Lawmakers hop to give craft brewers barrels of room to grow

February 23, 2018

In this April 12, 2016, photo, Derek Fernholz, co-owner and brewer of Fernson Brewing, washes the floor between other brewing tasks at the brewery in Sioux Falls, S.D. It's happy hour for South Dakota's craft brewers. A bill to ease a state production limit and other regulations on microbreweries passed unanimously Thursday, Feb. 22. 2018, through the Senate. (Cory Myers/The Argus Leader via AP)

PIERRE, S.D. (AP) — It’s happy hour for South Dakota’s craft brewers.

The Senate unanimously passed a bill Thursday that would ease a state production limit and other rules for microbreweries.

Gov. Dennis Daugaard has pushed for the overhaul, arguing state regulations are stifling the industry in South Dakota.

Tony Venhuizen, the governor’s chief of staff, said Daugaard believes the bill gives craft brewers the “tools they need to grow and thrive.” The bill’s passage comes after competing plans at the Capitol pit powerful beer distributors against the burgeoning craft brewing industry.

But senators united around a compromise, sending it to the House. Republican Sen. Jack Kolbeck, a beer distributor, called it an “industry partnership bill.”

South Dakota operates under a three-tiered system of brewers, distributors and retailers. The bill would create a microbrewery license allowing the businesses to produce 30,000 barrels of beer annually, up from 5,000 barrels currently, and let craft brewers bypass distributors to sell up to 1,500 barrels of their beer each year directly to bars and stores.

Right now, breweries that exceed the 5,000-barrel limit would lose privileges such as being able to sell growlers — large refillable jugs — for customers to take home and operating multiple locations.

Current law also prohibits a craft brewer from even moving beer between two locations it owns, a convenience that would be allowed under the new rules. The bill would cap breweries at operating five additional locations.

After the Senate vote, Sam Papendick, co-owner and brewer at Hay Camp Brewing Company, poured himself the Rapid City microbrewery’s flagship beer: Victory Stout. He said the small brewery, which produced about 150 barrels last year, would likely start self-distribution “as soon as we can” if the bill passes.

“We’re within blocks of several locations where we could just take a two-wheel cart and throw a keg on there and wheel it over within, you know, a couple minutes,” Papendick said. “That’s nice for us, and people have asked for it.”

Derek Fernholz, co-founder of Fernson Brewing Company, expects the craft brewery to push past 5,000 barrels for the first time this year. That growth jeopardizes its licenses to carry other beverages such as cider and wine, sell beer to take away and keep running a new taproom in downtown Sioux Falls.

He said the overhaul, and the higher barrel limit, gives the business “room to plan and grow.”

“That allows us to dream and think a little bit more about opportunities that just weren’t there before this bill,” said Fernholz, thinking aloud about the potential of opening a satellite brewery in the Black Hills.

“We have a very spread out state here, and it’d be really nice to be able to feel like the local hometown beer, you know, other places than just Sioux Falls.”

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