Brewbound Podcast: California Craft Brewers Association’s Lori Ajax & Chris Walker on Satellite Locations, On-Sale Privileges & More

[00:00:00] Jessen Fonte: Heading to CBC? Kick things off the day before The Brewbound's meetup at Love City Brewing in Philly, Sunday, April 19th from 5 to 7 p.m. Connect with beer industry leaders, grab a drink, and catch up with The Brewbound Live. It's free to attend and walking distance from the convention center. Head The Brewbound.com slash lovecity.rsvp. And don't forget to catch The Brewbound Live at booth 956 during CBC. What's going on The California? The California Craft Brewers Association joins us to tell us all about it next on The Brewbound podcast. Hello and welcome to The Brewbound Podcast. My name is Justin Kendall and I am the editor of Brewbound and I'm coming to you from the Cyclone State of Iowa. And I'm also joined by Jessen Fonte, the managing editor of Brewbound. Hello. You're in the land of witches and everything. Is it the season?

[00:01:08] The California: Yeah, man, it's just about the season. So I live in Salem, Massachusetts, and Halloween air quotes Halloween here last from like the weekend after Labor Day until like Thanksgiving. So we are gearing up. It takes forever to drive through downtown. It's really fun. But it's a little annoying. I live right by the hocus pocus house. So yeah, which is cool. But like, people come out to my little neighborhood to take pictures in front of it. And

[00:01:38] Jessen Fonte: Did you know when you bought? Was that like a selling point? Were they like, did you know?

[00:01:43] The California: No, we were here for like two or three months before I just like happened to open Google Maps and noticed Hocus Pocus house like two blocks away.

[00:01:52] Jessen Fonte: Wow. Well, also joining us is Zoe Licata, Brewbound reporter extraordinaire and someone who didn't run away with Harry Styles.

[00:02:01] Craft Brewers: No, hello. I was very close both to running away and to Harry Styles himself, but I did not do it. I'm still processing the whole day. It was a lot, a lot of emotions. Did he spit on you? No, but he did pour his whole water bottle out onto our section in this very dramatic spring fashion. So it was just as good. So almost, you're like almost Chris Pine. Yeah, I'm like a Chris Pine adjacent. And I'm into it.

[00:02:33] The California: I would love to know how many people who listen to The Brewbound podcast also are as up to date as we are on the goings on of the Don't Worry Darling press tour.

[00:02:42] Craft Brewers: I'm sure there's a very small crossover. I don't know how large, but maybe a couple.

[00:02:49] Jessen Fonte: That Venn diagram is not very deep, I have a feeling. Well, where we won't be pouring water bottles on anybody or spitting on them will Brew Talks in Denver. What a plug that is.

[00:03:03] The California: I like it. Come to our event. We won't spit on you.

[00:03:07] Jessen Fonte: Yeah. For the Great American Beer Festival, we will be in town and before it all gets started, we'll be doing Brew Talks on Thursday, October 6th at Cervantes Masterpiece. We've got three conversations, one with the Colorado Craft Brewers Guild. We're going to donate some of the proceeds from the event to the Guild as we always do, but we have two conversations. One on national accounts, how you can increase your chain sales and some strategies you know, tips and tricks there. And then we're going to talk about, you know, going beyond IPA. IPA makes up, I think it was about just under 50% of off-premise beer dollar sales. And we're going to talk about looking beyond IPA and how this category relies on it a lot and, you know, some strategies there. Joining us to discuss national accounts will be Billy Clayton from Odell, Elizabeth Eisenbart from Juneshine, Ryan Call from Dry Dock Brewing, and Becca Toft from Athletic Brewing. And then joining us for The Brewbound Live conversation will be Dogfish Head Brewmaster Mark Zafarek, Sierra Nevada brand director Kyle Ingram, Mary Mills, a consultant with Three Tier Beverages, and Jessica Fierro from Atravita Beer Company in the Denver area.

[00:04:33] Craft Brewers: That panel fittingly named after the IPApocalypse, which I like a lot.

[00:04:39] Jessen Fonte: All the credit goes to Jess there.

[00:04:41] The California: This was definitely a team effort. But yeah, I mean, I think it's just like a really interesting conversation because when everything is IPA, what else is there? And there's got to be something else beyond it. So I'd love to hear what all four of these panelists have to say on the matter.

[00:05:00] Jessen Fonte: Yeah. Excited to see these folks. And I've been looking through the guest list and a lot of people who have registered a lot of great folks in the crowd. So there's going to be some awesome networking to do. We're going to have Dogfish Head beers to drink. You can get tickets The Brewbound.com. So head over there, come on out before GABF. hang out with us, I think we'll probably feed you and, you know, have some beers, network, have some conversations, and then we'll get you out a couple hours before the festival even begins.

[00:05:31] The California: Yeah, I think it's probably a welcome space to go hang with your industry colleagues before you are hanging out with thousands and thousands and thousands of very thirsty consumers.

