data shows. AleSmith grew by well over 50% to 16K+ bbls in state. And both Hermitage and Figueroa Mtn grew by about 44% there.

On-Site "Taverns" a Quarter of Smaller Brewer Calif Volume For those keeping an eye on tasting room/taproom sales, Calif reports provide some clues. But hard to get a good gauge on total volume sold directly to consumers at these locations, particularly by larger brewers. Smaller Calif brewers (not listed above, less than 15K bbls in state) collectively sold almost 450K bbls in Calif last year, these reports show. About a quarter of that was removed "for use at tavern," or tasting room, about 107K bbls from 500+ brewers.  

Peter Zien did not found AleSmith himself, but purchased the company in the early 2000s from the first owner, Skip Virgilio. We also misspelled baseball player Tony Gwynn's last name.