Voting against a Liquor Commission recommendation, City Council of Silver Bay, MN decided to remove Bent Paddle Brewing's beers from its municipal liquor store last week, the Duluth News Tribune reported. Why? Because Bent Paddle is a member of the Downstream Business Coalition, a group of businesses concerned with with environmental damage due to mining in the area. The Coalition opposes copper mining projects currently being considered, so a supporter of those projects requested that "their product should be pulled from the shelves to make room for other microbrew providers that are not opposed to the survival of our communities," resident Kevin Berglund wrote the Council. "This is really just a clean water issue for us," Bent Paddle co-founder/community outreach veep Lauren Mullen told the paper. Its beers were still on the shelves as of late last week, but were ordered to be removed by a 3-2 vote (the city's mayor and a councilor also on the Liquor Commission voted to let consumers decide the issue with their purchases instead).  

Most recent changes to strict 3-tier laws have come from state legislatures and included mostly small tweaks to accommodate certain licensees. That continues but a couple court cases have recently set off louder alarm bells for close observers of 3-tier dynamics. Not least among them: suit filed late last week by Craft Brewers Guild (Sheehan Family Co in Boston area) against Mass Alc Bev Control Commission over pay-to-play ruling. The complaint constitutes "a broad assault on the cornerstones of tied-house regulation in Massachusetts," in view of industry atty Marc Sorini of McDermott Will & Emery. He and other industry observers also point to the broad implications of a decision handed down by Ninth Circuit Court of Appeals in Calif earlier this year. In it, a panel of judges bluntly stated that the "record before us does not demonstrate that a prohibition on paid point-of-sale advertising materially advances the goal of temperance."

Regulators Overstepped, CBG Suit Alleges, Seeking Fine Reduction CBG's complaint largely outlines arguments that CBG made in memorandum it filed after its hearing with MABCC last fall (see CBN vol 6, no 69 for full detail of CBG's arguments), attached as exhibit. It alleges that strict penalties MABCC handed down on CBG are unlawful because regulation is unclear and ambiguous, the practice is widespread, never enforced and technically not illegal anyway, in the distrib's view. It also argues that the co should not have had to include its New Hampshire biz when it calculated $2.6-mil fine to MABCC, as that agency has no purview over NH biz. The distrib filed complaint in Suffolk Superior Court Thursday asking for judge to stop MABCC's enforcement, reduce or even refund the fine CBG agreed to pay in lieu of a 90-day suspension. Because of these arguments, the suit could pose big questions about how or if states can enforce tied house rules. At the least, it suggests MABCC and other similar agencies need to tread carefully lest they too seek to defend rulings in court.

Painting Different "Pay-to-Play" Picture in MO Specter of "pay-to-play" also raised over the weekend in Missouri. It appeared in debate over a bill to allow brewers to lease retailers branded beer fridges. Recall, it's backed by Anheuser Busch InBev as measure to expand possible beer retail real estate and opposed by Missouri Small Brewers Guild. One small brewer called it "a pay-to-play scheme" in talk with Columbia Daily Tribune. Though bill also loosens restrictions on growler sales in state, "we're not willing to give up … a free and fair marketplace and preservation of a three-tier system for growlers," Walker Claridge of Broadway Brewery told the paper. But Missouri Beer Wholesalers Assn decided to take "no position" on the issue to preserve its members' relationships with their suppliers.

Small State Moves As Ninth Circuit Ct Decision Looms Other states continue to push through or at least consider legislation to loosen restrictions on licensees operating across tiers. Retail privileges for small brewers, in some form or another, currently on the table in many states including Maryland, Rhode Island, Indiana, and Minnesota. That's as six mostly Republican legislators in Georgia filed a resolution to form a "House Study Committee on Georgia Craft Brewery and Distillery Competitiveness." It's just one of many states where GOP members inside and outside the government question lawmakers who portray themselves as supportive of small government but also support three-tier restrictions. We've heard from a couple folks that the same or parallel arguments from free-market backers have picked up more steam and garnered more support than in the past. While it seems unlikely, some of those folks seek to pull the three-tier rug out from the biz entirely.

