Since its founding six-and-a-half years ago, Knoxville-based Peace Tree Brewing Company has consistently grown. Growth has not been the only change and there are more on the way.
On Sept. 15, Peace Tree changed its alcohol license. According to Owner Megan McKay, the decision was made to do so for different reasons. The first was that the previous license needed to be renewed in early October. The other reason is that the new license was necessary to accommodate Peace Tree's plans for expansion to an additional taproom in Des Moines. McKay hopes to open this location in late December.
“If you are, what we were, you are considered a native brewery,” McKay said. With this classification, the brewery was able to manufacture, distribute and have a tap room for consumption on-site. Basically, all three tiers of the manufacturing process could be handled from a single location without distributors. However, under this kind of license, Peace Tree could not have a second license or location – such as the new taproom in Des Moines.
With its new license, Peace Tree is now considered a brew pub and can expand into Des Moines. It also means that the brewery is required to sell all of its beer through a distributor. This includes growlers of beer being sold in the taproom. By law, the brewery now must send the beer it has manufactured to a distributor first, who then sells it back to the brewery for retail sale.
“It's kind of convoluted,” McKay said. “The growler piece is really the kicker in there.”
Recently, Gov. Terry Branstad announced a task force, charged with examining Iowa's alcohol laws to make recommendations for changes. Peace Tree is a member of the Iowa Brewers' Guild, which has been actively advocating for the growing number of breweries in the state.
According to the Guild's website, brewing in Iowa today supports over 1,500 jobs and has a $100 million impact on the economy. There are 65 breweries operating in Iowa, with many more in the planning stages. At the time Peace Tree opened, there were 24 operating breweries. Iowa brewers produced nearly 41,000 barrels of beer in 2014. That amount is expected to triple in five years (146,000 barrels annually by 2019).
“We're trying to combine that manufacturing/brew pub/operating license all together,” McKay said of the Guild. While she appreciates the work done by distributors in the state, like any business it is beneficial to reduce costs.
Some brewers sell beer to distributors “on paper” without following through the process. Peace Tree follows the rules of placing products on a pallet, sending them to the distributor, then having the products returned.
“It adds cost, adds complexity. It's a pain for us and a pain for them,” McKay said.
One of the issues with distributors is that there are not many to choose from in the state. McKay described Peace Tree's distributor as one that has the connections to get her products delivered throughout the state. Peace Tree had the opportunity to be its own distributor, but chose not to. The key is finding the best network to get your products to your customers.
“It really depends on who you partner up with,” McKay said.
Another issue is that, even as recently as 10 years ago, larger breweries had greater control over distributors. Though strides have been made to improve the business of distributing beer, there are still areas that could be improved.
“The fear is, I guess, these larger brewers control the distributors a little bit,” McKay said. “Small brewers don't have a lot of protection to change distributors.”
If a brewery does not believe that its distributor is not doing a proper job of promoting and getting its products sold, it can be difficult to leave.
McKay is grateful to Branstad for forming the task force and praises Economic Development Director Debi Durham for her work in promoting Iowa breweries. She is also grateful for work already done by alcohol regulators, including changes to rules that allow for more sampling opportunities for brewers.
“That's our best marketing – to get our product into people's mouths and let them taste it,” McKay said. She believes that the same model, used to ease those rules, will be used in evaluating alcohol laws.
Inconsistencies in Iowa's alcohol laws may be due to the fact they were assembled in a piecemeal fashion since the end of Prohibition. Each piece has been put in place to meet the demands of the time, but the landscape of alcohol production has changed more and faster than the laws governing these manufacturers.
“It's just kind of always evolving to meet the needs of the current marketplace,” McKay said.
Crafting alcohol laws may be tricky, as there are many special interest groups surrounding the topic – wholesalers, large breweries, small breweries, advocate organizations such as Mothers Against Drunk Driving, to name a few.
“I think you have a lot of competing interests,” McKay said.
But brewers are not the only alcohol manufacturers out there.
“In Iowa, it's really interesting because the wine industry has done a better job...to have better laws,” McKay said.
In some cases, wineries have an advantage over breweries with the ability to sell their products. For example, native wineries can sell their products at farmers' markets and festivals – breweries cannot. McKay credits the wine industry for being more sophisticated in its lobbying.
Wineries have additional support in Iowa as agricultural entities, as many grow their own grapes. In time, McKay said, Iowa brewers may find a way to better utilize Iowa farmers. As it is, Iowa lacks the proper facilities to process hops and barley for brewing. There is also the need for consistency in each product's taste, and brewers want to stick with the same producers (hops in Washington and Oregon, barley in North Dakota) to help ensure this.
Distillers can also sell bottles of their products, but not glasses. They can give away samples.
What the Guild seeks is more consistency among alcohol manufacturing laws.
Concerns come from another interested party, wholesalers, who do not want to see the current system – which includes distributors and regulators - degraded. McKay said she supports having someone in the middle to protect the health and safety of the public, and to ensure that proper taxes are paid.
As it stands, the brewery pays a state tax of 19 cents per gallon of beer produced. A native brewery that self-distributes, pays it directly. Once a distributor is involved, breweries report what is sent to each distributor and what is sold in the taproom. On federal level, breweries pay $7 per barrel (31 gallons) up to 60,000 barrels of production. Breweries are also subject to sales taxes, employment taxes, etc.
“That's what we're looking at. Just a good, common ground,” McKay said.
Other than lowering taxes, the one thing that Peace Tree would like to see changed is the ability to remain a native brewery and have the ability to open multiple taprooms. McKay has no problem working with distributors, but if she makes beer in her brewery, she should be able to sell it in a growler without sending the product to a distributor first. It makes the process unnecessarily complicated.
The taproom has always been the showroom, to get people in to learn about craft beer and Peace Tree, she said. Allowing the brewery to sell growlers there without distributors helps the business grow. McKay also recognizes that Peace Tree is not the only brewery in Iowa. The Guild represents many of them, and others may have different changes to laws in mind.
“I know some of the smaller breweries, the ability to sell at farmers' markets, that sort of thing, will help them,” she gave as an example. She went on to say, about doing business in Iowa, “I think we have a pretty good state to do business in.”
More changes are taking place inside the Peace Tree building. It is expanding to open up more possibilities for events and storage.
Beyond the building, Peace Tree is working with organizers of the Blue Ribbon Bacon Festival to create a signature, official lager for the event's 10th anniversary. It will be a pale lager, something nice and light to cut the richness of the bacon.
John's Grocery, credited by many in the business as the godfather of Iowa beer, is working with Peace Tree on only its second collaborative project. McKay is honored that her business was chosen for this by such a prestigious entity in the state. The product is John's Generations 1948 Sour Wit, a sour beer with a wheat base.
This winter, Peace Tree will also repackage its stout beer and name it William Milo Stone Stout, named after the Knoxville Journal founder, Civil War hero and former Iowa Governor.
For more on Peace Tree, visit www.peacetreebrewing.com.