While Maryland broods over beer, Michigan’s craft beer industry grows

This is a tale of two states and their approaches to local brewers.

The folks at the Founders Brewery in Grand Rapids, Michigan, are making 450,000 barrels of beer each year and selling 6,000 of those barrels in their tap room, one pint at a time. That works out to about one and a half million pints. No Maryland brewer comes anywhere close to that.

Founders’ co-founder Mike Stevens says there is no cap on the number of beers a Michigan brewery can sell in its taproom, and that’s been good for business.

"We found that the more breweries that opened and the more tap rooms that opened, the more consumer excitement that followed," he said.

So, while the craft brewing industry is flying high in Michigan—the Brewers Association ranks it sixth in the nation—a battle brews in Maryland—ranked 25th by the brewers--over loosening regulations.

In Maryland, tap room sales had been capped at 500 barrels a year. That was raised to 2,000 barrels by the General Assembly this year, after Guinness said it wanted to build a brewery and tap house in Baltimore County, and to sell a lot of beer by the pint.

But then lawmakers added a buyback provision. It requires a brewer who wants to sell more than 2,000 barrels, to sell that additional beer to a wholesaler and then buy it back. A brewer can sell an additional 1,000 barrels that way.

State Comptroller Peter Fanchot calls that a giveaway to wholesalers. He complains that existing laws are antiquated and hurting Maryland’s craft brewers.

"All they want to do is brew great beer and sell great beer," he said.

Franchot is heading up a task force of brewers, wholesalers and retailers that is holding meetings around the state to come up with ideas to change Maryland’s beer regulations.

The task force members make up what’s called the three-tier system in Maryland. Brewers make the beer. Wholesalers buy the beer, then sell it to restaurants and liquor stores, who sell to individuals.

Kevin Atticks, the CEO of the Brewers Association of Maryland, said the beer market is changing and that brewers "are meeting that shift and are answering the customers’ needs."

"And we’re starting to see some retailers do it," he added. "And we need the wholesalers to do it as well."

Atticks says he would like to see the limits placed on Maryland’s craft breweries raised or eliminated. And that kind of talk has wholesalers nervous.

Leslie Schaller, the marketing director for Bond Distributing in Baltimore, is on the task force. And she says the panel is stacked against the distributors.

"The three-tier system, which has been in existence for a reason since prohibition, in the attempt to get a couple of minor issues addressed, will go up in smoke," Schaller predicted.

Wholesalers say they are small businesses doing the grunt work of loading beer on trucks and getting it to where you can buy it, while at the same time paying taxes and employing around 2,000 people statewide.

They also train servers in restaurants and support community groups. That’s not as much fun, or as sexy, as craft breweries, but still a key part of the three-tier system. If breweries are allowed to sell a lot of beer on site or do more self-distribution, that cuts out the wholesaler.

Jack Milani, who owns Monaghan's Pub in Baltimore County and lobbies in Annapolis on behalf of bars and restaurants, said retailers could be affected too.

"I think the biggest target is trying to come up with a fair number of when you become more of a retailer than a brewer," he said.

Neal Katcef, owner of Katcef Brothers, an Annapolis wholesaler that delivers on average up to 15,000 cases of beer a day, says he can’t crystal ball how changes in beer regulations will affect his business. But he said the task force and the legislature need to take into account that major changes will affect people’s lives. For example, he wondered, what happens to the family liquor store if Maryland allows beer sales in grocery and chain stores?

"Am I saying we need to perpetuate a system that some may feel is not consumer-friendly," Katcef asked. "I say it is consumer friendly because it’s how our consumers have lived since repeal of prohibition."

Back in Grand Rapids, where you can buy beer in your friendly neighborhood grocery store, Founders is keeping a close eye on the Maryland beer market. Stevens said Founders had thought about coming to Maryland six years ago, but the craft beer industry here was, well, a little flat. So they held off.

But just last year, after Founders saw a market growing in Maryland, Stevens said, they decided to jump in.

"We don’t physically live there so it makes it difficult to go into a market you have to build," he explained.

Stevens and a couple of other guys went from being home brewers in 1997 to starting the first brewery in Grand Rapids. Founders lost money for more than a decade, but it was in a perfect position when the craft beer industry started taking off in Michigan in 2008. Now there are 30 breweries in Grand Rapids alone, which markets itself as Beer City U.S.A.

"And it really has just fed this consumer base I think that has helped everyone flourish, including our distributors," Stevens said.

In Michigan, there are no restrictions on how much beer Founders can produce or sell in its tap room. Comptroller Franchot wants to create the same situation in Maryland.

He says the legislature will support easing limits on craft breweries in 2018, whether the wholesalers are on board or not. The reason, he says, is that it’s an election year, and legislators will recognize that voters, Democrats and Republicans alike, can agree on one thing: supporting craft beer.

"If we’re adding to our votes, that’s good," Franchot said. "If we’re doing stupid things and irritating 100 percent or 99.9 percent of the voters, that’s probably not a good thing."

Governor Hogan has also said Maryland’s beer laws need to be reformed. Franchot’s Tap Task Force is expected to make its recommendations to the legislature in October.