Meanwhile, a January decision by the 9th Circuit Court of Appeals still looms large in California and beyond. It sent a case back to the US District Court, urging it to increase the level of skepticism given to tied house laws in the state. These laws may not actually help the state achieve its goals in the current marketplace, it posited, and if such laws do restrict commercial speech, they may be unconstitutional. That could pave way for more free-speech arguments to take precedent over public health defenses for trade practice restrictions. Additionally, questions about federal tied house laws still being posed in light of Kroger and Southern Wine and Spirits' category management plan. Though TTB clarified its view, still no action against a specific licensee yet. Of course, any violations also likely to be challenged in court. And all these movements happening simultaneous to market shifts where more players working across more tiers and more alc bev types and business models, not to mention entrance of new companies working to crack into online/digital beer sales. Where does it all go? Regulators are attempting more enforcement recently than we've seen in past. But whether or not the rulings will stick in court remains a key question.  

Asheville's acclaimed Wicked Weed Brewery will open a fourth location - a 57K sq-ft, "$1.5 million production brewery for sour beers in Arden, near Sierra Nevada and the Asheville Regional Airport," reported Asheville Citizen-Times. "We have just run out of room" at current sour-focused so-called "Funkatorium," co-owner Walt Dickinson told paper. "We won't have to do a lot of construction, maybe some renovation" since it will occupy an existing space, he added. Co expects to have 30-bbl brewhouse installed and up and running this summer, tho most beers outta this facility won't be available until 2017 due to extended aging processes. Recall, Wicked Weed opened a $7 mil, production facility last July and will continue to operate at its other facilities as well. It just opened up some new mkts, including MA and the NC triangle last mo and Atlanta, GA last Oct. In 2014 it brewed 5200 bbls and only 1000 bbls even left Asheville (see Oct 23 CBN).  

Bell's is announcing new states by the day. First Bell's officially announced its 5 new distrib partners in MS late last week - Capital City Bevs, Clark Bev, FEB Dist, Stokes Dist and Magnolia Bev. Distribution will begin later this mo. And a day later it announced plans to enter WV in July with AB network: Proud Eagle, Mountain Eagle and Northern Eagle. This is on top of a plethora of new states already announced earlier this year, including Ark in Apr, LA in May and KS, NE and SD comin' later in the yr. All told, Bell's will be in 30 total + DC and Puerto Rico by the end of the yr, per release.

Meanwhile, Bell's $$ trends notably slowed in scans to start 2016, particularly in Feb. Volume still up 16% but $$ just +9% YTD thru Feb 21 in IRI multi-outlet + convenience data. And $$ up just 1% in latest 4 wks. That's as co's avg price per case took 10% hit in those 4 wks and 6% hit YTD, tho still selling at $40+ per case. (Note that part of that pricing drop likely from some of their new packaging launches from last yr.) Yet its lead brand, Two Hearted Ale, hasn't missed a beat. Both $$ and volume up 39% YTD after accelerating in Feb. Bell's likely to get an added boost from these new states as the yr progresses. Stay tuned.  

Although Lagunitas is run separately from HUSA, Lagunitas is still considered a "very important part of the formula" for Heineken in US, since Heineken is now "playing in every single segment that is growing," said Heineken USA prexy Ronald den Elzen at its recent Natl Distrib Conference. Of all the strategic deals and expansions Heineken global completed last year (and there were plenty all around the world), Lagunitas was "perhaps… most strategic," said Heineken global ceo Jean Francois van Boxmeer. Everyone always asks Jean Francois what their "strategy" is with Lagunitas: "We don't have, at Heineken, a very fit strategy on it," he admitted. Rather, it's "strategy with serendipity." So no specific plans were shared for Lagunitas at HUSA's NDC, but we know Tony's got his eyes set on big things internationally. Recall, Tony believes Lagunitas' international biz could be as large as its US biz in as soon as 5 yrs (see Nov 11 issue). "Tony has a dream which I share: it's to make Lagunitas travel," said Jean Francois. He compared Tony's current dream to that of Freddy Heineken's dream 150 years ago. When Jean Francois first met Tony at the Chicago brewery last year "we had discussions about beer, about life," about business, etc, and "we kind of fell in love" he said. All in, "for us, not participating in [craft] would be a missed opportunity."  

