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Government shutdown affects craft beer industry as Alcohol and Tobacco Tax and Trade Bureau closes

Local brewers stuck with beer they can't sell

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CINCINNATI -- Among the many industries affected by the government shutdown, craft beer is facing a crisis that could prevent consumers from trying new brews.

The issue facing many existing breweries and startups is that the agency responsible for overseeing the alcoholic beverage industry is closed for business.

According to the Brewers Association, the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) cannot review new permit applications or certificates of label until the shutdown is resolved.

That means no new breweries can open, and existing breweries can’t bring new beers to market.

This is especially harmful to the craft beer industry as any new beer formula that requires adjuncts (additives to the beer such as spices or fruit), also require oversight from the TTB to make sure the product is safe. It also requires that changes in labeling on cans or bottles be approved by the agency.

In an ironic twist of fate, while the office of the TTB that oversees labels and formulas is shut down, the office that handles excise taxes is still open. That means that while the brewers can't get some of their beer to market, they will still have to find money to pay their taxes.

“It is our understanding that the only functions will be tax collection from existing permit holders and enforcement functions," Brewers Association Director Paul Gatza said. "This limit of service means that potential new taxpayers and potential tax revenues from new beers will not occur, so the federal government could, in theory, be missing a chance at these potential revenues at a time when our government could use this revenue."  said.

Even before the shutdown, the TTB was already dealing with a decreased staff and brewers had to deal with long approval delays.

Gatza said the average wait time for formula approvals was about 45 days. Add in the shutdown and the effects are multiplied exponentially.

“One could think of this shutdown as basically stopping business indefinitely for anyone who didn’t have certain paperwork in place back in mid-August. I sympathize with the alcohol beverage companies who are stuck in limbo,” Gatza said.

The Brewers Association said the country was on track to have between 400 and 550 brewery openings in 2013. That means that more than one craft brewery per day on average was opening.

"Those new jobs and future tax revenues are on hold indefinitely," Gatza said. "Small brewers employ over 108,000 people in the U.S., and is showing job growth of about 5,000 new jobs per year. This shutdown has a direct effect on slowing that job growth.”

Effect On Local Brewers

That pain is being felt quite acutely at some of the breweries in Cincinnati.

Many of the brewers said they have formula and label applications that are now on indefinite hold and that means dire consequences for their budgets if they can’t move the product.

At Fifty West Brewing on the east side of the city, the owners said while they don’t have any applications to the TTB, the shutdown is affecting state agencies they have to deal with. The brewery is getting ready to expand, and some of the applications and approvals they need to get from state agencies are being held up because the shutdown at the federal level.

At Blank Slate Brewing, owner Scott LaFollette said he has one beer that he has to hold in his fermentation tanks while waiting for approval and two more that he can’t even start work on because of the holdup.

LaFollette said, “If you’re in the processing of starting a brewery, the process takes months. You’re actually applying while you’re starting to build the brewery. They might get to a point where they’re ready to brew but the federal application is held up. So they’re just bleeding money.”

That problem is especially worrisome for smaller breweries that make several specialty beers or have to bring a lot of new beers to market as they are just starting up.

“For the rest of us, especially if you have seasonals, you can’t get that beer to market because the label approval is held up. You might miss the window for the season because of the shutdown. That’s a big cash flow issue for small breweries because you’re just sitting on product,” LaFollette said.

Listermann Brewing is also feeling the crunch. Head brewer Kevin Moreland said they have a pumpkin beer for fall in addition to other pre-existing applications but they can’t even submit an application because the TTB is shut down.

Another sticking issue for Listermann is that they are waiting on new label approvals so they can’t start bottling a four-pack of their fan favorite Chickow brown ale on their new bottling line.

The problem grows even more complicated because the brewery received a $40,000 state grant to help buy the line. If the bottling line isn’t operating by the beginning of November, Listermann might have to pay back that grant to the state.

Moreland said they are looking at several options but they are at the mercy of legislators in Washington and however fast the TTB can get through the mountain of applications it has waiting when the shutdown ends.

In addition to the bottling line, Moreland said he estimates he has about 20 barrels worth of beer that are just waiting to be released. He said he’s worried he might have to dump much of it because the beer will be out of season and hard to sell if the government standoff goes on for too much longer.

When the cost of the grant, labor and ingredients are tallied up, Listermann stands to lose about $55,000.

MadTree Brewing also has a beer in the tanks that is being held up by the shutdown. Brewer Kenny McNutt said they have several barrels worth of a new kolsch that is waiting for approval, along with a seasonal Scotch ale called Thundersnow that can’t even be brewed yet.

Up north in Morrow, Cellar Dweller Brewery is waiting on several applications and will have to sit on some beer if they don’t get approval back in about 10 days. Three of those are for new beers that they wanted to unveil.

It’s also affecting the brewery’s expansion effort. Because the brewery is housed at a vineyard, they have to get federal approval to any site changes they want to make. Head brewer Steve Shaw said they had to submit a form to the government showing where every piece of equipment at the facility will be housed.

Cellar Dweller can’t begin that expansion work until that application is approved.

A few of the other breweries in town have reported similar, but not as severe issues thanks to the shutdown.

All told, it means consumers could expect to see fewer beers on the market in the coming months and possibly higher prices as brewers try to recoup their costs.

Copyright 2013 Scripps Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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