Common Legal Issues for Craft Beer Business Owners
Owners of a microbrewery, brewpub, tap room, contract brewery, or craft brewery encounter common issues faced by business owners including selecting a business type, startup, intellectual property, contracts, tax, and employment law.
Special Legal Issues for Craft Beer Business Owners
There are also special legal issues for those operating a microbrewery, brewpub, tap room, contract brewery, or craft brewery. These include licensing, liability, federal alcohol laws, state alcohol laws, city ordinances, and food laws.
2011 Surly Bill
Until 2011, Minnesota law prohibited brewers from selling pints to the public. However, as a result of the 2011 Surly Bill, brewers may now apply for a license to sell pints if their municipalities permit it.
In 2008, the Research Department of the Minnesota House of Representatives provided the following explanation of Minnesota’s three-tier system of regulation:
Minnesota’s Three-Tier System of Liquor Regulation
Liquor is controlled for a number of reasons: to deny access to minors, to limit over-consumption, to ensure public safety via a clean supply, and to allow community control over the type and nature of liquor venues. Liquor is a public concern because a lack of control has caused public problems. Liquor is also regulated as an industry, both to compel the industry to meet the public goals of the state and to ensure fair competition.
The three-tier system of regulation
The classic model of liquor regulation creates a three-tier system for supply and distribution. This structure was created after Prohibition in order to modulate the free-wheeling system in place before Prohibition, which was deemed problematic. One aspect of that pre-Prohibition system was the existence of “tied houses”— retailers owned by manufacturers and serving as aggressive sales outlets for those manufacturers.
Minnesota has a much-modified version of the three-tier system. In a pure three- tier, manufacturers make spirits, beer, and wine; wholesalers distribute across and within the state to retailers; and retailers sell to the consuming public.
There are other models for regulating the sale of alcoholic beverages. Some states are “control” states, where wholesalers (18 states) and retailers (14 states) are operated in whole or in part by the State. The other 32, including Minnesota, are “license” states, allowing sales for the most part through independent licensed businesses. In Minnesota, municipality.
The first tier: Manufacturers
As of 2006, Minnesota had seven licensed manufacturers. Two of these manufacture distilled spirits and five brew beer. Brew-pubs (18) and (22) have separate licenses and are not considered manufacturers.
The second tier: Wholesalers
As of 2006, there were 147 wholesaler permits issued (this number excludes farm wineries). Among the 147 permits, there are only seven liquor wholesalers. The rest are beer or wine wholesalers.
The third tier: Retailers
There are over 5,000 retail liquor establishments in Minnesota, divided among a wide variety of types. There are about 2,800 on-sale licensees and almost 500 club licensees. There are over 800 off-sale licensees and just under 1,200 combination off-sale/on-sale licensees. In addition to these categories, there are over 800 wine or wine/strong beer licensees and almost 400 establishments that have consumption and display permits. Finally, there are over 250 municipal on- sale or combination on-off sale licensees.
Exceptions to the three tiers
The three-tier system in Minnesota is not pure. The state has granted numerous exceptions, which has created a modified three-tier structure.
Some exceptions apply mostly to manufacturers:
- Brew-on-premises stores: These stores allow consumers to be manufacturers of beer (Minn. Stat. § 340A.33) or wine (Minn. Stat. § 340A.34) for private use
Some exceptions apply mostly to wholesalers:
- Nonprimary source state: Minnesota is the only nonprimary source state, which means that a wholesaler does not have to purchase all product directly from a manufacturer, but can instead buy the manufacturer’s product from third parties, essentially other wholesalers, on the global market (Minn. Stat. § 340A.305, subd. 4)
Some exceptions apply mostly to retailers:
- Municipals and nonmunicipals: Minnesota allows municipal liquor stores to operate as a monopoly and also allows local governments to license multiple private stores, creating two different retail systems (Minn. Stat. § 340A.601)
- Bed and breakfast establishments can sell up to two glasses of wine with a stay at their establishment without a license (Minn. Stat. § 340A.4011)
- 3.2 percent malt liquor has separate sales provisions, including allowing sales at grocery stores, convenience stores, etc. (Minn. Stat. § 340A.403)
- Culinary classes are allowed to serve a limited amount of alcohol (Minn. Stat. § 340A.4041)
Some exceptions apply to more than one tier:
- Brew pubs: These retail outlets are allowed to manufacture their own beer, and in some instances, to transport it between multiple locations owned by the same company (Minn. Stat. § 340A.301, subd. 6); they can also sell growlers, or smaller 750 milliliter bottles, for people to take home and consume (Minn. Stat. § 340A.301, subd. 7b)
- Farm wineries (Minn. Stat. § 340A.315): A farm winery in Minnesota can give free samples, sell bottles of their product (Minn. Stat. § 340A.301, subd. 8), even on Sundays, and operate restaurants or wine bars that offer their product (Minn. Stat. § 340A.315); farm wineries may also produce distilled spirits and provide samples of distilled spirits, but may only sell distilled spirits through existing wholesalers (Minn. Stat. § 340A.315, subd. 7)
- Wine over the Internet: Minnesota law allows the purchase and direct shipment (Minn. Stat. § 340A.417) of two cases of wine from a winery, over the Internet, and also allows Minnesota wineries to sell two cases to a given consumer, thereby allowing these manufacturers to act as direct retailers