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Micro-Brewconomics: A Case Study of Virginia Regulations

We may never know exactly how beer tasted at the start of this nation, but we can say with relative certainty that it must have tasted good enough. Alcohol was a staple of the American Revolution and it might be an understatement to say the founding fathers were regular boozers—they could probably drink college frat boys under the table any day of the week.

Sadly, their love of beer and spirits has not always continued through to subsequent leaders. We say this only because regulations that have been placed on the production, sale, and consumption of beer have remained a barrier between consumers and the testament given to them by barley, hops, water and God.

According to data from the Brewers Association, the country had 3,200 breweries dotting by 1870. Brewers fear not—prohibition effectively killed most, if not all, small-scale breweries.

When prohibition started, almost all small breweries in the US had shut their doors for good, and only a few large breweries were able survive by switching to production of soft-drinks, near beer and malt extract (for which demand suddenly sky-rocketed—ahem).

The beer industry continued to grow, driven primarily by the five largest brewers; however, until deregulation in 1987 the industry lacked the creativity, variety and innovative tastes that were present before government meddling.

Fast-forward to today: As of 2011, there were more than 2000 small and independent breweries across America, and more than 9% of beer sales (approximately 8.7 billion dollars) were from craft breweries—not bad in downed economic times. Market share is expected to continue shift in favor of micro-brews possibly even growing to 15%.

Despite keen indicators that the craft brew revolution is upon us, some states still lag in regulation that supports the continued practice of a nation’s favored heritage.

Case Study: Virginia

After being passed up by major breweries who were looking to expand operations on the east coast, Virginia has taken major steps to support local breweries and foster a new culture of American tradition. New laws that voided previous requirements for start-up breweries have helped to usher in a new era of prospectors who place their money on Virginia’s new liquid gold.

Even still, despite Virginia’s “Open for Business” campaign, craft brewers in the state are still burdened by regulation. “Figuring out what the codes are in Virginia is complex,” said Hayes Humphries, chief operating officer of Devil’s Backbone Brewing Company based in ***, Virginia. “Now that I’ve been at it for 15 months, I still don’t fully understand what many of them are—it’s a dense code,” Humphries said.

Legislators in the state pushed to free breweries from the burden of over-regulation, and on May 15, 2012 they succeeded when Governor Bob McDonnell signed SB 604 into law.

Prior to the passage, breweries that wanted to sell their beer for consumption on premise were required to operate under strict guidelines, said Humphries. For instance, a brewery that wanted to give away free samples (for consumption on premise) or sell beer for off-premise consumption was allowed to do so. However, if a brewery wanted to sell its product for consumption in their brewery, the law required that they also sell food. In a nutshell, the regulations for breweries required owners to open two businessess– a brewery and a restaurant– if they wanted to build a local customer base.

Due to the passage of Virginia’s Senate Bill 604 (SB 604), the restrictions and requirements for obtaining a brewery license have been eased, though, as Humphries notes, compliance still isn’t easy.

Despite remaining regulatory hurdles, Gov. McDonnell lauded the new legislation. “This legislation positions Virginia’s craft brewers to grow and create more jobs in the Commonwealth. From Arlington to Abingdon, entrepreneurial Virginians are innovating and brewing critically acclaimed beers. The legislation signed today will make it easier for our breweries to serve as destinations for potential customers and allow some of our talented small-scale brewers to lease space from established brewers and overcome some of the significant start-up costs,” McDonnell said in a written statement.

Virginia, it seems, has taken a drink from the craft brew ‘kool-aide’ and they like what they taste. Travel Channel named Virginia as one of the top 7 beer destinations in North America, and state officials are hoping to continue to draw beer fanatics with campaigns such as “Virginia is for Craft Beer Lovers,” a spin off of the state’s long-time travel and tourism slogan.

Conclusion

With over 2000 breweries across the country, the craft brew industry is steadily growing to become a more dominant player in the American brewing game. Even President Obama has shown his support for the industry by brewing tasty concoctions in the White House kitchen, instead of just the Oval Office.

The future looks bright for microbrews, and as soon as governments stop hindering innovation, the microbrew revolution can flourish and once again whet the palate of a very thirsty nation.

Adam Wise, Patrick Bailey, Katie Baker, and Andrew Bender contributed to this story.

Sources:

http://www.governor.virginia.gov/news/viewRelease.cfm?id=1260&printpage=Yes

http://www.governor.virginia.gov/News/viewRelease.cfm?id=1350

http://www.foxnews.com/leisure/2012/08/21/celebrating-virginia-growing-craft-beer-industry/

Categories: Must Read, Regulation, Uncategorized
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