[00:05:42] Jessen Fonte: who want to know what your highest ABV beer is and to give it to them now. So anyway, we also have another event coming up November 29th and 30th in Santa Monica. We will be doing The Brewbound Live Business Conference and we've started to announce some of our guests. First up, we've got Carrie Yonker, the EVP from Bells Brewery. She's going to be giving the keynote address. And then we also have Garrett Marrero from Maui Brewing and Jennifer Briggs from Modern Times. But now staying on with Maui and the Acquire Craft Ohana. They're going to be talking about building that platform, sort of what it's like to go through this whole process. So we're going to have some conversations. We're going to announce more guests before too long. Just keep your eyes peeled on the site. I'm psyched for Carrie's talk.

[00:06:35] The California: I think she's going to crush it. I didn't realize she started at Bells as a receptionist.

[00:06:39] Craft Brewers: Yeah, I didn't know that either. What a run. Quite impressive.

[00:06:44] The California: Good for her.

[00:06:45] Jessen Fonte: Yeah, that is quite the, you know, working your way up the ladder story.

[00:06:50] The California: And also, not surprising. Carrie's a delight.

[00:06:53] Jessen Fonte: She is. And I think she was the handpicked successor to Larry Bell. So what's it like to take over for an industry icon? And what's it like to guide the ship through an acquisition, through an integration? We're going to find out. You can find out more The Brewbound.com. But let's get to this week's show. And there's a lot of news going on. Jess, you've been covering all the supply chain moves that are going on from printed can minimums and what they may or may not be and what's going on with Country Malt Group as well.

[00:07:24] The California: so much supply chain news. So, you know, we've heard rumblings from a few different directions that the minimum order quantity ball had set earlier this year, which was announced late last fall, was, you know, that they were moving to a minimum order for printed cans per SKU was going to be five truckloads, which is about 11 million cans. We've talked about this. a whole lot. So we've heard from a few different directions lately that that might be changing. And we've tried to get that a few different ways, confirmed it's been really difficult, and we finally obtained a really interesting note from a representative of a can broker. So obviously Ball is the maker of all the cans, largest can manufacturer in the world. And, you know, if you're big enough, you can order right from Ball, but they were trying to gently encourage people not to do that anymore by raising those minimums and forcing smaller, you know, brewers with smaller needs to order cans from can brokers. And there's lots of them. So we saw an email from a can broker to a brewer that Ball was going to be loosening that minimum order and brewers soon would be able to order one truckload again of printed cans per SKU. I have no reason to doubt this. I'm sure, you know, this person would not have committed this to writing if this were not the case. Another interesting tidbit that was in this email that we have obtained is that they're expecting a surcharge for production runs that are smaller than, you know, three trucks or fewer to about $3,500 a truck, which comes out to being a little more than a well, like 0.01 cents per can. So yeah, that seems to be changing. I know this would be welcome news to many people in the beer industry as that announcement last fall really started quite a stir, doesn't even begin to describe it.

[00:09:18] Jessen Fonte: People were shook.

[00:09:19] The California: Yeah. Yeah. This was like an existential crisis and people were figuring out all sorts of other alternatives. Zoe, you have been down that rabbit hole a million different times in a million different ways.

[00:09:29] Craft Brewers: Yeah, everyone was fine. It seemed like everyone seemed to find a way to at least survive 2022. But there has still been in the air of like, how are these people going to continue through 2023 and beyond? I remember I talked to Matthew over at Sleeping Giant, and he said the same thing. He's like, all their clients, they figured it out. But it was the scramble for everyone. That's just temporary fixes and not quite finding permanent solutions yet. This might help them a lot.

[00:09:58] Jessen Fonte: I heard from somebody that got an order in for a single truckload of 19 twos printed can. So it seems to be happening. So if you're out there, get in touch with your suppliers.

[00:10:10] The California: For sure, not surprising given everything we've heard officially coming out of ball over the past few months. Justin, you covered their second quarter earnings call and they were pretty dismayed at their customers choosing to raise price at the risk of volume, which seems to put them in what they feel is a precarious position. So perhaps this is their way to get back some of that volume that they were losing by going back to the same people that they had told, sorry, can't help you last fall. So we'll see what happens.

[00:10:37] Jessen Fonte: Yeah, those moves were all about efficiency. And when the inflation game being what it is, I guess, out there with pricing, and then seeing zero growth, I guess, from whatever those clients as hard seltzers not doing what it was, you know, some of those larger businesses aren't doing what it was volume growth wise. Yeah, they're sort of back and friendly.

[00:11:04] The California: Yeah, which is funny, but you know, I'm sure people will be excited about this. In other supply chain news, much lower level, but Country Malt Group, which obviously sells malt, but a lot of other ingredients like Yakima Chief Hops and yeast from White Labs, they are a purveyor of brewing ingredients. As they were preparing to migrate to a new e-commerce platform and online web system, they had informed customers, hey, we're going to have a blackout period. customers rushed to place orders and they ended up with this glut of back orders and I was just seeing some grumblings on the interwebs from brewers who were having a hard time either getting through or placing orders or whatever but I checked in with them and they've assured us that they expect everything to be Good is new and probably even better. Before the end of the month, that was on Friday. And then over the weekend, I think things started to look even better and they're feeling really encouraged about the situation. So if you're a CMG customer, sit tight. Things are going to ease up for you soon.

