Minnesota’s Three-Tier System can take no credit for the craft beer boom

I’ve written before about how the laws forcing breweries like Castle Danger to lay off staff – specifically Minnesota’s Three-Tier System – are there for the benefit of retailers, not consumers. How would you defend such practices?

In an article for The Growler titled ‘The Great Debate: The Three-Tier System Is Fundamentally Broken‘, Brandt Erwin, Vice President of the Minnesota Beer Wholesalers Association, gives it a go. There is much to criticize in his attempt, but particularly preposterous are comments such as the following:

The three-tier system also has brought us strong consumer safeguards and helped the beer market grow and thrive like never before. 

It is this three-tier system that has contributed to the successful boom in craft beer. 

It is evident that Minnesota’s current alcohol regulations have given us a thriving industry for small businesses in all tiers that can offer competitive prices and a wealth of choice for consumers. The recent craft beer boom is a testament to the success of these fair and balanced regulations. Why change a good thing?

In fact, Minnesota’s craft brewing industry has grown in spite of, not because of, the Three-Tier System. As I wrote in our magazine, Thinking Minnesota, last year:

In 2011, Surly Brewing owner Omar Ansari announced plans to build a $20 million brewery in Minneapolis that would include a 60,000-square-foot, two-story brewery, a 250-seat restaurant, a 30-foot bar, and a beer garden. His plans were illegal under state law. These laws plainly do not exist to protect Minnesota’s drinkers from the possibility of drinking quality beer in pleasant surroundings but to protect the state’s beer vendors from unwanted competition. Indeed, the Minnesota Licensed Beverage Association (MLBA), the lobbying group for the state’s licensed beverage retailers, lobbied hard against any change in the law, even threatening to stop selling Surly’s products. 

Ultimately, Ansari had the chutzpah—not to say a just cause—to face down the MLBA and get a change in the law.

The ‘Surly Bill‘ was signed into law in 2011.

Production breweries won the right to operate and sell their own beer onsite in a taproom. Those whose annual production is less than 20,000 barrels can also sell their beer directly to consumers in growlers and 750ml bottles. They can operate restaurants at their breweries, as well, which brings them closer to brewpubs. These restaurants-plus-breweries can pour their own beer and operate a full bar, including non-house beers, wine, and hard liquor. They cannot distribute or package their beer—except for onsite growlers and 750ml bottle sales for offsite consumption—but they can operate multiple locations and serve their beer at them. (In contrast, a production brewery can only operate one taproom.) Finally, brewpubs are capped at brewing no more than 3,500 barrels per year. 

Since then, the number of craft breweries in Minnesota has risen from 35 to 178 in 2018, according to the Brewer’s Association. The Surly Bill has been a wonderful thing for our state’s craft brewing industry.

But, back in 2011, the Minnesota Beer Wholesalers Association was part of a “large liquor coalition” opposed to the Surly Bill. The Minnesota Licensed Beverage Association explained that they wanted to “maintain the integrity of the three-tier system”. Why? “We’re afraid [Surly’s proposed bill] would impact our businesses”.

Having fought the liberalization of Minnesota’s brewing laws tooth and nail, organisations like the Minnesota Beer Wholesalers Association can take no credit whatsoever for the success that has resulted from it.

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