A glass of beer at the Victory brewpub in Parkesburg, Pa.

A glass of beer at the Victory brewpub in Parkesburg, Pa.

Danya Henninger

6 ways PA’s new liquor law affects brewers

Wine in grocery stores got the most buzz, but the law also contains lots of updates for the state’s 170-plus breweries.

Wine in grocery stores got the most buzz, but Pennsylvania’s new “liquor modernization” law also contains lots of rulebook updates for the state’s 170-plus breweries.

Many brewers view Act 39, which officially took effect this week, as a generally positive development.

“We’re pretty psyched about the new changes,” says Gerard Olson, co-founder of Ambler’s Forest & Main.

John Wible, head brewer at 2nd Story Brewing in Philadelphia, echos that sentiment: “I think this is a great, progressive step in the right direction.”

“Overall there are some fixes in this that are positive for the beer industry in Pa.,” says  Bill Covaleski, president of the Brewers of PA trade group (and co-founder of Victory in Downingtown). “We appreciate the Act as a step toward addressing consumer demand.”

But what exactly the changes are, and how they’ll affect the day-to-day business of brewing and selling beer, is less clear. Even people keyed into the legislative process don’t seem to be aware of all of the details or ramifications.

Seeing as the Pennsylvania liquor code is one of the most — if not the most — expansive and dense in the nation, that’s understandable. So we asked an expert.

Ted Zeller is an Allentown-based liquor lawyer who’s counsel to the Brewers of PA and advisor to many of the state’s best-known breweries. He called on his close knowledge of the subject and decades of experience wading through LCB statutes to help clarify what the new law really means for Pennsylvania beermakers.

1. Grocery store wine sales mean increased competition for shelf space

Breweries aren’t specifically referenced in the part of the law that allows some current beer retailers to apply for a license to add wine, but they are likely to be affected.

“A lot of the stores that will get the wine permits are what you call ‘building locked’ — i.e. they can’t expand — so they’ll have to displace something in order to stock wine,” Zeller says. He suggests that just how deeply the shift will eat into beer sales will end up being determined by buying habits. If people see convenience as outweighing what’ll end up being relatively high prices, grocers will devote more shelf space to wine. If not, they won’t.

“It will be ultimately a consumer driven choice and retailer’s reaction to that.”

2. Mug clubs can give discounts on beer…but is the new rule unsanitary?

A few years ago, the LCB issued a ruling that basically outlawed “mug clubs” — the frequent buyer programs offered by many brewpubs (kind of like an Acme card, but for beer). Last year, a law was passed re-legitimizing loyalty programs with the stipulation that the “rewards” offered could not be actual beer (they had to be food or swag instead). Act 39 rescinds this, so discounts on booze are again allowed.

However, there’s a weird quirk in the wording that makes it so discounts can only be given for beer poured into a mug club member’s one specific special mug. That has the potential to be very unsanitary, Zeller points out.

“Take a brewpub chain like Iron Hill, which might have thousands of mug club members,” he says. “They don’t have room to store all those mugs on site. So a guest has to remember to bring it from home — and then what? Does it need to be washed before it’s filled?”

Iron Hill co-founder Mark Edelson lobbied for this change, but isn’t pleased about how it actually got implemented. “Legislators got ahold of it and completely watered it down and limited it,” he says.

3. Brewpubs can now sell spirits alongside their house beer…ANY kind of spirits. And distilleries can sell beer…ANY kind of beer.

Prior to Act 39, breweries with a brewpub license could also offer their customers wine from limited wineries. (Note: “Limited” wineries is often interpreted as meaning Pennsylvania wineries, but a state Supreme Court ruling struck down that definition, and allowed out-of-state winemakers to apply for that license. According to Zeller, around 20 of them did.)

The new law adds hard liquor to the potential brewpub drink menu. The specific wording allows booze from both “limited distilleries and licensed distilleries,” which means…any distilleries.