[00:12:08] Jessen Fonte: We also covered what might have been a big issue for some brewers, which was a railroad strike that could have occurred at midnight on Friday of last week, but that did not happen. The Biden administration had negotiated. There was like 20 hours of negotiations. They seem to have come to a deal. There is still going to be a vote with the workers this week. I think it's on Thursday. Strike averted for now. Hopefully all these issues are going to be resolved, especially getting these folks some sick time off and some days off, because you read about this and this is the reason that you have unions.

[00:12:48] The California: Exactly. If you enjoy having a two day weekend, think a union.

[00:12:51] Jessen Fonte: Yeah. Let's get on to some other news. And last Friday, Jess, you and I were on top of this, and that is Sierra Nevada is aligning its distribution network further The California, and they have terminated three wholesalers, and they're moving in with Reyes, or moving more in with Reyes.

[00:13:12] The California: Yeah, you know, I've been on an enormous Bachelor and Bachelorette kick and the whole time we were writing this story, all I could think was like, oh, will you accept this black rose? And that's not a funny joke. And again, probably has the narrowest Venn diagram of anybody. This means anything to you. But yeah, you know, that's kind of what the industry trade publications have taken to calling these termination letters, most commonly associated with Constellation Brands terminating their independent wholesalers, particularly The California with the Reyes Beer Division. But this time it was Sierra. They terminated three AB independent distributors. And, you know, we've seen a few people do this, like you said, New Belgium, Diageo,

[00:13:54] Jessen Fonte: Constellation.

[00:13:56] The California: Constellation.

[00:13:57] Jessen Fonte: And they keep doing it as our friends at Insights, Beer Marketer's Insights, reported. They've done it again in Washington, but they're not moving to Reyes in Washington because Reyes does not distribute in Washington.

[00:14:10] The California: Not at this current moment in time. Yeah, you know, I mean, Constellation did this The California earlier this year, too. One of the same wholesalers affected in the CRM move, Markstein Sales Group in The California. And at the time, the Constellation had terminated Markstein. They also terminated Bueno Beverage. And that resulted in Bueno having to lay some people off. So, you know, it's easy to talk about these deals as just, you know, things that happen or like strategy, but like they have real life effects. You know, it's this is. lots and lots and lots of money changing hands, leaving one business and going to another. So that's obviously going to have an effect on workforce, among other things.

[00:14:54] Jessen Fonte: And the terminated wholesalers here were all Anheuser-Busch houses, independent Anheuser-Busch houses. It was Markstein sales, Alford, and Bottomley, right?

[00:15:05] The California: Yeah, yeah. Two up in the Bay Area and one down in Imperial County at the southern border.

[00:15:10] Jessen Fonte: Speaking of distribution moves, Scout Distribution in the San Diego area is making moves into the Los Angeles area, and they are buying Classic's beverage alcohol portfolio. It's only for the beverage alcohol portfolio in that territory because Classic is carving out its portfolio in San Diego. They're keeping that. They're also keeping their non-ALC portfolio in the Los Angeles area. But another big move by Scout, which is making that JV or forming that JV in Idaho with Columbia distributing. And they're moving into a whole new state there.

[00:15:49] The California: Yeah, Scout's been busy.

[00:15:51] Jessen Fonte: Yeah, they're doubling their business. And speaking of Scout, a tease for Brewbound Live, Jeff Hansen from Scout is going to join us, but we haven't officially announced that anywhere else yet. So if you're a listener here, yeah, I know. Breaking news.

[00:16:06] The California: Scooping us.

[00:16:08] SPEAKER_??: Yeah.

[00:16:09] Jessen Fonte: And then speaking of scoops, you're on top of Dogfish Head, Miami closing. Yeah, not any other Dogfish Head, just the Miami.

[00:16:19] The California: Correct. Yeah. So Boston Beer has decided to close its taproom in Miami, Florida. It's been home to a Dogfish Head outpost for Almost two years before that, it was Concrete Beach Brewing, a brand that Boston Beer developed over the last decade. And, you know, they had a 10-year lease and they were all set to renew and their landlord wanted to raise the rent an amount that they thought was too damn high. And they said, no, thank you. 40 employees at the location will be affected. The company's working with them to determine next steps. About 10 of them were full-time. But yeah, I mean, the interplay here between Concrete Beach and Dogfish Head started back right before the pandemic of February 2020. So under a year after the merger was announced, they announced that Dogfish would be having a semi-permanent residency at the Concrete Beach Taproom. And I guess things went well because that August of 2020, they announced that it would be converting to a Dogfish Taproom.

[00:17:20] Jessen Fonte: Concrete Beach sort of lived on though with Havana Lager.

