The inside story on why Prairie Berry East Bank closed up so fast, and why it shouldn't have happened

A popular Sioux Falls eating and drinking establishment closed Saturday, sooner than its owners wanted.

And it’s all due to an apparent communications mix-up within South Dakota's government.

Goodbye, Prairie Berry East Bank.

Earlier this month, Prairie Berry announced plans to close its East Bank location to avoid falling afoul of a new state law.

The law, meant to boost small, local brewers in the state, appeared to come with a hidden hiccup: It required taprooms to include manufacturing equipment if they wanted to stay in business.

Several small brewers, including Prairie Berry, brew their beer elsewhere and sell it at a separate taproom they own.

Matt Keck, co-owner of Hill City-based Prairie Berry Winery and Miner Brewing Co., checked with the state Department of Revenue in March, just before the legislation affecting the state's liquor law was signed by Gov. Dennis Daugaard.

Keck's question: How soon would he have to comply with the new law? July 1, he was told, the day the law went into effect.

That was a problem for Keck. Prairie Berry East Bank is located at 322 E. Eighth St., the renovated former Frank Transfer & Storage Building.

Keck estimated it would cost tens of thousands of dollars to install a small beer-making system in the historical building, a prohibitive amount. It made more sense to quickly close operations and hurry to find a new home in Sioux Falls that could more easily comply with the impending law.

His April 16 announcement about his plans to close and find a new location set off alarm bells for other brewers in Sioux Falls and South Dakota.

"After this announcement came out, my cell phone lit up with texts from the brewers saying, 'What's going on?" Keck told the Sioux Falls Business Journal. "And I conveyed to them what I conveyed to you and what I learned from (the Department of) Revenue."

The other brewers' confusion was understandable. They had been essentially told to wait for clear guidance from the Department or Revenue, several told the Business Journal.

Keck's decision made it seem like he knew something they didn't, raising alarm bells.

Good bill gone bad?

The law, the result of a number of pieces of legislation passed in the recent legislative session, had been broadly viewed as good for craft brewers.

It raised the production caps for small brewers and allowed them to distribute their products directly to retailers.

Daugaard supported the pieces of legislation, signed them into law and declared them a victory for the state's economy.

“This is an economic development win that will help our homegrown craft breweries grow and thrive,” he said in a March 22 statement.

The craft beer industry is a growing sector in the state's economy. And Sioux Falls' craft breweries and taprooms, mostly clustered along Brewer's Row along Eighth Street and down Phillips Avenue, are increasingly a major player in the city's downtown entertainment, drinking and dining scene.

Prairie Berry's plan to close its East Bank home came as a blow, said Joe Batcheller, president of Downtown Sioux Falls Inc.

“These businesses draw tourist and locals alike, adding to the vibrancy of downtown. These businesses contribute to our local culture and economy in profound ways," he said, "DTSF will surely miss Prairie Berry and Miner Brewing. They have been such great partners in growing the downtown scene. We hope to have them back downtown someday soon.”

The law's plain language does indeed require craft brewers install beer manufacturing within their taprooms if they want to keep them open. But what did it mean for beer to be

"manufactured?" Was it literally brewing beer? Could it include bottle-conditioning or cask aging? The law didn't say.

And that was a crucial question for the owners of Fernson Brewing Co. and Hydra Brewing Co., both Sioux Falls breweries with satellite taprooms downtown.

It was a question for brewers elsewhere in the state, as well.

Seth Koch is co-owner of Wooden Legs Brewing Co. in Brookings and a board member of the South Dakota Brewers Guild. (Full disclosure: he's a friend since college of this article's author).

Koch told the Business Journal on April 19, a few days after Prairie Berry's announcement, that the Department of Revenue was reviewing through the law and determining how to appropriately apply it.

"The DOR contacts that we have spoken with have advised us that they are currently working through reconciling the differences of the different alcohol bills that went through," Koch said. "We expect to hear back from them soon."

Barely a week later, the brewers did.

'We won't be closing'

On Friday, policy staff in the governor's office answered questions from the Business Journal with what looked to be a way forward for brewers.

They also passed on the good news to several brewers, including Keck and Derek Fernholz, co-owner of Fernson Brewing Co. and president of the Brewers Guild.

Drum roll, please.

The Department of Revenue was developing a plan to apply a year-long grace period for businesses to come into compliance with the new law. And "manufacturing" would likely only mean something like aging beer in casks, a much simpler installation than a brewing system, wrote Tony Venhuizen, Daugaard's chief of staff, in an email to the Business Journal.

"This language was never at issue during the legislative process, and we believe this guidance should give micro-breweries the flexibility they need to continue to operate taprooms," Venhuizen wrote.

And, because of the one-year window for compliance, there would be an opportunity to clarify the law in the 2019 legislative session if the need arises.

Venhuizen said thought the confusion over the law's interpretation was, "for the most part, a communications problem" and said conversations had been ongoing with small brewers thoroughout.

But Friday's message from the governor's office was welcome news to Fernholz, with Fernson Brewing Co., about the meaning of the law's language regarding manufacturing.

The guidance is a short-term fix for the taproom problem and it could turn into a lasting fix if clarified by the Legislature next year, he said.

"It gives us time, with a year's forbearance, to potentially go through the session next year and legislate it differently," he said. "We won't be closing Fernson on Eighth anytime soon."

However, the news of a grace period and a loose interpretation of what it means to manufacture beer came too late to save Prairie Berry East Bank, Keck said on Friday, on the eve of its closure.

The company would likely have moved to a new location after its lease was up in a year anyway with an eye to federal requirements for on-site beer manufacturing. But Prairie Berry it would have had more time to look for a new location and set up a seamless transition from old location to new.

Now?

"That ship has sailed," said Keck.