Craft Brewers Face Regulatory Challenges

As the annual Craft Beer Conference converged this year in Washington, DC, changing regulations are both helping and hampering the growing industry.

This week I attended the annual Craft Brewers Conference. This year's conference, held in Washington, DC, occupied much of the District's Convention Center, a massive space that reflects the continued growth of the craft beer movement in America.

In addition to sampling many excellent beers from around the country over several days, I sat in on a few educational sessions and spoke with several well-known brewers from around the country to gauge the state of the industry.

While demand for craft beer is growing across the country, it appears many small brewers are also bumping up against outdated federal and state regulations.

State laws regulating breweries vary greatly. The trend, as I've noted previously, appears largely—though not universally—to be toward deregulation.

I spoke with Garrett Marrero, founder of Maui Brewing Company in Hawaii, the largest craft brewer in the state.

Demand for craft beer has helped Maui Brewing and other brewers in the state push to expand limits on production six-fold over the past few years—from 5,000 barrels to the current 30,000-barrel limit.

"It's nice when there are issues where you can be aligned with your competition, and I think that was an obvious one," says Marrero.

Federal regulations also vary. They're in flux in large part because of the explosion of beer choices over the past couple decades.

"You reach a tipping point," Daniel Kopman, co-founder of Schlafly Brewery in St. Louis, tells me. "The consumer's demanding more variety."

"Before, you had Anheuser-Busch and you had Miller and Coors, separately," says Kopman, "and maybe a few years ago you had a few other players that all operated under the same basic playbook. And the rules were very well written and they had significant control over the flow of beer essentially from the brewery—and the raw materials behind it, and all of the packaging materials, and everything that went into the supply side. They had control of the process all the way through to the consumer. And essentially the consumer was in step with them."

"So now, all of a sudden," Kopman says, "the consumer steps to the side—and another side and another side. It's now moved such that [large brewers] can no longer control everything that's going on. And so that also puts pressure on the regulatory framework, because the regulatory framework was built along the previous paradigm of a few… major brewers."

Craft brewers expressed a variety of regulatory concerns at the federal level.

I spoke with Bill Sysak, Craft Beer Ambassador for Stone Brewing Company in Escondido, California, who's known as "Dr. Bill" in the craft beer community.

Sysak tells me that two of the main concerns of those who took part in a craft beer lobbying day on Capitol Hill that coincided with this year's Craft Beer Conference were barrel taxation and threats that regulations meant to crack down on so-called "alcopops" might unintentionally ensnare craft beer producers.

Perhaps the most interesting part of the conference I witnessed took part during a question-and-answer session that followed a talk by Art DeCelle, an attorney with the firm of McDermott Will & Emery who previously served as general counsel with the Beer Institute, an industry lobby group.

DeCelle's talk focused on FDA regulation of brewers—which has ramped up steadily in the past decade and will only increase under the Food Safety Modernization Act. Still, while FDA regulators are increasingly coming into contact with brewers, it appears—judging from comments and questions posed by brewers after DeCelle's talk—these regulators often have little idea what craft beer is and how it's produced.

One craft brewer, for example, told DeCelle that an FDA regulator who inspected his brewery had suggested that the new FSMA required the brewery to refrigerate its grain—something that flies in the face of beermaking and industry standards.

"It doesn't take much to understand that you don't keep grain cold," he said.

Another brewer described FDA inspectors who have visited his brewery as "clueless." Yet another pointed to the growing problem in the industry of "the FDA not really knowing our practices."

When the FDA "send[s] in an inspector," he told DeCelle and the audience, "they should know what they're talking about."

The challenge regulators must face up to is that artisanal production often doesn't resemble the sterile laboratory environment that the FDA sometimes expects.

Smaller isn't inherently any better or worse than bigger. But it is different. Even within the craft beer industry, the size of market participants shows great variety.

There are craft beer giants like Stone Brewing, big fish in small ponds like Maui Brewing, and nanobreweries that could fit into a small apartment. But some are even smaller.

I learned about what appears to be a new trend in beer—gypsy brewing. Brooklyn's Lauren Carter and her husband are launching Grimm Artisanal Ales, which builds on principles of the shareable economy, in Brooklyn, New York.

"In order to relieve much of the debt burden associated with starting a brewery," Carter tells me, "gypsy brewers do not invest in space and equipment, which can be prohibitively expensive. Instead, we are brewers without a home traveling to existing breweries and making beer by renting time using the equipment there."

Regardless of size, the craft brewers I spoke with appear to want much the same thing—good beer, happy customers, and fair rules.

Industry insiders appear optimistic about their shared future.

"Craft beer's only going to continue to grow," says Stone Brewing's Sysak.

If state and federal regulators will allow it, craft brewers and beer drinkers alike can expect a bright and hoppy future.