[00:17:25] The California: Yep, Havana Lager is sold through distribution in South Florida, but no longer a physical home in the area. We asked and Boston Beer told us all of these things were unrelated, but the timing was just slightly interesting because I think about a week before the tavern closure was announced, former general manager of the Dogfish Taproom, Erika Chavez-Zayas announced that she had left the company and had a few things to say about what she felt was a toxic work environment and is continuing to post about her experiences there on LinkedIn. Again, unrelated, Boston Beer says they're looking into it, taking it very seriously and examining, but just one of those things that kind of makes you raise an eyebrow.

[00:18:10] Craft Brewers: So one of my closest friends and my roommate is a Miami native and also a journalist, but more local reporting. And she was not surprised whatsoever about this closing because it is in the Wynwood area and apparently the past like three, four years or so. They've just been overloaded with new apartment complexes and trying to convert the area into this new fancy residential space. She said there'd been no apartment construction there before 2017 and now that's like the main focus. So it seems to be a trend with Wynwood. I'm not surprised if there's any other breweries in the area or other businesses, they might face similar issues.

[00:18:53] The California: Yeah, I get the feeling that Wynwood is kind of like the Williamsburg, you know, Wynwood is to Miami as Williamsburg is to Brooklyn. Yes. Another thing that's always just kind of interested me a little bit is that Concrete Beach wasn't the first time we saw a larger brewer come into the city, particularly via that neighborhood and start a brand in Miami that, you know, wasn't really home homegrown.

[00:19:15] Jessen Fonte: Anheuser-Busch and Weselser.

[00:19:17] The California: Yeah, exactly. Yeah.

[00:19:19] Jessen Fonte: Well, and Wynwood Brewing is in that neighborhood.

[00:19:22] The California: In that neighborhood, but it seems to have been started by...

[00:19:25] Jessen Fonte: Yes, it absolutely was. And they were The Brewbound Pitch Slam winner, I believe.

[00:19:31] The California: Good for them. And now they're part of AB. They joined CBA, Craft Brewers Alliance, and eventually were included in that acquisition. And Heineken is backing, I'm going to butcher the name with my very white mouth, but Cervecería La Tropical, which is a brand that has roots in Cuba. So it's just interesting to me. I think the Florida Craft Brewers market for some time was underdeveloped compared to the rest of the country. And I think some larger breweries saw you know, potentially ways to make inroads there through starting their own outposts. Yeah. Varying degrees of success, as we've seen some go, some work out, some don't.

[00:20:11] Jessen Fonte: Yeah. And you also just covered Willie Superbrew. Speaking of former Brewbound Pitch Slam winners, Willie Superbrew has a new ownership group.

[00:20:22] The California: Yeah. So Willie Superbrew is, you know, a Massachusetts grown super brew company, which, you know, they make hard seltzers that also involve some cider. And they started out making ginger beer. Tumultuous year for them. You can go back The Brewbound.com and read our reporting on this. But recently, a group of investors acquired the company from its founder and is working to bring it back to market. It has been out of market for An undetermined length of time, I asked, and the new owner simply did not know how long it had been out for. And I know when you make your product and you sell it to a wholesaler who then sells it to retailers, it can be hard to know what's around and what's not. But he didn't even know when the last production run was. But their goal is to get it back on shelves in February or March. So we'll see. He was very upfront with me and said, job number one for us is to answer the question, what even is a Super Brew?

[00:21:23] Jessen Fonte: That seems like an uphill battle.

[00:21:25] The California: Yeah.

[00:21:26] Jessen Fonte: How do they define Superbrew?

[00:21:29] Craft Brewers: They don't. Yeah, I think it's just as a hard seltzer, hard cider hybrid.

[00:21:34] Jessen Fonte: Yeah, that's what I thought. It was like some combination of the two, but I think that's going to be the uphill battle because it's like, is it seltzer? Is it cider? Is it ginger beer? It's not ginger beer anymore. You know, what are you? That's going to be the challenge. I mean, sounds like a cool name. Like who doesn't want to drink Superbrew?

[00:21:52] The California: Yeah, we'll see what happens.

[00:21:54] Jessen Fonte: Yeah. And finally, Zoe, take us home here. You went as in-depth as anybody probably ever has into some collab hour Bump Williams consulting data from our friends Dave Williams and BK Kruger. Give us a couple takeaways to send us into this featured interview.

