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.
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.