Popping the Top on Georgia’s Craft Brewing Industry

By Pat Tuley and Josh Jones

A well-known local brewery, Monday Night Brewing, recently announced plans to expand by building a new facility dedicated to sour beer production and its barreling program. The new brewery will include a brand new tasting room and the facility will be built – wait – in Atlanta?

Say you own a small craft brewery; you’ve learned a thing or two about the business and the powers that shape it. Your beer has won awards and sales have been steady or growing, so where do you go to build? Logic might tell you to choose an environment that embraces the craft beer industry. Monday Night Brewing admits that the decision to build another Atlanta location was made despite courting from other cities and states. (Snagging a location on the Beltline, the popular intown trail, most likely helped them make the decision.) It sounds like somebody is doubling-down on Georgia, but is that faith justified?

Georgia is effectively the least-advantageous state in which to operate a small craft brewery, from a legal and economic perspective. Georgia and Mississippi are the only U.S. states that prohibit the direct sale of beer by the producing brewery to consumers. That could change in 2017, as the Mississippi Brewer’s Guild and the Mississippi Beer Distributors Association have come to an agreement on proposed legislation to allow direct beer sales to consumers. If it passes, Georgia will be the only U.S. state to disallow some of the most basic functions that every business needs to succeed.

Let’s start with a quick history lesson. After prohibition, many states created a “three-tier system” that kept brewing/manufacturing, distributing and retailing separate. Laws protected distributors, who were smaller and more numerous, against the leverage of large beer manufacturers. Alcohol franchise laws mandated, in part, that breweries designate a sole-distributor and could not dissolve that relationship without just cause. Those laws were put in place to protect “the little guy.”

Now, the roles are reversed. The vast majority of America’s 4,000 breweries and brewpubs are small. Yet Georgia still has a restrictive three-tier system and requires breweries to designate a distributor for the life of the business.

The catalyst of growth in any industry is consumer preference. The Brewers Association says that in 2015, the U.S. craft beer market represented roughly 12% of the overall beer market and grew 12.8%, while the overall market shrank. The dedicated beer nerd may no longer be the key demographic – more Americans drink craft beer than ever before. Plus, states with markets that favor on-premise sales are a reliable predictor of the number of breweries in that state. The data also suggests that states allowing some degree of direct sales also see better retail sales – that’s money in the pockets of the wholesale and retail tiers.

Unfortunately, regulatory obstacles (such as the inability to sell their own product) artificially prevent Georgia breweries from growing. Meanwhile, beer from states with less restrictive laws competes for our shelf space, which means Georgia breweries could have a hard time getting a seat on their own couch.

So why is it still so hard to sell beer from breweries? The strong influence of the wholesale lobby may be to blame. Georgia’s “Beer Jobs Bill,” which was already heavily watered-down before it passed in 2015, was quickly dismantled by the Georgia Department of Revenue with regulations that took away the flexibility of breweries to structure variable pricing of tours. (Beer can be given away as a “souvenir” of a brewery tour, but not sold directly.) The AJC reported in 2015 that the Department of Revenue gave the Georgia Beer Wholesalers Association advance notice of the regulation. The wholesalers and the Georgia Craft Brewers Guild compromised, but at a price: the beer lobby could not introduce any new legislation during 2016.

Luckily, we have a new legislative session before us. For businesses that choose to reinvest in Georgia despite the risk, a change in the law could result in a significant and well-deserved payoff.

“Georgia certainly presents challenges as a state if you are a craft brewery,” said Jonathan Baker, Monday Night Brewing’s “Marketing Guy and Master of Mind.” “However, this is still the State we live in and love, and we are confident that soon we will see more small business-friendly legislation to enable breweries to grow and thrive here.”

As the final frontier of the American craft beer industry, Georgia is primed to generate jobs and grow Georgia’s economy; legislators and the wholesale lobby just have to pop the top.

Pat Tuley, CPA, is a partner in the Tax practice of Atlanta-based accounting firm Porter Keadle Moore (PKM.) Josh Jones, CPA, is a senior staff member in PKM’s Tax group.