[00:22:13] Craft Brewers: Uh, yeah, this was, uh, BK and Dave gave us a lot of information that turned into a three part mini series The Brewbound.com. If you want to Brad Avery little detail about this, but focused on, you know, how craft is performing in the off premise. And they use data from Nielsen IQ through August 20th. And it's not the most positive news. I mean, craft dollar sales down 5.9% year to date, which is the second largest decline in the beer category behind hard seltzers, which are down 10.2%. BK and Dave tried to say it wasn't a time really to panic and there are ways to address this, but it is, it's, Kraft still is struggling. Part of that may be because On Premise is returning, but not entirely. They're still dealing with competition from RTDs. dealing with a lack of promotional support in off-premise channels. So we tried to give us some optimism, some solutions. Single serves and the convenience channel seem like great opportunities for craft right now. I mean, we've seen what's been happening with Voodoo Ranger and their 19.2s and their convenience strategy. They've seemed to say that that can really be an opportunity for people. He said exploring beyond beer might just kind of be our reality now. Breweries might just have to bite the bullet and put an offering out there that might address those consumers wanting those beyond beer offerings, whether that's a RTD or a non-alcohol beer offering, anything along those lines. And 12 packs, again, still really king for Craft Brewers right now. So if people aren't in that package format, which were one of the only real SKUs to increase for craft this past year, their second largest growth SKU format for craft. but only about a quarter or less than a quarter of craft brand families actually have a 12-pack. So he said, maybe look at that, hop on that, see if you have a core brand that's not in that format, maybe that can help with this struggle in the off-premise channel. That's a great little tidbit. Yeah. Yeah. Lots of nice little juicy bits like that in this coverage from Dave and BK. So highly encourage everyone to read through those. We've kind of tried to organize them in bite-sized ways because it's a lot of information, but not a total doom and gloom report or presentation, but definitely some adjustments need to be made for this trend to not continue.

[00:25:03] Jessen Fonte: Not doom and gloom, but not great.

[00:25:05] Craft Brewers: You're so upbeat. I know. Dave tried to say, you know, we tried really hard to not be too pessimistic about things. And there are opportunities for craft to face these declines. And it's not just a craft problem. Everyone seems to be struggling a little bit right now, whether that's just with skew rationalization and beer, price increases where they're just hitting everyone across the board. So it's not just a craft issue.

[00:25:31] Jessen Fonte: Yeah, and one of the things that stood out to me was the talk about 19.2s and the opportunity there and how styles outside of IPA are finding some success in that format as well, because let's face it, not everybody loves IPA. So of course, like a wheat beer could succeed there or pale ale or whatever it might be.

[00:25:53] The California: You can hear more about that in Denver, Colorado with us on October 6.

[00:26:02] Jessen Fonte: Yes, October 6. Look at all that marketing. Anyway, with that, we're going to jump into our featured interview here with The California Crafters Association's Lori Ajax and Chris Walker. So let's get to The California is always a bellwether for the craft brewing industry and legislation as well. Right now, there's a lot going on in the state. They're sort of in a holding pattern, but they're here going to talk to us right now, joining us to discuss our CCBA Executive Director, Lori Ajax. Welcome, Lori. Thanks for being here.

[00:26:39] Lori Ajax: Yeah, thanks for having us.

[00:26:41] Jessen Fonte: And we've got their lobbyist, Chris Walker. Thanks for joining us as well, Chris. You bet. Glad to be here. So Lori and Chris, there's a lot of legislation at the proverbial one yard line that the governor can punch into the end zone here. I'm just using all my football metaphors for you guys. From increasing the number of satellite locations to beer on sale legislation, why don't you guys bring us up to date on where all of those things sort of stand and what you expect to happen?

[00:27:10] Lori Ajax: Yeah, so like you said, Justin, we're sort of two big pieces of legislation that we brought forward this year are sitting on Governor Newsom's desk right now. So he has till the end of the month to hopefully sign it. So that's what we're hoping for. But as you said, one of them is pretty Historic, it would be raising the limits for satellite cap rooms from 6 to 8 and included with that is probably not everybody knows, but we're only allowed to have 2 of those satellite cap rooms to be bona fide eating places. So a restaurant, it also increased that from 2 to 4. That's going to really increase the ability for our brewers to continue to grow. One thing Chris and I and our board looked at is coming out of COVID, as you guys all know, was so hard on the industry, especially the Craft Brewers here The California. We're looking at ways that we could help them to sustain their businesses, to be able to grow their businesses. Really, both of these legislative proposals that we put forward really do that. And I think, you know, when you look at the ability to, you know, we looked at over the last 10 years, the growth in the industry has nearly doubled. So the need to have more of the availability for our Craft Brewers to grow their tap rooms. And we've really found, especially for our small and midsize brewers, being able to be in the, you know, that's what they're, that's what they excel at is being in their communities, being a community gathering places, Even in times of when we have, you know, all the stuff, the crazy stuff that goes The California with fires and whatnot, being that community gathering place where people can enjoy their neighbors and talk about things and also enjoy great beer. And that's what we are really getting at here. And so we're just like, you know, hoping we get that over the finish line. The other piece of legislation is really just removing, as Chris always says, we have a lot of unnecessary barriers here. You know, The California with our tight house laws, if you are a brewery, you cannot distribute to your own retail. restaurant. Some of our brewers, they have tap rooms and they have their production facility, but they also have retail locations like restaurant or bars. This is opening the door to allow them to be able to distribute their product to their own retail premises. In this case, it's starting out at the five-mile radius. Those are the two that are sitting on his desk right now and waiting to hear what happens.

[00:29:53] Jessen Fonte: We know how important those bona fide eating places were during the pandemic. That really was a thing that the state really pushed hard on. So just getting that designation seems to be very vital for the industry.

