Washington Brewery Guest Taps – Applying the “25%” Rule

Are guest taps legal at Washington breweries? If you’ve been on a brewery crawl here in the evergreen state, you know the answer has to be yes. But, are there any restrictions on what a Washington brewery can pour at its taproom? Let’s dig in.

In Washington, we’re lucky to have a fairly de-regulated market. Just look at some of the Southern states, for example (where in Alabama homebrewing only became legal in 2013, sheesh). However, it’s not a free-for-all as far as guest taps are concerned.

In Washington, the on-point law can be found in RCW 66.24.244. It provides that any properly licensed microbrewery can sell beer produced by another microbrewery (those on the craft side) or domestic brewery (the big guys), but with one major caveat. The guest taps cannot exceed “twenty-five percent of the microbrewery’s on-tap offering of its own brands.” That might seem straightforward, but let’s break it down.

First, the excerpt one more time:

“Any microbrewery licensed under this section may also sell beer produced by another microbrewery or a domestic brewery for on and off-premises consumption from its premises as long as the other breweries’ brands do not exceed twenty-five percent of the microbrewery’s on-tap offering of its own brands.”

Understanding the Washington Brewery 25% Guest Tap Rule:

  1. Under the microbrewery license, standing alone, a brewery can only have beer guest taps. Not wine, not cider, not mead. The rule only applies to beer.
  2. The 25% rule is clear, but its application may not be. It’s easiest to break it down by using a number. You might read the 25% rule and think it’s simple. Say, I have 20 taps. A quick read may suggest to you that 25% of those can be guest taps. So, then, fifteen of my own beers and then five guest taps—75%/25%, right? It’s actually a little different. What the law says is that a microbrewery can’t exceed 25% of the brewery’s own brands. So, if you have 20 of your own beers on tap, then you could have an additional 25% allocated to guest taps. That’d be 25 total taps. 20 of your own beers, 5 guest taps. Important distinction. So, if you only had 10 total taps, no more than two could be guest taps.
  3. You probably caught it in the read through, but one last note. The law permits on-premise sales and off-premise sales, too. So, the law gives Washington breweries the green light to fill growlers from guest taps as well.

Ultimately, I love a good guest tap. And, I love that this industry is so supportive of one another that guest taps are a mainstay. The Revised Code of Washington, as applied by the Washington Liquor Control Board, ensures that Washington brewery guest taps are alive and well throughout the state. However, the 25% rule prevents a Washington brewery from, say, operating a full-fledged beer bar, while only dabbling in its own on-tap offerings. (Which, for me, is a bit of a bummer. I’d love to see a nano get rolling as a great beer destination—a fun atmosphere, an awesomely curated selection—then transition over into a bit more brewing. But, alas, that’s not the law.)

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Washington Brewery Law Resources

Opening and running a brewery is complicated, and Washington Brewery Law Resources aren’t necessarily all neatly gathered in one place. It can be hard to know where to look when your curiosity encourages you to start poking around. Today, I’ll do my best to help you start your research on how breweries in Washington State are regulated. There’s a bevy of laws/code/regs out there, that’s for sure. Here are some jumping off points for your legal excursions.

Keep in mind, these sources aren’t exactly written with readability as a primary objective. Important nuances pop up in all different places. That’s what we’re here for, if you’re ever not sure about something. Indeed, it’s through the code, and our understanding of it, that we can help answer all kinds of questions on the fly, such as: (1) Can my Washington brewery deliver beer to customers in Seattle?; (2) If I’m only selling beer within Washington’s borders, do I still need a Certificate of Label Approval?; (3) May those under the age of twenty-one come into my brewery without us having food service? The list of fun questions that vary from state to state goes on.

For anyone interested in checking out primary Washington Brewery Law Resources, here are some links along with my notes to help you navigate them.

Washington Brewery Law Resources – State Brewery Law

Revised Code of Washington. This is the law that the state legislature creates and revises. Primarily, you’re looking at the content in RCW 66, although keep in mind that other provisions relating to your business, potential distribution agreements, etc. all fall in other places in the code.

Washington Administrative Code. This is where administrative agencies put their regulations. In Washington, the primary administrative authority is the Washington State Liquor Control Board. They were created by the legislature by way of RCW 66 and given authority to do certain things relating to booze in Washington State. Any regulations they promulgate become part of the Washington Administrative Code. Unfortunately, this means that there are often provisions in RCW that address some of your questions, and then provisions in WAC that address other questions. It just depends on whether the legislature contemplated something or it’s LCB creating regulations by virtue of its authority.

Between those two, that’s the heart of Washington brewery law. Keep in mind there are some sanitation requirements set forth by the Washington State Department of Agriculture, and your compliance therewith is a part of maintaining your LCB microbrewery license. Further, there are some places where the County and your Municipality step in, particularly with respect to health codes and building codes.

Washington Brewery Law Resources – Federal Brewery Law

Of course, we all know that state and local government isn’t the final authority on breweries in Washington. Indeed, Uncle Sam, through the Alcohol and Tobacco Tax and Trade Bureau (TTB), has a say on a number of matters. When it comes to TTB, you’ve got to jump to the Code of Federal Regulations (CFR) to see all the regulations they’ve promulgated, and Title 27 is the place to go. Bear in mind, if you’re brewing off-the-wall beers, such as those without hops, the Food and Drug Administration (FDA) may be your labeling authority. And, very technically, FDA has concurrent authority over your brewing business—but TTB really is the place to go when you have questions of federal brewery law. Fortunately, they’ve put together helpful resources on their website to help you wade through labeling and advertising issues.

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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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