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As well as looming federal tax hikes, Minnesota’s microdistilleries are threatened by antiquated state regulations

Yesterday, I wrote about how federal tax hikes are threatening Minnesota’s microdistilleries. This was based on an excellent report in the Rochester Post Bulletin which also echoed a point I’ve made before: Minnesota’s liquor laws are throttling its distilleries. The Post Bulletin reports that “Self-distribution and bottle sale laws in Minnesota add stress to the upcoming situation, as they create an unfavorable business climate for distillers, some say.”

At Tattersall, [Jon] Kreidler said his main concern is with the state’s production cap. Minnesota laws dictate that microdistilleries can produce only 40,000 proof gallons a year — one of the lowest production caps in the nation.

The distillery is approaching this cap and when it does, it will either have to close down its taproom — which is critical to its business and brand — or move its production. Kreidler said they’re currently pursuing the latter in case the laws don’t change.

“We’re gonna have to spend even more money to build another facility in another state — move jobs (and) move production to another state,” he said.

For [Kevin] Evans of Duluth Whiskey, moving across the water to Superior where liquor laws are more relaxed isn’t feasible. He will continue doing his best within the system here. “Minnesota is home,” he said.

Minnesota microdistilleries also can sell only one 375-milliliter bottle — half the size of the standard 750-milliliter bottles — to a person per day. Because bottle sales are the “backbone” of the craft industry, [Joel] Vikre said this and the increasing federal tax make the company’s future uncertain.

“Our business model for this not-mature-but-at-least-kind-of-functioning, sustainable business that we have, it’s no longer going to work — between the excise tax and then our local laws being so antiquated,” he said.

Why does Minnesota have these ridiculous regulations? To protect the indefensible three-tier distribution system, an obsolete bit of rent seeking legislation which exists solely to preserve the market share of liquor distributors.

Fortunately, efforts are afoot to get rid of these rent seeking regulations.

All three distillers belong to the Minnesota Distillers Guild, made up of spirit creators from across the state, which leads advocacy efforts at the state Capitol.

In the upcoming session, the guild is aiming to increase the production gallon cap to 100,000 proof gallons, as well as increase the size and amount of liquor people can buy and take home from distilleries, Kreidler said.

As they currently stand, Kreidler said the laws prevent the industry from growing. “By doing that, what you’re really doing is supporting the big brands … that are out of state. And you’re supporting those instead of local businesses who are hiring people here and paying taxes here. It just logically doesn’t make sense from any angle.”

Good luck to them.

John Phelan is an economist at the Center of the American Experiment. 

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