Craft volume up just 5% yr-to-date thru Mar 5 in Nielsen all outlet, including 9% gain last 4 weeks (Recall, Nielsen includes Yuengling, Blue Moon, Shock Top and Leinie's in craft). Craft not gaining much share so far this yr in Nielsen; up 0.2 share of $$ both for 4 weeks and yr-to-date. Boston Beer's Sam Adams franchise lost 0.2 share of $$ YTD. Down at double digit pace for 4 weeks and yr-to-date. Shock Top up double digits last 4 weeks, but still down 5% yr-to-date. Blue Moon Belgian White up double digits both periods, but didn't gain share. And Blue Moon Brewing up just 0.7% YTD. Leinie's Brewing $$ down 10% YTD (Shandy now separated in FMBs). Yuengling up to 7% growth last 4 weeks, but 2.4% YTD in Nielsen all outlet. Those 5 brand families over 35 share of Nielsen craft $$ at around 3.8 share of total beer $$. But Yuengling and Sam Adams franchises, which are both BA-defined craft are over half of that at 2.1 share YTD. So slowdown is real.

Interestingly, several of these leading "craft" brand families as per Nielsen definition have avg lower prices in most recent periods. Avg price of a case of Sam Adams down 24 cents, 0.7% for 4 weeks, tho still up slightly YTD. Avg price of a case of Shock Top down 80 cents, almost 3% to 28.65 last 4 weeks. That's about $5 per case lower than Sam Adams. Shock Top prices down 7 cents per case YTD. And Leinie's now attempting to get its pricing closer to Shock Top. So avg prices down over $2, almost 7% YTD.  

New Belgium hit NJ mkts yesterday with quite a splash, including over 300 cases shipped to just one Total Wine outlet as just one example. Initial demand so hight that about 10% of yearly projected sales will be shipped in first week, said a distrib. NBB's got big sales expectations in NY too, starting in May, say several sources. Some distribs project sales at as much as 0.8-0.9 share of mkt. Behemoth Manhattan Beer reportedly expects less than that. Still, Manhattan projected to sell well over 500,000 cases in 1st 12 mos. That would be about 0.5-0.6 share, similar to estimate from another nearby distrib. Even an 0.5 share in NY and NJ would add roughly 75,000 bbls or a little more than 1 mil cases to New Belgium total in 1st 12 months of sale. And Pennsylvania volume too will be all incremental until August. Since NBB down slightly in 2015 and starting out 2016 on similarly sluggish trajectory, these expansion mkts alone could turn a minus into a significant plus for NBB this yr.

More striking than these big volume expectations: disstribs made big payments just to get the brands. Like over $30 per case, providing tens of millions for New Belgium that could help fund Asheville brewery or pay down debt in near term, though distribs can draw against sum over time. Here's the way it works: Money is paid upfront. But distribs get to draw down on those upfront payments for everything from mktg to t-shirts to training to trips to Asheville over next several yrs. Gross profit (GP) for a case of New Belgium averages about $7.50, CBN hears, and distribs reportedly paid as much as 4.5x. That would mean Manhattan alone shelled out over $15 mil. That's roughly number bandied about by several sources. Wow! Recall, back in 2012, NBB tried to get upfront payments from Ohio distribs, but state ABC ruled against. Ultimately, NBB got a lot of the same monies from distribs, but they were called something other than just payment for brand rights. Since then, the practice has become more widespread by NBB and others, though it's still not much talked about publicly.  

