At the start of 2020, the outlook for local breweries was generally very bright. The Maryland and Virginia brewers’ guilds had significant legislative victories in 2019. The DC Brewers’ Guild had success in pushing back against Initiative 77, achieved progress on reforms to gain regulatory parity for brew pubs, and for DC breweries to have the same opportunities for expansion as out of state brands. And then, as with everything else in 2020, the COVID-19 pandemic hit. Along with the rest of society, the restrictions necessitated by the pandemic have put incredible stress on local brewery owners. It has forced them to innovate, to pivot more of their business to a to-go model, to find new ways of selling products, and to somehow–in the midst of it all–keep themselves and their employees safe. Despite these challenges, the need to maintain relationships with elected representatives and advocate for government support and regulatory reforms has remained. What follows is an edited transcript of interviews with the Maryland and Virginia Brewers’ Guilds and Associations discussing: (1) their experience with the federal and local government’s support for small businesses in 2020: (2) a key legislative victory on federal excise taxes; (3) their legislative and regulatory goals for 2021. Part one, focusing on DC, is here.
Brewers Association of Maryland (BAM)
For this interview we spoke with the Executive Director for BAM, Kevin Atticks, and BAM President Sarah Healey of Union Craft (and formerly Milkhouse Brewery).
DC Beer: What has the permanency of the beer excise tax change meant for your members?
Kevin: It’s huge. From what I heard from members, a number of them were counting on it. They opened after the original 2017 change, and the idea that it would go up to the original rate was really frightening to our members.
Sarah: 2020 was devastating for all small businesses and our industry was not immune. Having a tax hike would have just exacerbated that. At this point anything is helpful. We’ll be digging out for a while and anything that makes the hurdle easier is welcome.
DC Beer: How did the tariffs on steel and aluminum introduced under the Trump administration impact Maryland breweries? Do you have any indication if that will change in 2021?
Sarah: It was certainly impactful to almost all of our members. A lot of people were trying to move to packaging and I’ve heard from many members that the can costs have been tremendous. Plus the issue of when the cans were going to arrive. I personally experienced that with crowlers at Milkhouse. In order to cope, members have been borrowing cans from their fellow brewers.
Kevin: There’s a couple of different factors [when it comes to the cost of cans]. Not a week goes by that I don’t hear from one or two members of the Maryland wine and distillery community that are also getting into cans. There’s overall increased demand. Some can production facilities have had to temporarily go offline as well. That plus the tariff has made it a difficult situation. There has been collaboration between industry members to trade cans or even group together to make larger bulk purchases. Early on in the pandemic it was nearly impossible to get crowler cans and supplies. That has begun to thaw a little bit.
Sarah: Another impact on our industry were breweries in planning, and the tariffs on steel made their equipment considerably more expensive. We’ve had conversations with a couple of breweries opening during the pandemic that had to pay an additional ten thousand dollars for that equipment. When you build your entire brewery on the plan of having taproom sales, and then that largely goes away, and then you need to invest tens of thousands of unexpected dollars into packaging… It’s just one thing after another.
Kevin: I participate in the weekly call for state guilds with the BA and there has been hope that there are efforts underway to renegotiate some of the Trump era tariffs, at least with Europe and some other trading partners, but China is still a problem.
DC Beer: What has been the experience of your members with the federal support for small businesses in 2020? What do you hope will happen additionally or differently with President Biden’s relief act?
Sarah: I think broadly from members that I’ve spoken to that any of the federal relief (PPP/EIDL) was great, but over time, not being an attorney or professional accountant, the shifting parameters have been difficult to track. Anything members could get that allows businesses to keep people employed would be appreciated.
Kevin: We’ve heard a number of folks who applied for the forgiveness under the PPP and some have received it and others have not. Some banks have had more efficient processes than others. The employee retention tax credit has also been helpful.
From a broader industry standpoint, it would be great to focus more specifically on the hospitality/tourism industry. Trying to find a way to make the business model work to keep our restaurants and on-premises focused businesses alive. The relief for these businesses has dried up and the states have only allowed 25-50% occupancy. That is not enough, even if the reason for the restrictions is understood and necessary. Until breweries can expand on premise sales, there needs to be a greater level of support if the government wants these businesses to survive. The PPP was great, but only if you could still operate.
