BA And BI Go Head to Head on the Hill

FILED JANUARY 27, 2015

Dear Client:

It's a he said, she said situation here. The Brewers Association's Small BREW Act was reintroduced on the Hill and trolling for co-sponsors. BA's chief Bob Pease sent a letter to past co-sponsors. "America's small brewers - which are located in virtually every Congressional District - are hiring more workers, not laying them off," writes Bob.

The Small BREW Act would reduce the federal excise tax on the first 60,000 barrels of beer from $7/barrel to $3.50/barrel, and reduce the tax on barrels 60,001 up to 2 million from the current $18/barrel to $16/barrel, available to any brewer making less than 6 million barrels annually. Last year, the BI "passively opposed the Small BREW Act. Now they have announced their vocal opposition," says Bob, "because (1) the Small BREW Act does not reduce federal excise taxes for importers of foreign-produced beer (two of BI's five voting members), and (2) because the Small BREW Act makes the excise tax rates available to those brewing less than 6 million barrels annually. Also recall that the NBWA have stated they are opposed to the Small BREW Act because it makes the new excise rates available to those brewing less than 6 million barrels. Bob writes that the "NBWA has stated that this 6 million barrel figure would become the definition of 'small brewer' and be incorporated in state franchise laws" which Bob says is "false."

Bob concedes that the opposition to their Act by the BI and the NBWA "may give you pause. I simply ask that you press them on their arguments. Why should the Congress give a handout to foreign brewers? Why are distributors throwing up a red herring?"

Meanwhile, Steve Womack, a Congressman from Arkansas, wrote a dear colleague letter advising members of Congress to oppose the Small BREW Act. He calls the BI's Fair Beer Act "fair, equitable, and comprehensive." and it proposes a "graduated structure that benefits the entire industry, not just a chosen few." He also points out that 90% of brewers produce fewer than 7,100 barrels of beer a day, which is the TTB's current definition of "small brewer." The Fair BEER Act uses that number to determine "where the greatest need for tax relief lies and begins at this number the lowest threshold for any beer tax to be imposed. From that point, the graduated tax rises with production, so while the major brewers at the top of the scale get less than pennies per barrel in relief, the tax reform is comprehensive and the benefits are shared by small, medium and large breweries."

OUR TAKE. So basically we have the small brewers extending their tax relief to brewers making 6 million barrels and below, while the big brewers are using a graduated scale starting with the smallest breweries. A case can be made for both, but it sure sounds to me like there should be a single compromise bill which combines both so that either will have a chance of passing.

COLORADO GOVERNOR REGRETS LEGALIZATION OF MJ

Colorado Gov. John Hickenlooper was never really high on the thought of legalizing recreational marijuana in The Centennial State, [he opposed the vote back in 2012]. But many wondered if he would have a change of heart after seeing the adoption play out. Colorado has been the only state to experience a full year of legalized retail sales but the governor's views haven't swayed, per report by The Hill.

"If I could've waved a wand the day after the election, I would've reversed the election and said, 'This was a bad idea,' " John told CNBC's "Squawk Box" last week.

The story of legalized marijuana in the U.S. is still in its prologue and the initial states jumping in are burdened with setting up their own framework. The Governor, himself a brewer, points out that while there's a regulatory framework for alcohol, "we're starting from scratch, and we don't have a federal partner because [marijuana] is still illegal federally," he said. John has encouraged other governors to "wait a couple of years" and let Colorado pave the road for the new industry claiming, "you don't want to be the first person to do something like this."

There are now four states where marijuana is legal: Colorado, Washington, Oregon and Alaska. D.C. also passed a measure to legalize recreational marijuana but Congress is currently blocking this measure.

Of course, the beer industry has been wary of legalized weed affecting its sales, and possibly even policy.

WILL JUNO BE A BEER SALES BOOM OR BUST?

So much for easy weather comps. Though winter 2014 was notoriously cold and precipitous, and thought to have adversely affected beer sales, Nor'easter "Juno" is currently bringing blizzard conditions that could cover some 30 million people.

Our primary concern is for everyone to stay safe and warm. Beyond that, we wonder how dire conditions will move beer sales.

On one hand, the weather could temporarily paralyze producers in the affected areas. One top 50 craft brewer told us there aren't any trucks leaving their brewery for the Northeast right now. Another -- Harpoon -- is suspending production until Wednesday for the first time in its almost 30-year history, the Boston Globe reported yesterday. The brewer's chief of brewery operations "said Harpoon's quality-control team will remotely monitor the temperature and pressure of its tanks full of half-done beer to ensure the brews aren't spoiled."

On the other hand, the storm has driven people to clear out beer shelves in anticipation of hunkering down. One Massachusetts distributor said that business has been good this month. "January is January, but it's been really good; and with the storm, stores are jammed and have been since they started forecasting this," he said. "We're expecting sales to be real strong." Their distributorship -- and many stores -- will be closed tomorrow. But then you've got Super Bowl Sunday coming up, with the Patriots, too.

Couple distribs in the New York backyard (some covering more territory than just that state) believe we'll lose at least one delivery day -- more likely two -- over the deal. Stay tuned, or drop us a line and weigh in.

NIELSEN CASE VOLUMES UP SEQUENTIALLY, STILL ON STRENGTH OF HIGH END

All-outlet Nielsen data through 1/17 shows category case volumes up 1.8% in the latest four weeks vs. YA, a sequential improvement over the prior four weeks as well.

Gains are still on the strength of the high end. Imports were up almost 8% for the period, FMBS up almost 10%, and craft up a little more than 11%.

On the other end, budget was down 4.2%. Premium regular was down a little more than 1%, but premium lights were barely up, so overall premium case volumes still positive. Biggest share losses came via below premium, down 1 point.

BEER BRIEFS:

DIAGEO WILL TAKE THREE DAYS TO PAY SUPPLIERS. Local business groups in the UK lamented that Diageo "threatens to break the backbone of the British economy - small businesses" after the Guinness owner wrote suppliers that it plans to take three months to pay its bills, per The Telegraph. The paper claims to have seen a letter from the company claiming it will "extend the number of days it takes to make payments from 60 days to 90 days on all new contracts and tenders" starting February 1. The company said it needs to improve cash flow and "drive out costs." They report earnings this week.

Until tomorrow, Harry

"I've decided that the key to happiness is low expectations."
- Laura Moncur


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