Cigar City has struck a deal, but it's not with AB as was widely speculated for mos, but rather to sell a controlling stake to Oskar Blues Holding Co and its partner Fireman Capital, founder Joey Redner and Oskar Blues founder Dale Katechis confirmed with CBN. Recall, Fireman Capital bought majority stakes in Oskar Blues, Perrin, and Utah Brewers Cooperative. And about one year ago Fireman Capital formed United Craft Brews LLC entity that raised $133 mil "via sale of shares to 17 investors," according to SEC filing. However that's where "the confusion" came, sez Dale. Cigar City as well as Perrin and Utah Brewers Co-Op are all underneath the Oskar Blues entity, he stressed, which was referred to as Oskar Blues Holding Co. So "Oskar Blues Brewery Holding Company is the entity that's purchasing the asset of Cigar City and Joey will sit right on the board along with me and our partner Keith Klopcic at Perrin and we will all together operate as Oskar Blues entity." All while Fireman Capital acts as Oskar's "mortgage company" in a sense, and "help[s] fund some of these projects."

Joey and his father "collectively both sold a controlling interest" but "I'll be staying on" as ceo of Cigar City and "with ownership in the new entity" while "my father will be exiting," Joey explained. Big reason that Joey decided to do a deal was because Cigar City is "capacity constrained" and "running out of runway," he said. Last yr Cigar City grew 33% to just about 60K bbls with "all of our growth" through contract brewing at Brew Hub (~15K bbls). And next phase of cap expansions would have required that Cigar City take out a $20+ mil loan. "In my personal life I don't borrow money" and so he didn't want to do so in his business life either. There were "a lot of potential options," he acknowledged, and it was "really important to me" to "work with something that knew where we were coming from." And Oskar "has gone further than we've gone" and "knew what we were going through." Joey saw that "they've still been who they were before" after they did deal with Fireman Capital and saw "how they worked with Perrin." Another factor: "it was important to me" to stay involved in the Brewers Assn. Cigar City "just joined" and "it would have really kind of hurt my heart a little bit to not be involved." Joey and co in fact "did have substantial talks" with AB before ultimately going with Oskar/Fireman, he acknowledged, but he didn't want to discuss any further at the time ("rather talk about where I'm going not where I've been").

Potential Capacity Usage, New Mkts Down the Road; For Now Business as Usual It's still early days, but down the road they "for sure" expect to utilize some of Oskar's extra production space, Dale noted. Particularly at Brevard, NC facility which is in the process of boosting capacity to 200K bbls/yr; last yr Oskar produced 90K bbls outta Brevard and expects 105K bbls this yr. "After the dust settles" the two cos will "sit down and figure out what makes the most sense logistically." But "first and foremost" Oskar has to "make sure we can reproduce the quality beers that he's producing down in Tampa" and "we have a high level of confidence that we can." Then down the road it "could be there's Austin capacity" or "even Colorado." Indeed, there are distribution oppys abound since 96-97% of Cigar City beer (nearly 58K bbls) sold in its home-state and the rest "trickle[s] out" to GA, AL, NYC, Philly and Richmond. Also keep in mind, Tampa Bay recently changed its city code to raise microbrewery production cap from 60K bbls/yr to 200K bbls/yr; so Cigar City has already started expanding capacity at its current facility as well. Prior to deal, Cigar City expected to grow another 25% to 75K bbls in 2016 (see Nov 25 issue), tho again "as we start to let the dust settle…the two teams will meet" and figure out "what can and should be adjusted," said Joey. For now it's business as usual and "as far as big picture plans we don't have any specific things that are gonna be different."

"Everyone Feels the Potential of Getting Squeezed" from Both Ends: Mission to "Combat" Asked about whether or not either co saw craft mkt slowdown at the end of last yr, both Joey and Dale responded that their own growth remained strong and consistent thru the 4th quarter and "looks like we're starting off the year strong too," Dale added. But "if you look at some of the data and some of the rumbling out there I think everyone feels the potential of getting squeezed" by both "bigger players" and "a lot of the smaller guys" that are "picking up tap handles," said Dale. "So I think our mission and part of this project is to join two really strong forces" to help "combat" both "the big guys" and "the little guys that are applying pressure," said Dale. Gotta note, "Florida was a little insulated from some of that" since craft still "under-indexes" there, Joey added.

