How To Sell Craft Beer Without Brewing up a Legal Storm

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• Which Licenses Should You Apply For?

Home to some of the oldest and largest craft breweries in the nation, as well as some of the newest and most innovative, the Front Range of Colorado has come to be known as the Napa Valley of beer. New breweries, brewpubs, and craft brewers open all the time to resounding success. It’s such a strong market that microbreweries targeting the narrowest of niches, from heavy metal to strictly sour beers, are thriving. But opening a new craft brewing business, especially one dealing in alcohol, can demand some delicate navigation of various laws and legal processes.

One of the first steps in opening a Colorado brewery—aside from being confident in your brewing skills and beer recipes—is identifying a space.

The attorneys with Fairfield and Woods’ brewing team in Denver advise that you’ll not only want to find a building of a sensible size in an attractive location for a taproom, but also one that is zoned properly and that will be welcomed by the neighborhood. If you envision loud music or a rowdy crowd—or even having a food truck parked nearby—it’s best to be sure nearby residents won’t be bringing nuisance complaints. They likewise warn against making common mistakes like not creating an appropriate entity for its operations. Any legal obligations, such as the lease and beer recipes, should be in the name of the business entity and not an individual. Billy Jones, partner at Moye White in Denver and co-chair of its franchise and distribution group, says some people may sail smoothly through these types of hurdles, but he recommends seeking legal counsel—and sooner rather than later. Even something as simple as leasing a physical space can be surprisingly tricky. “Brewers should know and confirm their land use/zoning issues before committing to a lease or location to make sure their intended activities are permitted,” says Jones, who has handled licensing, permits and trademark concerns for breweries. Otherwise, “you have to go back and try to fix it, and that’s always more expensive and more challenging and more time-consuming.”

Which Licenses Should You Apply For?

Brewers need to decide up front if they want to serve beer in a tap house setting or in a restaurant, and if they plan to package and distribute beer elsewhere. Distribution is another area where caution and planning pay off. Colorado, with its relatively relaxed regulations regarding beer, allows self-distribution, although most brewers choose not to go that route because it can take so much time away from brewing beer. Choosing and signing with a distributor, though, is a high-stakes decision. “There are some great distributors,” says John Eckstein, director and shareholder at Fairfield and Woods. But for most brewers who choose not to self-distribute and instead sign with a poor distributor, “those things are complicated. You get locked in with a distributor who buries your beer, and then your beer never gets in anywhere. … If you don’t self-distribute, the distributors hold the keys to the kingdom, because they have the relationships with the liquor stores.” Whether a large group is behind the venture or it’s just a team of two, it’s also important to establish clear company roles early on, including who is responsible for what. “They’re all in love with each other when they get going,” says Eckstein, whose principal legal focus for breweries and brewing restaurants is in financing, “but the going always gets tough sooner or later. They eventually need more capital, or they need to personally guarantee things, which creates tensions on the team.”

Then there are intellectual property concerns, which are increasing as the craft beer industry becomes more crowded.

When choosing a name for a brewery, then for individual beers, do some homework to make sure you won’t be vulnerable to lawsuits over rights to those names. Look through trademark names registered in Colorado, and through the U.S. Patent and Trademark Office. And don’t forget the recipes. “If I go and hire a brewer to make my beer, and I didn’t know it, but he’s using a recipe from Dogfish Head, or from some other brewery that actually owns the recipe, then all of a sudden I’m employing somebody who’s infringing on somebody else’s recipe,” says Gil Selinger, director at Fairfield and Woods, who has handled owner transactions for regional breweries. There’s also the flip side. “When you find the brand or the look that you like, give some thought to protecting it,” Jones adds. “That will protect your brand, which is ultimately how you’re known.” Cheers. For more information on this area of the law, see our overviews of closely held business, business organizations and business and corporate law.