Open a Brewery the Affordable and Easy Way.

This post is for the dreamers—those who want to open a brewery, without giving up their primary careers just yet. I’m here to say it’s possible—promising, even. So, here are my thoughts on how you can invest in yourself. You can open up a brewery the easy and affordable way, without sinking cash into mega start-up costs. Here’s how.

Before fully digging in, I’ll note that it’s the holiday season. Time with family, especially over some special brews and beverages, can refocus us all, and for anyone with an entrepreneurial streak, that refocusing can resurface dreams of a family-owned business—something to support those closest to you now, and well into the future. And, for many of us homebrewers, that dream usually involves a homegrown brewery, cidery, meadery, or distillery.

If you’re just exploring the idea, or you’ve been batting it around for a bit and don’t know where to start, it’s worth noting that a brewery start-up can take so many different kinds of forms. But, for many of us, the prospect of leaving one career to jump into a less-certain other can make the dream seem too risky. For others, the start-up costs or investment obstacles alone can make the dream seem too impossible. Today, though, this post is all about the possible.

One of the most affordable, least risky, and easiest ways to open a brewery is to open a brewery…without opening a brewery. Rather than invest in a massive system, long-term lease, and take on full-time brewing from the get-go, clever potential brewery owners can get some brews on the market without too much skin in the game. We’ve covered these sorts of contract brewing and alternating proprietorship arrangements in the past, back in 2011. But, it’s worth revisiting now, as it’s an underutilized option to get brewing. These arrangements are legal from TTB’s perspective, and in a number of states, including Washington. It’s the real deal. For those in Washington, there’s more background on contract brewing here, here, and here, and helpful information on alternating proprietorships here.

The gist of an alternating proprietorship is, you’d be getting licensed up, but rather than outfitting your own start-up brewery, you’d be opening a brewery as a “tenant” brewer from time to time at another commercial brewery. You’d bottle into your own bottles or keg into your own kegs, with your own label approvals, and you’d be completely in control of your inventory. You just wouldn’t have to invest in the space from the start. It’s sort of like a tool lending library, on the massive brewing scale. In contrast, contract brewing arrangements allow you to contract with an existing brewery and have them responsible for making the beer for you. You can craft the recipe, but they’d be the licensed parties brewing it up.

So, for those of you wanting to get your feet wet in the brewing business, without getting underwater, alternating proprietorships and contract brewing arrangements are real possibilities, and Reiser Legal or your local beer attorney is available to help new brewery owners open a brewery, test out the market, get their goods out there, and make cash to reinvest into the future brewery, without putting your primary career on hold. Of course, having said all of that, it costs a lot less than you’d think to start up a nano brewery, and there are many investors eager to be a part of the fun. See our post on brewery start-up costs here. But, if you’re not sure about the “wheres” of your commercial facility, and don’t want to plant deep roots just yet, contract brewing or alternating proprietorships are a viable option, and we’re here to help you get started.

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

Today’s post concludes our three-parter on contract brewing arrangements in Washington State. As we’ve covered in parts 1 and 2, it’s a legal practice for Washington microbreweries. However, it’s certainly subject to certain restrictions and regulations. Most notably, there’s the LCB-regulated side of the contract that we touch on today.

There Must Be a Written Contract Between the Breweries (and LCB Must Approve It)

LCB mandates that to start contract brewing, breweries must enter into a written arrangement, and we’d expect the breweries to do so anyway. LCB doesn’t clamp down and dictate what exactly this arrangement has to do or say, but there are two notable points. First, LCB has to approve the agreement, and any amendments to it. Second, LCB has provided some general limitations on things like how the product can move from place to place plus guidance on record-keeping for these sorts of arrangements. If you’re thinking about doing this, the specific LCB regulations are a must read. Indeed, some of the regs may at first seem unexpected, such as the requirement that the one producing the beer is responsible for getting federal label approval for it whereas the one seeking the beer’s production is responsible for the state label approval.
Ultimately, contract brewing is a permissible practice in Washington state, and likely an under-utilized business option. With demand for craft beer as high as ever, breweries are constantly looking to expand and grow. Rather than suffer growing pains or make tough decisions as a brewery hits its system’s limits, contract brewing can be a way to keep the product flowing, so long as the arrangement makes sense for the brewery agreeing to allow use of its gear for the run of beer. Further, contract brewing offers an enticing option for Washington start-up breweries who want to get their feet wet before raising serious capital for their own big-time production facility. Indeed, start-ups might consider getting licensed up and ready to go, turning to contract brewing arrangements to build an audience and attract investors before gearing up for primetime.

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

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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Part 1 of 3: Primer on Contract Brewing Arrangements in Washington State

In some states, contract brewing or “gypsy brewing” is a popular way to get started. For those unfamiliar with the term, contract brewing typically refers to an arrangement where one brewery uses another brewery’s equipment and sometimes staff to produce a batch of beer. It’s understandable why these arrangements are so popular in states that allow them. That is, start-up breweries can test the waters without sinking capital into equipment, while also relying on a fellow brewer’s well-calibrated, predictable brew setup along with its experienced team. On the flip side, contract brewing arrangements are attractive to existing breweries as a way to rake in a bit more cash, so long as the brewing obligations don’t get in the way of a brewery’s own ability to grow.

We frequently get questions from start-up breweries about whether contract brewing is a feasible or even permissible option to start brewing in Washington. Additionally, though we haven’t fielded such a question or run the numbers, we can wager that some out there might be curious about starting up a big brewing operation with a de-emphasized taproom, with the aim of landing contracts from breweries lacking the ability to easily scale their own operations.

Over the next few days, we’ll provide a rundown on what the Washington legislature and Liquor Control Board, so far, have had to say about contract brewing in the state of Washington. As a preview, you can view the LCB’s own quick-hitting and basic list here, though we’ll be filling it out with our own thoughts and comments over the next couple of days.

The first thing to know is this:

Washington Microbreweries Can Contract Produce for Other Washington Microbreweries

Washington limits contract production to fellow Washington-licensed microbreweries. That means out-of-state breweries are out of luck, in terms of setting up a contract arrangement in Washington to easily get product in the state. However, this does open up a lot of possibilities and business arrangements for in-state brewers. Nothing in the Washington regs expressly requires a Washington microbrewery to have its own big brewing gear to obtain its microbrewery license. Feasibly, a start-up could outfit a smaller taproom space, spending less cash to get up and running, while relying on a contract arrangement to generate its product. As an aside, there are some critics of contract brewing out there, contending the production arrangement somehow takes away from the “craft” of craft brewing. But, let’s also be honest: Evil Twin provides a damn good example of gypsy brewing that generates a premium product that we still identify as spawned from that brewery’s imagination and talent. And, after all, nothing in the law or code forbids a brewery from being intimately involved in the production of its contracted-for brews. In fact, we’d all probably expect these breweries to be hands on.

Next time, we’ll dive into other aspects and business considerations involved with contract brewing in Washington State, as permitted by the legislature and regulated by the Washington LCB.

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