Concerned about craft beer bill, distributors bring their own

South Dakota beer distributors said this week a proposal aimed at letting craft brewers sell their beer directly to stores and restaurants gives them unfair advantages over other players in the beer industry.

Senate Bill 169, put forth by Gov. Dennis Daugaard's office, would boost the amount microbrewers can make each year while still allowing them to hold other licenses. It would also eliminate a provision that prevents them from distributing their beer.

Wholesalers, looking to find middle ground, brought a separate proposal that would increase barrel limits for microbrewers and let them transport their beer to taphouses they run. That proposal, Senate Bill 173, would maintain provisions that prevent brewers from selling directly to retailers.

But the alternate proposal isn't a compromise, craft brewers said, and, if passed, it could put out of reach their goals to expand.

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Under current law, microbreweries are able to work as beer producers and retailers as long as they stay below the 5,000 barrel threshold. When they want to sell outside their taprooms, the craft brewers need to partner with a distributor, per state law.

Daugaard's proposal to break down the alcohol distribution system to let craft brewers work as producer, distributor and retailer in some capacity could create problems for the state in collecting tax revenue and for consumers in ensuring their beer meets quality standards, distributors said.

"The more you blur the distinction (between tiers) the more opportunity it leaves for situations that don't benefit the consumer, opportunities that are to the detriment of the consumer," said Robert Riter, a lobbyist for the South Dakota Beer Wholesalers Association.

Beer distributor and state Sen. Jack Kolbeck agreed. On a tour around Beal Distributing on Monday the Sioux Falls Republican along with another distributor Ed Beal, son of state Rep. Arch Beal, said the three-tier distribution system prevents them as distributors from operating a restaurant, bar or store as they could sell their beer to themselves.

The same restrictions should apply the same way to all parties, they said.

"You’ve got craft brewers and they’re allowed to have a tap room and sell their own product," Kolbeck said. "When they go outside of that system they have to be licensed like everybody else, and they should go through the three-tier system like everybody else”

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Sam Papendick, one of the owners of Hay Camp Brewing Company, said the bills present distinct paths for his 4-year-old brewhouse in Rapid City.

Under the governor's proposal, Papendick could look to grow production up to 30,000 barrels a year and start selling to neighboring bars and restaurants.

"It certainly doesn’t help us having to go through a distributor," he said. "This will give us the ability to go down the street to retailers and market our product."

The other proposal, which he said he doesn't view as a compromise as brewers weren't consulted in its drafting, would increase the amount he could brew to 12,000 barrels, but keep sales within the brewery taproom for the foreseeable future.

Tony Venhuizen, Daugaard's chief of staff, said the Republican governor had concerns about the state's brewers ability to stay competitive with craft brewers in surrounding states without the changes he proposed.

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Senate Majority Blake Curd, R-Sioux Falls, author of Senate Bill 173 and said he hoped it would encourage more conversation between distributors and craft brewers about what kind of changes each would accept.

“I think where we will end up is with a hybrid between the two,” he said. “We want to support upstart business and burgeoning new industries in our state for certain, but I think we also want to make sure we’re doing it in a judicious manner and not necessarily instituting wholesale change right out of the cannon."

Follow Dana Ferguson on Twitter @bydanaferguson, call 605-370-2493 or email dferguson@argusleader.com