Craft Breweries Offer Promise of New Jobs, But Capital Remains a Challenge

Written by Kim Zeuli and Amanda Maher

Today, there are more than 3,200 small and independent breweries that employ more than 110,000 Americans. And these numbers are sure to rise: Craft beer now represents 12 percent of the total U.S. beer market, double the market share of just five years ago. “America’s small brewers are quintessentially small Main Street manufacturers,” said Bob Pease, CEO of the Brewers Association. “They typically employ 10 to 100 workers, and many began as home brewers before devoting themselves full time to the brewing industry.”

Although Congress is often bitterly divided, craft brewers are hoping their products will serve as a unifying factor in gathering support for a bill that would grant small breweries tax relief. The bipartisan Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act), introduced to Congress earlier this year, would reduce the per-barrel federal excise tax rate paid by breweries from $7.00 per barrel to $3.50 per barrel for the first 60,000 barrels produced. Doing so would dramatically benefit craft breweries, many of which do not produce more than 60,000 barrels per year. As indicated by the bill’s name, this would provide much needed tax relief to small breweries, which could then reinvest in their companies and add new jobs.

“Small breweries create jobs, drive beer innovation and provide neighborhood space for community building,” said Sara Nelson, Co-Founder of Fremont Brewing. They also thrive in inner city neighborhoods, as ICIC’s Research Director Kim Zeuli explained in a Boston Globe article last fall: “Urban grit is a competitive advantage, part of the brand and the aura of a beer company… We love breweries. They’re turning problems into opportunities.”

Supporters of the Small BREW Act are quick to note that the existing excise tax rate was established in 1976 and has not been updated since. The policy was intended to target large companies that distill spirits, wine and beer. At that time there were fewer than 250 breweries in the entire country.

An analysis by Harvard Kennedy School of Government estimated that the Small BREW Act would generate upwards of $1 billion in new economic activity and would create more than 5,000 new jobs in the first 12 to 18 months after passage. An additional 400 new jobs would be added each year thereafter.

Inner cities, which often have an abundance of low-cost manufacturing and warehousing space, are likely to benefit from this legislation. Brooklyn Brewery is illustrative: This Inner City 100 winner is looking to expand but faces an uphill battle. “That brewery is going to cost us maybe $115 million, that’s a big heavy lift,” said owner Steve Hindy. “To finance that brewery we’re going to have to take on a lot of debt.” The Small BREW Act would provide much needed relief to companies like Brooklyn Brewery.

From the outset, it may seem like a lower tax rate on 60,000 barrels will not make much of a difference. But consider this example: Georgetown Brewing produced 52,300 barrels in 2013, paying an estimated $366,100 in federal excise tax. Under the Small BREW Act, the company would only pay $183,050 – this freeing up to $183,050 for reinvestment. Spokane-based No-Li Brewhouse is smaller, but would also benefit: the company produced only 6,000 barrels in 2013, but under the new legislation would have saved $21,000.

For a start-up company, $21,000 is not an insignificant amount of money.

Boston Beer Company founder Jim Koch is familiar with the struggles of small breweries. When he began brewing beer nearly 30 years ago, he was turned down by traditional lenders and had to rely on friends to get the company off the ground. Today, Koch’s Boston Beer Company has over 1,100 employees and its Sam Adams brand is one of the most successful craft beers in America.

But what hasn’t changed is the difficulty in accessing capital. So Koch dreamt up a partnership with nonprofit microlending organization ACCION to provide small loans and other financial services to small food, beverage and craft brewing companies. The “Samuel Adams Brewing the American Dream” (BTAD) philanthropic initiative has facilitated more than 400 microloans through ACCION. Since its inception in 2008, BTAD has helped to create or retain more than 2,000 jobs.

There is some indication that private equity and strategic investors, who once steered clear of craft breweries, are beginning to seriously consider these companies for investment. But in the interim, policy changes like those proposed in the Small BREW Act and programs like Sam Adams’ BTAD will continue to be critical to the industry’s growth.

Read more about how the BTAD program works: What Works: Samuel Adams’ Brewing the American Dream.