Starting a Brewery is Not One-Size-Fits-All: Available Brewing Models
- Business Law
Conventional thinking might lead one to think starting a new brewery involves substantial investment in real estate and brewing equipment, as well as licensure, and that all breweries follow the same structure. However, there are several different possible brewing models from which to choose when considering opening a new brewery, including Production Breweries, Brewpubs, Alternating Proprietorships, and Contract Breweries. Each model is distinct, requires varying levels of investment but not always licensure, and one model may be more appropriate to your new brewery than the others. While not exhaustive, the below discusses some high level differences between the different brewing model options:
- Production Breweries
A production brewery brews its own beer onsite and packages the beer for sale largely off premises. A production brewery may have a tasting room, but the majority of the production brewery’s revenue is derived from off-site commercial sales. Note, a production brewery may only serve its own beer in its tasting room.
A production brewery maintains title to its beer, ingredients and raw materials throughout the production process. It is responsible for its own tax liabilities and must hold a brewing license.
- Brewpubs
Unlike a production brewery, a brewpub brews AND sells its beer to consumers at the same location, typically a pub or restaurant. Brewpubs must adhere to laws which limit the ratio of beer sales to food sales, and often cannot distribute their beer outside of the brewpub. Unlike production breweries, brewpubs can often sell beer, liquor, and wine from other producers.
A brewpub maintains title to its beer, ingredients and raw materials throughout the production process. It is responsible for its own tax liabilities and must hold a brewing license.
- Alternating Proprietorships
An alternating proprietorship is an arrangement between two or more brewers where each agrees to share the physical premises of a brewery for purposes of producing each brewery’s own beer. Generally, this arrangement manifests itself in the proprietor of an existing brewery, aka the “Host Brewery,” renting space and equipment to a new brewer, aka the “Tenant Brewer,” to produce its own beer on the host brewery’s premises.
The advantages to an alternating proprietorship include the ability to build your brand without the need to raise, or the risk of losing, the substantial investment necessary to start a wholly new brewery. Moreover, a tenant brewer may be eligible for a lower tax rate on its beer. Finally, a host brewery may offset its operational costs by renting excess space or capacity to a tenant brewer.
In an alternating proprietorship, the tenant brewer retains title to its beer, including the ingredients and raw materials during all stages of production. Both the tenant and the host brewer must maintain their own records, are responsible for their own tax liabilities, and must each possess their own licenses.
- Contract Breweries
A contract brewery is a brewery that hires or licenses a third-party brewery, aka a “Producer Brewery,” to produce its beer. As a licensor, the contract brewery generally handles marketing and brand development while as licensee the producer brewery handles the actual brewing and packaging of the beer.
A contract brewery arrangement is often considered (i) at the outset when a new brewer cannot afford to invest in an entirely new brewery, or (ii) where a brewery is growing and having difficulty meeting excess demand for it beer.
In a contract brewing operation, the contract brewer holds title to the beer, ingredients, and raw materials during all stages of production. Moreover, the contract brewer must maintain all records of production and removal of beer from the premises, is solely responsible for all tax liabilities, and alone must hold a license rather than both the contract brewery and the producer brewery.
If you are considering opening your own brewery, we can help. Check back on our website as we will be publishing a series of blog posts discussing the various aspects to consider and address when opening a new brewery.
Moreover, when you are ready, please contact us at 303-678-0560 to further discuss how we can help you open your successful new brewery.