Sarah: I would echo what Kevin said. A lot of our members have distributed draft beer and I think that going forward we should be able to somehow gain compensation for that lost draft revenue. No one wants to be the place of a super spreader event, but we need additional support to make that work.
DC Beer: What has the support for breweries locally, in Maryland, looked like?
Kevin: There have been a couple of rounds of state grants and sometimes the state flowed money through the county level. Those grants are sometimes general purpose for businesses, but sometimes focused on specific businesses such as music venues. Numerous grants have been offered by local jurisdictions to rent or buy outdoor equipment. I would rate the state’s support as high. Early on they announced their programs and had a streamlined online portal to apply. However, BAM didn’t hear back for a while and money was quickly exhausted.
Sarah: In my experience previously, and talking to members, I’ve been pleasantly surprised by the number of grants and programs provided by local jurisdictions. The support from the state has been high and really great. I think it is important to keep a realistic outlook on the scope of the need and how much can be given to our specific industry.
DC Beer: What are the legislative and regulatory priorities of BAM for 2021?
Kevin: We have a bill that was just introduced HB1232, that first off, codifies the state executive orders that allowed delivery and shipping for manufacturers and removed the caps on to-go sales for certain brewers. It also allows the Maryland alcohol regulator to levy flexible license fees, which was a problem this year since their only option was to waive fees entirely or keep charging them. By waiving the fees, some breweries had issues with their insurers and other third parties who wanted evidence that their license was current. Thirdly, the bill cleans up the language for a number of items from the 2019 Modernization Act. Finally, it creates a new combined manufacturer off-site permit to attend festivals and farmers markets.
We are also opposing an alcohol tax increase in HB463. What that does is raise the state sales tax on alcohol from 9 to 10% with the goal of adding revenue to deal with health disparities. The money raised would not be enough to fund the program and sets a bad precedent. We support the concept, but do not believe a specific industry should fund that.
DC Beer: How would you answer the charge though that alcohol, when abused, causes certain externalities and that those that profit off of alcohol sales should pay for the problems their product may cause?
Kevin: There’s not enough research to link increases in alcohol taxes on local products that already cost a premium with shaping health outcomes. You’re not really reaching the audience that you are trying to reach. When you tax something, you’re taxing the affected business, and that runs counter to the state efforts to keep our businesses open. Additionally, some of the proponents of this bill are trying to sell it as a mere $.01 increase instead of a 1% increase in the sales tax, which is obviously incorrect.
Sarah: We also need to keep in mind the disparities that exist in the alcohol sold in Maryland. Only 3% of all wine sold in the state, and less than 10% of beer sold in the state, is produced by local businesses. This sales tax increase, which is directly born by every local producer, is a big problem. If there is a problem with alcohol and public health, it should not be put disproportionally on the back of the 275 wine and beer manufacturers in Maryland.
DC Beer: Are there any other items you would like the readers to know about?
Sarah: Pinewood Derby is virtual this year. Go to Union Craft Brewing for more information.
Kevin: FeBrewary is beer lovers’ month in Maryland. Please keep up to date on all the BAM sponsored events via our social media.
Virginia Craft Brewers Guild
For this interview, DC Beer spoke with Leadership Chair Janell Zurschmeide (Dirt Farm Brewing) and Government Affairs Co-Chair Sten Sellier (Beltway Brewing Company).
DC Beer: The federal excise tax reduction, down to $3.50 per barrel, was made permanent at the end of 2020. What has that meant for your businesses?
Sten: The tax change being made permanent was huge. It would have been a nail in the coffin for many folks this year. When things were already so tough for everyone, the double tax increase would have been awful.
Janelle: It’s pretty self-explanatory in its success. It will allow members to be confident in brewing more beer. The stability is key.
Sten: While the initial reduction, back in 2017, did free up capital to hire or make capital investments, making it permanent this year was more important for the overall financial stability of the breweries.
DC Beer: There’s been some discussion in the craft beer world, especially in 2020, about the impact of aluminum and steel tariffs. Any thoughts on this issue?
