Cafe Society

Breckenridge Brewery hopes to expand the law and its business

Breckenridge Brewery is running out of time.

Two years ago, the brewpub was making 31,000 barrels of beer annually — which was more than it had produced in two decades of Colorado history. But by the end of 2012, thanks to the explosive growth of the craft-beer industry nationwide and demand for Breckenridge beers in particular, the brewery will have made nearly twice that much in a year.

That's good news for the company, but it also pushes Breckenridge right up against a state law that prohibits brewpubs — businesses that operate breweries and restaurants — from making more than 60,000 barrels of beer per year; other big breweries in Colorado are either classified as manufacturers or wholesalers. To keep up with demand for Avalanche Ale, Lucky U IPA, Vanilla Porter and Breckenridge's other beers — which could reach 80,000 barrels in 2012 — the brewery realized earlier this year that it would either need to change the law, build a second brewery in another state, or figure out a way to restructure its operations.

The first option failed in the Colorado Legislature, and the second is tough to swallow for a Colorado-based company. That left Breckenridge focused on the third.

Last Friday, the Colorado Department of Revenue approved a complicated plan that would allow Breckenridge to continue to grow in this state by using a provision known as an "alternating proprietorship." But the details of that plan are unwieldy, so the company still plans to fight the brewpub cap in the legislature, even though roadblocks there last spring left brewpub management confused and disappointed.

"We encountered unexpected and surprising opposition, opposition that I am still trying to make sense of," says Ed Cerkovnik, the president of Breckenridge-Wynkoop LLC. "It got caught up in when we take this back to legislators, we are going to do our homework and put ourselves in the best position to be successful."

Breckenridge-Wynkoop certainly knows about success. In January 2011, Wynkoop Brewing, a mini-empire that got its start with the Wynkoop Brewing Company, the oldest brewpub in the state, and Breckenridge, which has the third-oldest brewpub, merged their financial operations under one umbrella company. Together they now own four operating brewpubs and nine restaurants, most of them beer-themed.

In April, that holding company floated a bill in the state legislature that would have increased the brewpub cap to 300,000 barrels per year. It seemed like a shoo-in. After all, the homegrown craft-beer industry generated $446 million last year and creates 5,800 jobs for the state economy, according to a recent study by the Colorado Brewers Guild. And one of the Wynkoop's founders just happens to be governor of Colorado today.

The company was so optimistic, in fact, that it began moving forward on a plan to build a new, 125,000-square-foot brewery, tasting room, restaurant and visitors' center on ten acres in the metro area. The estimated $15 million project would have enabled the company to make 100,000 barrels of beer per year from the outset. But Breckenridge-Wynkoop didn't count on the level of opposition it found at the Statehouse. Not only did megabrewers MillerCoors and Anheuser-Busch line up against the bill, but Breckenridge also faced resistance from a local restaurant group and, surprisingly, from two craft-beer colleagues, Odell Brewing and New Belgium, which is the largest craft brewer in Colorado and the third-largest in the country.

"We felt that it would be better to craft legislation that would be accurate and work for more members rather than serve one member," New Belgium owner Kim Jordan says via e-mail. "I am happy to work on legislation for next year that would allow brewpubs and breweries to have both brewpub and brewery licenses. Or that would do away with the brewpub/brewery designations all together."

Removing the cap would "give the brewpubs an advantage that New Belgium or Budweiser or MillerCoors don't have," adds Steve Findley, director of the Colorado Beer Distributors Association. "To change it all just for one brewpub would be unfair. We love Breckenridge; we distribute their beer. But when you hit 60,000, you are not a small brewpub anymore."

The opposition shocked Todd Usry, the operations manager who's worked for Breckenridge since 1991. "It's hard for me to even talk about it," he says. "We are not out to take over the brewpub business in Colorado, by any stretch. You'd be hard-pressed to find a brewery in the state that has been nicer, or more about community, than us."

The House Finance Committee passed the Breckenridge bill by a 13-0 vote on April 19. But the House never brought it to a full vote — possibly because of pressure from the distributors and the other brewers, Usry suggests — and the bill died at the end of the session. As a result, an angry Cerkovnik said that Breckenridge would have to scrap its plans for a new Colorado brewery and move some of its operations — and plenty of jobs — out of state. The company quickly backed away from that position, however, and announced that it would pursue other options.

On June 1, Breckenridge-Wynkoop did just that, quietly submitting a proposal to the Department of Revenue's liquor enforcement division. Here's how it would work:

Breckenridge-Wynkoop owns five facilities with brewpub licenses — Breckenridge Brewery, at 471 Kalamath Street; Breckenridge Brewery & Pub in Breckenridge; Wynkoop Brewing, at 1634 18th Street; Phantom Canyon Brewing in Colorado Springs; and Breckenridge Colorado Craft (formerly called Brewery & Pub), at 2220 Blake Street — with all but the latter currently brewing beer. The company would like to build a new, 125,000-square-foot facility with a brewpub license. "This facility...would...enter into separate alternating proprietor agreements...with one or more of the other brew pubs identified above and thereby operate as a 'host manufacturer' for the production of craft beer," the proposal states.

In other words, the new brewery could brew up to 60,000 barrels of beer for each of the other five brewpubs, in addition to 60,000 barrels of its own.

What are alternating proprietorships? They allow one brewery to loan or rent its equipment and its physical premises to another brewery for a certain period of time. They also stipulate that the equipment technically belongs to the second brewery while it is doing the brewing. The point, at least under federal law, is twofold: It allows existing breweries to use excess capacity and also gives startup breweries a chance to begin work on a smaller scale with a limited amount of monetary investment.

"It's got levels of complexity that make it doable, but not ideal," Cerkovnik says of the plan. Breckenridge's pub in Breckenridge would likely be the first to use the alternating proprietorship, followed by Breckenridge Colorado Craft on Blake Street; that restaurant stopped brewing in 1996 but could easily start again, he adds.

Breckenridge already has one of these agreements in place; it allows the Wynkoop to make beer on Kalamath Street.

Ironically, the 2008 law that allows alternating proprietorships was championed by New Belgium, which has its own agreement with Washington State's Elysian Brewing. There are currently six of these agreements in effect statewide.

Now that the plan has been approved by liquor enforcement division chief Don Burmania, Breckenridge, which celebrates its 22nd anniversary with a big blowout on July 7, will immediately move forward on buying land and building a brewery somewhere close to Denver, although Cerkovnik wasn't ready to say where.

But it will be twelve to fifteen months before that facility is operational — which means that Breckenridge, which is overcrowded with new fermenters, canning lines and employees, will have to brew at a slower pace than it wants to. "I'm reluctant to go any bigger here," Usry says. "We don't have the physical room for it."

And so Breck plans to take the fight back to the legislature next year. "Our plan is to reach out to all the opposition — the distributors, the wholesalers, the brewers, the restaurant operators — and to find out what their issues really are. Because I still feel that there is a lack of substantive arguments against it," Usry says.

"If Colorado is going to continue to be the unquestioned leader in the craft-beer world, we need to have an 'open for business' sign up," Cerkovnik adds. "We need and want people to recognize the importance of the craft-beer industry to the state of Colorado."

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Jonathan Shikes is a Denver native who writes about business and beer for Westword.
Contact: Jonathan Shikes