[00:30:07] The California: The laws for what constituted a bona fide meal The California were so crazy to me. Right. And I remember like watching that press conference and then reading all the rules and being like, I don't think I've had a bona fide meal in two weeks, according The California.

[00:30:22] Lori Ajax: Yeah, and you bring up a great point, Justin. Obviously, during the pandemic, for our brewers to even be able to have consumers purchase beer, they had to serve it with food. And so they were scrambling in order to open their taprooms. They had to find food trucks or whatever just to get a meal in there. And I think for a lot of our smaller breweries that maybe will never utilize the eight duplicates, they most definitely would like to be able to serve food to their customers. And I mean, I don't know, it makes sense to us. And apparently it was important to the state because they were requiring it. So we thought it was a natural fit to also increase the bona fides.

[00:31:06] The California: So what would the increase in the number of satellite locations and allowing these, you know, bonafide eating places mean for your members? I know you covered it a little bit, but how can this make a meaningful difference in their lives and their businesses?

[00:31:20] Chris Walker: So since 2014, 2015, the number of breweries The California has doubled. Roughly during that same time period, the distribution tiers become more consolidated. So we have fewer distributors, more breweries. And getting to the market, getting to the individual consumer, it really comes down to the ability of the brewery to meet the consumers where they're at. And so being able to expand tasting rooms throughout California really is a whole new business model. Some people aren't even going into the distribution tier anymore. They're simply selling directly to the consumer, which is their privilege and right The California. And so this change in law allows for that type of business model to grow.

[00:32:07] Craft Brewers: One of the important legislative topics that you guys talked about during your CCBA conference earlier this year was DCC shipping. What is the status of that? I mean, it's allowed The California, but the big thing that you guys talked about was just protecting that allowance for beer producers. So what does that look like now in September, almost a year later?

[00:32:29] Chris Walker: Right, right. So as we discussed, we currently have direct-to-consumer shipping The California. Under The California law, however, there is no structure for an out-of-state brewer to ship into a customer in the state. And that deficiency, the inequity there between an in-state brewer and an out-of-state brewer is a violation, could be considered a violation of the Trade Commerce Clause. and therefore fall under the grant hole issue. And we were trying to simply resolve that and fix it. What we found in that exercise is a lot of folks were very confused by it. And I'm not talking about legislators. Legislators pretty much got it, but we had a lot of stakeholders who just weren't prepared in their minds to understand the fallout and the problems that would come from letting things continue as they are. So it was shelved because of the confusion. I think there's no question that it's going to come back in 2023, and it'll keep coming back every year until it's resolved because it's such a big deal. The California's significant craft brewing industry, we can't have some lawsuit by any entity shut down our ability to get beer to our consumers. And recently, I don't know if you've been following, but there was litigation in Oregon. Again, we knew that this was going to happen. It was just a matter of time. And now it's happened in Oregon. Is it going to happen The California next? It certainly could. But yeah, a lot of stakeholders in the industry need to be better educated and understand what this is all about. So that's, you know, we're going to have to wait.

[00:34:17] The California: Zoe covered a couple months back that Great Notion, who's mostly based in Oregon, opened a facility in Sacramento so that they would have the ability to ship within the state The California because, you know, as we just discussed, you have to be The California to ship The California. Have you heard of any other brewers following suit? That's the only one that I can think of off the top of my head, but I think that's probably a decent investment.

[00:34:43] Lori Ajax: I'm not aware of any other one, Jessica. I mean, it's understandable that people, if they can't ship in, they're going to come here. I just was going to follow up with Chris's thing. I think when we started out this DTC route, it just made perfect sense to us, right? We want to protect the privilege we have and get ahead of it. Obviously, the wine guys have had it, but I think it took them decades to get the law changed. And then we had the craft distillers who didn't have it, but did have it during the COVID regulatory relief, and then didn't have it. I think a lot of people are like, wow, you got wine, beer, and distilled spirits with direct shipping, and we're all sort of treated a little, it's all a little different. So I think having a policy that makes sense for all three of us is probably the way we're looking at, hopefully looking at this. I think, you know, having that fix instead of having all this piecemeal, as you guys know, it doesn't always work as well.

[00:35:48] Chris Walker: And thankfully, you know, we haven't been sued yet, but we were hoping we're going to get a solution in place before we get sued.

[00:35:55] Jessen Fonte: That's always preferable, I imagine, to the alternative. Circling back a little bit, for those pieces of legislation that are there on the governor's desk, what's your gut feeling on getting pen to paper on those?

[00:36:10] Chris Walker: From my perspective, Governor Newsom wants to grow The California economy. He wants to grow jobs. Both these bills fall into that bin, and I have a pretty good positive feeling about their fate.

[00:36:23] Lori Ajax: They're both bipartisan, you know, they- They're unanimous.

[00:36:27] Chris Walker: They're unanimous. In the legislature, bipartisan.