Sten: The issue of aluminum canning and steel is mostly tied to demand. However, panic over the aluminum tariffs in the spring led some suppliers to preemptively increase prices on cans right as the pandemic was getting on. Given the huge shift that was already happening to packaging it was a poor move on the part of can manufacturers.
DC Beer: What has been your experience with the federal relief programs? Any hopes for how things will look in that regard in 2021?
Janelle: We took advantage of the PPP and it was helpful to retaining employees in the beginning when our taproom was completely shut down.
Sten: Beltway took advantage of both PPP round 1 and round 2. We thankfully had the help of a good accounting firm. Folks in our positions as small brewers should be forgiven for most of this as we’re using it to retain employees. I’m kind of overwhelmed as a business owner with all the various federal programs and trying to figure out what you qualify and apply for, while still keeping the business running. It seems to be an every man for themselves scenario.
As a guild we’ve done our best to inform members, but it can vary a lot based on location. I’m very optimistic that things will pick up in the spring and summer from a business perspective, and hoping that from a health perspective that can also be safe. We need to have a good balance between business needs and the safety of the patrons.
Janelle: We’re really proud as a guild that we had more brewery openings in Virginia in 2020 than closures. The consumers and demand are there. It’s been an incredibly difficult year, we’ve had to change business models, but that support from our local beer fans keeps us going.
DC Beer: What has the local and state support looked like for you in 2020? I believe both Dirt Farm and Beltway are in Loudoun?
Janelle: Both our breweries are in Loudoun County and I think the county has been doing a great job. Visit Loudoun and the Chamber of Commerce have worked closely together. I feel quite lucky and grateful that it wasn’t worse. They’ve put out some wonderful grants that Dirt Farm was able to take advantage of. It is lottery based and there have been two rounds so far. The county has been great at developing best practices and urging residents to support local businesses safely. Loudoun had a program to support businesses getting outdoor equipment and gear.
For us as a Guild, our CEO and leadership was helpful at doing weekly seminars with brewery members, especially last spring and summer, to help folks figure out how to navigate the pandemic.
DC Beer: What are the top legislative and regulatory priorities of the VCBG for 2021?
Janelle: One of the biggest bills we are watching and supporting now, HB1738, supports outdoor refreshment areas to allow them to have entertainment districts.
Sten: There is an effort underway to make permanent the emergency order to allow deliveries by breweries direct to consumer. It was an ask of the Virginia ABC to make that permanent in the regulatory code instead of a legislative change.
DC Beer: There’s been some periodic discussion among craft breweries in Virginia to push for self-distribution, including in 2020. I know that is a topic on which there is some disagreement among VCBG members. Do you think the Guild might make a push for self-distribution to retailers in the future?
Janelle: One of our imperatives as a guild is to protect SB604, which is the bill that allowed for on-premise draft sales at Virginia breweries. That legislation came about as part of a deal with the wholesalers to not challenge them on self-distribution rights.
Sten: One of things we’re pushing for is improving the franchise law to allow temporary self-distro agreements on a case by case or specific time basis. We as a brewers’ guild are fortunate to have an open and productive relationship with the wholesalers. We’ve been able to work out some thorny issues in the past, but self-distribution is a redline that shuts down all discussion.
One of our shared goals with the wholesalers is improving the process of resolving disputes with distribution partners. We want to expediate that process and shorten the window to end agreements. Currently it takes at least ninety-days, and usually a lot longer, to end distribution agreements. It has been used by bad actors in the past to kill brands by waiting them out.
Janelle: What we love is our good relationship with the wholesalers and open dialogue. They will admit to bad actors in their tier, which doesn’t always happen.
DC Beer: Is there anything you’d like to add for the DC Beer audience?
Janelle: We’re just so appreciate that our consumers will come out in their cold weather gear to support us. When we were shut down and it was just curbside, folks showed up and supported us. Folks bought gift cards when we closed for a day.
Sten: Beltway has a couple of food and beer pairing events coming up, specifically with District Doughnuts in DC. We are grateful for all the support that local fans are giving us, it has helped us to survive.
DC Beer would like to thank Leah Cheston, Justin Cox, Kevin Atticks, Sarah Healey, Janelle Zurschmeide, and Sten Sellier for their time and insights. If you would like to find out more about the DCBG, BAM, or VCBG please go to their website or follow them on social media.