"When an Opportunity Like Joey and Cigar City Come Down the Pike" Originally, Oskar Blues/Fireman team "started off this year really only having discussions with a couple of people" and "really felt the need to focus on our existing breweries," said Dale. But "when an opportunity like Joey and Cigar City comes down the pike, you don't just kind of sit in the static environment and not at least take a look at it again." And "Joey and I had been having conversations for quite some time" and "learned over a year ago that we enjoyed each other's company and we were likeminded in the way we operated our businesses." Which ultimately helped them "speed things up" and "PTSOP," as Dale's dad would say: "put that s&*t on paper."

ABI Had Letter of Intent, But Didn't Make Formal Offer Turns out ABI did have a letter of intent with Cigar City, but "deal fell through after AB neglected to send a formal purchase agreement before the exclusivity period expired," per Brewbound, which broke the story. Ultimately, "for me it was a comfort level thing. The concern I had was that it just wouldn't be the right fit," said Joey. Gotta note, AB could've been reluctant to finalize deal too, since Cigar City's main wholesaler is MC house, JJ Taylor, and AB would've been unable to move. DoJ scrutiny of ABI-SAB mega-merger could've also been a consideration.  

Here goes NY Sen Chuck Schumer, lobbying for local NY brewers again. Sen Schumer "today called on the U.S. Economic Development Administration (EDA) to provide $1 million in federal funding to help jumpstart the Babylon Brewery Incubator Project" in Long Island, NY, "which would be the first-of-its-kind in New York," reported State News Service. The town of Babylon Industrial Development Agency (IDA) has already submitted their preliminary application "for $1 million in federal funding to help jumpstart" $12 mil project that would "transform a blighted warehouse into a brewery incubator" and create 25-50 jobs off the bat. "According to the Town of Babylon IDA, the facility has remained blighted because of more than $900,000 in back taxes and more than $750,000 in DEC cleanup costs."  

A handful of notable new distribution expansions came about in recent days. Boulevard will enter MI with Imperial Bev and KY with Sheehan Family Co's Beer House Distributors in coming weeks, co announced today. Recall, late last yr Boulevard announced plans to enter 5 new territories: AZ, KY, RI, CT and Albany, NY/parts of upstate NY. So only CT left on its list, after it partnered with Hensley in AZ and just recently launched RI with Horizon and upstate NY with a whole mix of distribs: AL George, Certo Brothers, DeCresecente, High Peaks Dist, Lake Bev, Norwich Bev Corp, Oswego Bev Co, Plattsburgh Dist, TJ Sheehan and Tri-Valley Bev. Separately, Boulevard also added Allstate Bev and Gulf Dist in AL.

Stone Brewing will enter Arkansas in late March, reported Fayetteville Flyer, after spotting "posters placed at select locations in central and northwest Arkansas." Stone marks "the third Top-10-ranked [craft] brewery to expand distribution into Arkansas in the past nine months," after Lagunitas (entered in Aug) and Bell's (coming in a few wks), paper noted.

Then too, MI-based Perrin Brewing (owned by Oskar Blues/Fireman's Capital/Keith Klopcic) will expand to its first out-of-state mkt, CO in late Mar/early Apr, co announced. "Through the partnership with Oskar Blues Brewery, the jump into the Colorado market seemed like a logical step towards out-of-state distribution for Perrin," Perrin president, Keith Klopcic said in release. Perrin grew 40% to 14K bbls in 2015 and expects "to have continued strong growth in 2016…driven by their first full year of packaged offerings," per release. Recall, Perrin was just recently highlighted as one of top new vendors in IRI supers last yr, even tho it didn't intro canned packages until fall of 2015 (see last CBN).

And another small, fast growing craft co with limited distribution that's run by an ex-distrib, CT's Stoney Creek, will expand its distribution into new state, MA this mo with Horizon Beverage along with Quality Bev, Williams Dist and Girardi Dist in Apr, co announced. Recall, Stoney Creek ambitiously built out 45K bbls/yr worth of capacity, ultimately expandable to 60K bbls in just a little over 1 yr in biz. And co expects to almost triple biz in 2016 from 8K bbls to 23K bbls, last we heard from 'em (see Dec 17 issue). Stoney Creek is owned by ex-Dichello Dist co-owner, Ed Crowley Sr. and his wife Peggy, and is run by their son Ed Crowley Jr.