“There’s not definition of licensed distilleries in the [liquor] code,” Zeller explains. “So that definition embraces not only in-state distilleries, but others, too. Take Troegs tasting room, now they can sell everything from Manatawny, a great Pennsylvania distillery, to Jack Daniels.”

Whether breweries will start slinging well drinks is a separate question. First, because many brewers don’t realize the law has that quirk, and second, because they value local, artisanally crafted products.

“A few years ago this wouldn’t have made much of a difference,” says Forest & Main’s Olson, “but there are a ton of really cool spirits being made in this area. We’re really psyched to start working with some of these producers.”

“It’s cool because it opens doors for collaborative efforts with local spirit producers,” agrees Mike Wambolt of Crime and Punishment in Philly.

Hopefully the state’s spiritmakers feel the same way, because Act 39 also made it legal for distilleries to sell beer…any beer.

“The wording originally allowed for beer from ‘limited breweries’ but the Brewers of PA pointed out there is no such definition,” says Zeller. “So they made it ‘licensed breweries,’ which means they could sell anything from a beautiful Pennsylvania-made ale to Corona.”

4. Brewers can sell growlers and six-packs at beer fests and farmers markets

Breweries can now apply for two new types of permits. The first allows them to sell growlers or six-packs of beer at festivals (up to 192 ounces), and they can also either sell or give away four-ounce sample pours. It costs $30 per day of use and can be used up to 100 times a year.

“My interpretation makes me think we could do something very similar to how all the pop up beer gardens are operating,” says Olson. “I think it is gonna be pretty awesome to see some brewery-led beer gardens showing up.”

The second allows the same kind of sales at farmers markets. It costs $250 and can be used unlimited times throughout a year, including at multiple markets on the same day.

Olson’s wife runs the Humble Huckster farm, so he’s especially excited about this part. “We’ll be at the Ambler Farmers’ market starting this weekend selling crowlers (can growlers). It’s something we’ve always wanted to be able to do.”

5. There’s a new $700 annual liquor license surcharge that could negate benefits from the recently revived Malt Beverage Tax Credit

Every single liquor license holder in the state now has to pay a new annual surcharge of $700. This holds true whether the license is a brewery license or a restaurant license or a distributor license, and was probably done because of the sorry state of Pa.’s general fund.

“When in doubt, go to sin taxes, right?” Zeller says. He notes that the surcharge will hit smaller breweries harder, since it’s a greater percentage of their gross income. In many cases, it could wipe out any benefit they’d reap from the Malt Beverage Tax Credit — the potential tax exemption offered for buying new equipment or expanding operations. This credit had existed in the past, but was only just reinstated in a separate law passed July 18.

“The irony is the credit really was designed to help very small production breweries, under 500 barrels, but this basically will neutralize it,” Zeller says.

6. A new Pennsylvania Malt and Brewed Beverages Industry Promotion Board was created (but nobody knows what it does)

A state-level board to help market Pennsylvania-made beer sounds like a positive thing.

“I’m not too familiar with it, but if they are down with hyping up saisons made with foraged yeast and cask conditioned British bitters, sounds good,” says Olson.

“I have no idea what this is,” Crime and Punishment’s Wambolt agrees, “but sounds good for the industry.”

Somewhat surprisingly, not even Zeller knows what the Pennsylvania Malt and Brewed Beverages Industry Promotion Board is supposed to do. The board was not created at the behest of the Brewers of PA, he says, and before it showed up in legislation, the trade association hadn’t even heard about it. How’d it find its way into law?

“It was probably introduced by some local legislator trying to do good by one of their constituent businesses,” he guesses.

In general, the Brewers of PA is happy about much of Act 39, but believes brewers will have to wait and see how other changes shake out to pass final judgement.

“Some of the specifics that try to create parity among manufactures we’re pleased with,” Zeller says. “But ultimately whether this new law benefits or hurts breweries will be dependent upon consumer choices.”

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