Part 2 of 3: Primer on Contract Brewing Arrangements in Washington State

Contract brewing is legal in Washington state, but only in certain situations and under certain circumstances. This three-part series covers the basics.
Contract brewing is legal in Washington state, but only in certain situations and under certain circumstances. This three-part series covers the need-to-know basics.

Last time, we provided an intro to contract brewing in Washington state. Today, we continue our three-part series, covering more must-knows about contract brewing, as a viable business option for licensed microbreweries in the state of Washington. Before getting started, be sure to review Part 1, if you haven’t already.

We’ll cover two important aspects to contract brewing in Washington state, as permitted by statute and regulated by the Washington Liquor Control Board. The two today sort of roll together.

LCB Says Both Microbreweries Must Be a Bona Fide Microbrewery and Produce Malt Beverages

This requirement listed by the LCB in its pseudo-guidance here isn’t exactly clear, and it’s not anything that’s inked into or defined by RCW 66.24.244(7), which is the statutory provision that itself permits contract brewing. It’s also not spelled out in WAC 314-20-095, which outlines further LCB requirements for a compliant contract brewing relationship. At any rate, in our view, it doesn’t take a lot to be a “bona fide” microbrewery—after all, every brewery’s business plan/approach is unique. Further, beer is a malt beverage. This hurdle looks like a low one.

Importantly, Contract-Produced Count Toward Both Microbreweries’ 60,000-Barrel Limit

So, if there’s any catch we foresee in setting out to be a microbrewery that mainly produces for other microbreweries, it’s just that you would have to run the numbers and make sure it can be a profitable thing. That is, the beers produced through a contract brewing arrangement actually count toward both breweries’ 60,000-barrel limit for favorable taxation/licensing purposes. So, if Brewery A gets to sell all those beers at retail and Brewery B only earns money by making them, we’d expect the contract price to involve a number that makes both operations happy. Of course, with the lack of a storefront for Brewery B and the lack of a big brewing operation and staff for Brewery A, this sort of symbiotic relationship could just work out. And, of course, for any brewery thinking about taking on a contract run, it’s worth keeping in mind how it’ll affect your own numbers on your license. Still, the lion’s share of Washington microbreweries produce well under the 60,000-barrel annual limit.

 

Next time, we’ll wrap up this three-parter on contract brewing in Washington State, covering general concerns relating to the contract requirement itself.

 

 

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