Ryan Randazzo

The Republic | azcentral.com

Production limits have made some brewers in the state hesitant to expand.

Producing more than 40,000 barrels of beer could force brewers to shut their restaurants.

Language could be added to an omnibus liquor bill to allow expansion and maintain restaurants.

Plans to expand craft breweries and distilleries in Arizona are running up against state production limits, but some business owners are hopeful they will get a fix at the Legislature.

Raising their production limits would allow Arizona beer and liquor makers to distribute to neighboring states, much the same way craft breweries such as Colorado's New Belgium Brewing have grown far outside their own states, officials said.

"We want a level field with out-of-state breweries that can sell an unlimited amount of beer in Arizona," said Anthony Canecchia, owner SanTan Brewing Co. in Chandler while speaking to lawmakers earlier this year. "We feel Arizona breweries should also have that ability to sell as much as anyone from out of state."

Brewers and distillers are focused on getting changes to the liquor omnibus bill, though the industries face different problems with production limits.

Brewers had their maximum production caps raised to 40,000 barrels a year in 2009 from 20,000 previously. A barrel has 31 gallons.

If they produce more than the cap, the law is complicated regarding whether they are allowed to continue operating their restaurants. That makes larger brewers such as Four Peaks hesitant to increase beer production for fear of having to close their restaurants.

Arizona's alcohol industry is regulated as a three-tier system with producers, distributors and retailers. Most of the concerns with raising the production caps come from distributors.

The brewers are hoping to make changes to the law while ensuring everyone continues to get a piece of the business.

Current law allows microbreweries to distribute as much of their own beer as they wish to a second location without a distributor. The law also allows them to "self distribute" or sell no more than 3,000 barrels of beer a year to other retailers without a distributor. This allows small-production breweries to deliver product without a distributor, which might take little interest in low-volume sales from new brewers.

The changes the Arizona Craft Brewers Guild is seeking would allow microbreweries to produce more than 40,000 barrels of beer a year while maintaining their restaurants.

The changes include concessions to the distributors, like prohibiting brewers who exceed the cap from opening any new locations. They would not allow them to distribute to other bars they own without a distributor, or to "self-distribute" 3,000 barrels a year to other retailers.

"It's really holding us back if we plan to go out of state," said Andy Ingram, the owner of Four Peaks Brewing Co., by far the largest in the state.

Four Peaks has restaurants in Tempe, Scottsdale and Sky Harbor International Airport, and a tasting room in Tempe. It holds two production licenses allowing 40,000 barrels each at the Tempe locations.

They are on track to produce 57,000 barrels of beer this year, but if they went over the combined 80,000 allowed, they would likely have to close their Scottsdale and airport locations, which support nearly 200 jobs, Ingram said.

"The proposed changes really are good for the whole industry," he said.

Ingram said he would like to sell beer into Southern California, Colorado, New Mexico and possibly Las Vegas. But producing enough beer for those markets is not justifiable if the company would be forced to close any of its Arizona locations.

The omnibus bill has been working its way through the Legislature. It passes each year, but is based on consensus. Nothing in the bill can be opposed by stakeholders, so liquor distributors, restaurants and other trade groups must approve the changes. Any portions of the bill that face opposition are stricken.

Camila Alarcon, lobbyist for the Craft Brewers Guild, said she believes the group is close to getting a consensus from the industry to add the language to the omnibus bill to address the caps.

The nascent micro distillers in Arizona are fighting a different battle over the same bill.

New language currently included in the bill caps their production to just 4,700 gallons a year, which they say would not allow them to sell enough liquor to maintain their operations, and certainly not enough to cut any distribution deals to sell out of state.

Rodney Hu recently launched Arizona Distilling in Tempe with two partners, and said the low production limit will be too little for them to pay off their loans and run a successful business.

Producing such a small volume of specialty bourbon would not support as many jobs as the company hopes to provide, either, he said.

Only a few small distillers operate today, but Hu said about a half dozen other entrepreneurs are planning to start distilling this year and will face the same issue. Hu's concerns already prompted one increase in the production cap language of the bill, but he wants a larger increase.

"I've put my entire life savings, all this time and effort and everything in this business, and they come out with a bill that is squashing my dreams," he said.

He said he is hopeful the industry can agree on changes that allow distillers to grow and distributors to thrive.