× Expand Peter Gentry estimates he’s lost $15,000 in sales because he can no longer serve wine or liquor at One Barrel Brewing.

By most accounts, Wisconsin’s craft beer industry is still booming. It’s an economic development bright spot in a state struggling to create new jobs and boost private-sector investment.

But unfortunately, the number of new breweries opening in Wisconsin is now lagging the rest of the nation by some 50%, according to the latest figures from the Brewers Association, based in Boulder, Colo. And some entrepreneurs are blaming lawmakers for arcane rules slipped into the 2011 budget that make it harder for smaller players to expand or grow their business.

“Wisconsin likes to think of itself as the home of brewing but the fact is other states are a lot more friendly,” says Peter Gentry of Madison’s One Barrel Brewing. Gentry had to stop selling wine and liquor at his tap room at 2001 Atwood Ave. in order to comply with the new law.

Gentry opened his “nanobrewery” in 2012 with the modest goal of producing about 250 barrels of beer annually. (A barrel is 31 gallons or about 248 pints of beer.) The 1,300-square-foot facility also featured an in-house bar serving beer, wine and spirits, which provided some badly needed revenue to the fledging operation.

In fact, business has been going so well that Gentry has run out of capacity at his east-side location and wanted to start contract brewing One Barrel beers at other facilities. This is a common practice among brewers today that allows for growth without a major capital investment in new equipment.

But in order to legally contract brew under the new state rules, Gentry had to switch the official classification of his business from “brewpub” to “brewery” — a move that also forced One Barrel to give up its license to sell wine and liquor, although it can still offer beer. That change alone, Gentry estimates, will cost $15,000 in lost sales. Meanwhile, other breweries operating prior to 2011 are still permitted to hold the Class B licenses that allow retail liquor or wine sales on premise.

“They’ve made the playing field very uneven, especially if you want to expand,” says Gentry.

The changes in state law, which were backed by the powerful Tavern League of Wisconsin, made big news in Milwaukee recently when celebrity chef Justin Aprahamian, owner of Sanford restaurant and a James Beard award winner, announced he will open his Like Minds Brewery in Chicago instead of Milwaukee as first planned. The owners anticipated hiring 40 employees off the bat, but these jobs now seem headed to Illinois.

That story caught the eye of state Rep. Dale Kooyenga (R-Brookfield), who calls it “embarrassing” that a prominent Wisconsin businessman is being forced out of state because of rules designed to protect bars and taverns from competition from small breweries.

“I’m a free market guy, and this is just wrong,” says Kooyenga who put some of the blame on the state Department of Revenue for what called an overly aggressive approach to regulation.

Kooyenga, who has championed deep tax cuts in Wisconsin as a way to spark business growth, is now planning to introduce legislation that could ease some of the brewing restrictions in the name of growing the state economy.

“We should be helping entrepreneurs in the state, not making it more difficult,” he says.

The rules that block a brewery owner from holding a retail liquor license are part of the state’s longstanding “three-tier” distribution system that legally separates alcohol manufacturers, wholesalers and bar owners from each other. The patchwork of laws, which has been tweaked and changed at various times, is designed to prevent monopoly control of the alcohol industry.

The three-tier system was adopted across the nation following the lifting of Prohibition in 1933 and was intended to prevent a return to the old “tied house” scenario where brewers could squeeze out the competition by forcing taverns to only serve their products. Each state enacted its own set of laws and a system to collect liquor taxes.

But rather than preventing large breweries from dominating local markets, the tied house laws today are obstacles to newer players looking to get started, says Bart Watson, an economist with the Brewers Association, which represents the nation’s 3,400 craft brewers. The trade group broadly defines “craft brewers” as small, independently owned operations producing less than 6 million barrels annually.

Wisconsin did see the number of craft brewers increase from 73 to 97 from 2011 to 2014, a jump of 32%. But other states like Minnesota, Illinois and Colorado have enjoyed three times that growth rate over the same period.

“You’ve definitely seen a slowdown,” says Watson. “That’s unfortunate because most of the growth in the industry is coming from smaller places that need to operate a tap room to stay profitable.”

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To that end, the owners of Madison-based MobCraft Brewing Company have run into snags trying to open a new brewery in Milwaukee’s redeveloping Walker’s Point neighborhood. MobCraft wanted to include a Roman Candle pizza restaurant in their new venture but were told they couldn’t because the pizzeria holds liquor licenses for its five other locations in Wisconsin.

MobCraft owner Henry Schwartz is still hoping to work out something with regulators but says the complicated state laws regarding alcohol sales and distribution are outdated and cumbersome.

“We’re even one step further removed from what the guys at Sanford (restaurant) ran into,” he says. “It’s just crazy.”

But any changes to Wisconsin’s three-tier system will certainly face opposition from the Tavern League, which represents more than 5,000 retail establishments in the state that could potentially lose business if breweries enjoy more freedom to sell alcohol on site. A loosening of Wisconsin’s tied house laws would also have to get past Rep. Rob Swearingen (R-Rhinelander), who chairs the Assembly Committee on State Affairs and Government Operations, which oversees alcohol policy. Swearingen is a restaurant owner and past president of the Tavern League.

Longtime Tavern League lobbyist Scott Stenger says the current system is working well and is one reason Wisconsin has maintained its many small bars and restaurants in the face of national competition. He notes that all other states have tied house laws and no one has yet to come up with a better system for regulating alcohol sales and distribution.

“A few years ago you’d be hard pressed to find a bar with more than five different tap lines. Now you have places with 40,” says Stenger.

In fact, Stenger says the number of different breweries operating and the wide choice of beers available points to the success of Wisconsin’s regulatory climate.

“I just don’t see any evidence this is keeping anyone from opening a brewery,” says Stenger, who also lobbies for MillerCoors, the brewing behemoth created by the merger of SABMiller and Molson Coors in 2007.

But Mark Garthwaite, executive director of the Wisconsin Brewers Guild, which represents about 60 state craft brewers, can recount a dozen cases where smaller breweries are running into roadblocks under Act 32, which was included in the 2011 Republican budget with no debate or discussion.

He notes, for instance, how the Wisconsin Brewing Company in Verona, which opened in 2012, is losing business because it cannot legally serve wine or spirits under the new law.

“They would love to host weddings, but you can’t toast the bride with champagne and the guests can’t have a brandy Old Fashioned because a brewer can no longer hold a Class B [liquor] license,” says Garthwaite, who is also chairman of the Great Taste of the Midwest beer festival and former president of the Madison Homebrewers and Tasters Guild.

Garthwaite acknowledges the initial intent of the three-tier system of the 1930s but questions whether tiny breweries today really pose a monopoly threat or a return to the days where hard-nosed brewers could throw their financial muscle around.

“What we need is a more dynamic system that reflects the changes that have come to the brewing world,” he says. “Consumers have made it clear they want more choices, and if Wisconsin is really open for business we shouldn’t be putting up these kinds of obstacles.”

Editor's Note: This article was updated to correct the number of pints and gallons in a barrel.