[00:36:30] Lori Ajax: It's just that Chris and I, we don't want to like, we don't want to jinx anything here. I think our guts tell us it's looking pretty good because it is. I mean, really, when you look at it, I think they're very common sense. It eliminates some barriers to growth in this industry. And I think the governor, I think this is something that he's going to support. So let's hope.

[00:36:53] Craft Brewers: So other than legislative things going on The California, what have been some of the key focuses or concerns for your members right now?

[00:37:02] Lori Ajax: As always, a lot of them are still trying to recover from the pandemic. I mean, I think a lot of people like to say, oh, the pandemic's over, everything's back to normal. Things aren't back to normal. As you guys know, across the country, as we see a lot of our breweries You know, a lot of them have been able to survive, but as the COVID relief money is now, for the most part, there is no more COVID relief money. I think we're going to look and see what happens over the next year and who can continue to sustain their businesses. But I mean, I think for the most part, we're, I mean, I think we thought we were going to see a lot more closures than we did. But we didn't. A lot of our folks have been able to survive. So I think it's our job to make sure that we are supporting them in any way we can. I'm excited. I know, you know, some things probably maybe COVID, you know, we've got a lot of our folks that are tap rooms that now have switched to canning. So they're more available to consumers that maybe aren't ready to go back to the tap rooms, because I think some of our breweries have found that the taproom traffic isn't what it was pre-COVID. But, you know, that now with being able to produce and put their beer and cans, it's made them more available. Obviously having DTC so they can deliver to the consumer is important. So it's a continuing with those, making sure that we are listening to our brewers and what's important to them and how we can assist them here.

[00:38:34] Chris Walker: And you know, what's what's shocking to me is, is also, you know, COVID was a big factor in the resilience of the industry was really put on display. We have some of the best members in the world, love these people. But it's also the case that, you know, the business is changing. And going back to what I said earlier, in just the last eight years, we've had a doubling of the number of breweries and a significant reduction in the number of distributors operating The California. And so we're seeing new business models being born, right? And as those new business models are being born, we're becoming more and more aware of barriers that really don't have good policy reasons why those exist. And so we're actually seeing the world a little differently now as these new business models are born. So it's fascinating to me. It was a lot simpler in the 2000 aughts in the early teens, but things have dramatically changed in the last eight years.

[00:39:39] The California: Chris, can you expand on that a little bit? Because I know that the middle tier consolidation is something we, you know, write about, talk about, think about all the time, but your state probably more than any other is really, you know, feeling the effects of it.

[00:39:52] Chris Walker: Well, that's right. I mean, the more competition is always better for the consumer. There's no one that will dispute that. And what we see is when you have fewer distributors carrying products, you have competitors being carried by the same distributor. And that raises all sorts of interesting challenges to people when they go into the distribution tier. I think you're starting to see more and more people, you know, utilizing their existing privileges The California, unique. The California. I always say we have the Goldilocks laws of the country when it comes to Craft Brewers. It's no secret why we have come to dominate Craft Brewers in the world, even. I The California has always been very receptive and supportive of this industry. But, you know, I just see things changing. People are going to rely less and less on a distributor for the success of their company. They have to take matters into their own hands now. They cannot just trust a partner to do the work for them. And so you're seeing a lot more self-reliance and a lot more direct connection to the consumer.

[00:41:04] Lori Ajax: And you're also seeing them expand in other manufacturing. You know, a lot of our members are wineries or even looking to be craft distillers. I don't know if you'd followed the other bill that was signed by the governor a couple of weeks ago, AB 1734, which now allows If you own a winery and a brewery, you can now share the entire footprint, including prior to this, you had to have separate points of sales. So if you wanted to get a good glass of wine, you had to go to the winery area or you have to go to the brewery area. So I think we just continue to look at ways that we can just make things easier to do business for our folks as their business models change.

[00:41:48] Chris Walker: And as they meet the consumer where the consumer's at, oftentimes our laws don't make sense to the consumer. Sometimes it makes sense from a policy perspective, and sometimes it doesn't. For example, the 1734, where you have single ownership of both a brewery and a winery, Yeah, we had different cash registers, we had different lines, we had to have different routes to stock both counters. You couldn't use the same route that you brought your wine as the same route as you brought the beer. And even consumption areas, you couldn't have common consumption areas. So, a couple goes to a location to have an enjoyable time, somebody gets beer and the other person gets wine, and they have a complete separate experience. It just makes no sense. And so, again, a common sense bill came forward to accommodate these increasingly changing business models The California.

[00:42:45] Lori Ajax: And I got to give a shout out to all our authors at the legislature because they recognize these barriers and they just hopped on board to help us make these changes. And so very grateful for that as well.

[00:43:01] Chris Walker: Assemblymember Jim Wood from Santa Rosa. Chair of the Craft Brewers and artisanal distillery subcommittee for the State Assembly Terrific author to work with he really got the logistics issue He's also very concerned about climate change and there was no no secret the carbon footprint You know, what is the carbon footprint of your beer when you have to send it a hundred miles away to bring it next door? And literally, that was the case here in Sacramento for several of our members. And so, Jim Wood, fantastic author. We also have Mark Berman from the South Bay. And Mark carried the expansion of the duplicates. He gets it. He understands the changing nature of the business and the business models and loves, loves, loves Craft Brewers and wants to see these businesses succeed. So again, thanks to both of those guys for carrying legislation this year for us.

[00:44:01] Jessen Fonte: You guys talked about some of that middle tier turmoil that we've seen. And as that sort of played out over the recent years, I'm wondering, you know, is there more of a threat of franchise law protection being sort of chipped away at than previously?

[00:44:19] Lori Ajax: I think there's always a threat of the franchise laws chipping away.

[00:44:24] Chris Walker: We consider it here The California a constant threat. You know, we have a mini franchise law here already. If you look at some of the different laws that have been passed over the years on fair market value and things like that. We've escaped the real strict franchise laws. And as you know, the distributor community has brought forward several proposals in the last several sessions. And these are stricter in their language than any other franchise law in the country. And we are not going to support anything that reduces choice for our consumers. or the fate and the success and failure of individual breweries. So franchise law has been a non-starter from the Craft Brewers side. You know, the problem is we have one particular distributor that has bought up the local family-owned distributors, has largely, you know, it's an out-of-state operation operating in our state. And would they want to pass a franchise law to lock in everybody that's already in their portfolio? That would be incredible if they wanted to do that, because it would certainly bolster their position in the marketplace, meaning that those brewers that are in their portfolio could never go to a new distributor. They are forever with that one distributor. So you're locking out all competition, which is fairly anti-competitive. You wouldn't put it past my experience The California to see things come forward anyway like that, but we're ready.

[00:46:04] The California: All of that makes a lot of sense. I hate to ask you guys a bummer of a question, The California has recorded four consecutive years of beer volume declines. Do you see this year following along that same pattern?

[00:46:17] Lori Ajax: I mean, I, again, I think we're in a recovery mode, but I think that, I mean, I just seen where we're hearing from our members, you know, they're, I feel things are looking up and I think we are finally getting past the, I think what we've done on the legislative side this year, I think is really going to help our breweries quite a bit. So we're very optimistic. And you know, here The California, we're the, we're resilient, if nothing else, with all the crazy, like I said earlier, all the craziness that goes on. And, and, and so, you know, our job is to make it easier for people to do business here The California for our Craft Brewers. And that's what we're doing. And I'll tell you what, Chris and I worked pretty tirelessly. We knew we needed to have a big year this year legislatively just to make sure that we're fighting for our Craft Brewers here.

[00:47:10] Craft Brewers: How about supply chain? What is that looking like The California right now during that recovery period?

[00:47:17] Lori Ajax: I think it's tough. I think it's tough. I mean, as you know, it's just not for the Craft Brewers industry. It's for everybody. And, you know, it's, it's one of those things that it's, I am amazed our brewers are there. They certainly, they get in there and roll their sleeves up and they figure it out. And, you know, even though they, you know, they all are competing The California, I am always impressed to see how they step up and help one another. you know, need some kind of equipment or product or whatnot. I mean, that is just The California way. So yes, we're, they're all competing for consumers and all of that, but they are helping one another. And it's, it's great to see.

[00:48:03] Chris Walker: I'll correct you on that because I worked for other industries as well. The magnanimity in The California Craft Brewers world is The California way. The same cannot be said about their industries. It's cutthroat. But boy, oh boy, I'm constantly amazed, even at the worst of times, of this community and the members that compete daily, helping each other out, whether it's aluminum, steel, brewing products, etc. It's always been a pleasure to watch this industry rally.

[00:48:39] The California: So, you know, as we're looking ahead to 2023, do you have any other priorities for next year that we haven't quite touched on yet?

[00:48:46] Lori Ajax: We're still working through that. I, you know, be honest with you, Jessica, I'd like to see what happens in the next couple of weeks. And then I'll probably have a better answer for you in the next couple of months. But so we are our focus right now is getting through the end of this month. But yes, it's something You know, this is the time when we are talking to our members to see what, what problem can we solve? Cause that's, that's how I look at Chris and I, Hey, what is affecting you? What's impacting your business? What do you need? And then just trying to figure out how we solve that and whether that's with through legislation or, or seeking a regulation change. And so we'll probably have that sorted out in the next couple of months. Great.

[00:49:31] The California: Well, Lori and Chris, we know you're both so busy, so we really appreciate you guys taking the time to come hang out with us and chat about everything going on in your state with your Craft Brewers. So thank you so much for being here. Yeah. Thank you for having us.

[00:49:43] Chris Walker: Our pleasure.

[00:49:44] The California: Of course. And that's our show for this week. Thank you so much to Justin and Zoe for hanging out. Joe, our audio engineering wizard for making this listenable. All of you for listening. We will catch you next week for another episode. But in the meantime, feel free to like, rate and review. And if you want to give us a shout, podcast The Brewbound.com. Thanks.