We recently had the chance to interview Kevin Ryan with Service Brewing regarding some of the challenges facing a young upstart craft brewery. One item that piqued our interest was his comment on some of the regulatory challenges that craft brewers face in getting up and running and then growing.
A quick search turns up a treasure trove of articles bemoaning how antiquated laws are stifling innovation and growth in the industry.
- US News and World Report: “Regulations Create Harmful Barriers to the Craft Beer Industry“
- Draft Magazine: “Are States Waging War on Craft Brewers?”
- Reason: “Craft Brewers Face Regulatory Challenges“
- Mercatus / George Mason University: “Bottling Up Innovation in Craft Brewing“
Aside: Mercatus also has a fantastic chart on Barriers to Starting a craft brewery in Virginia. We love charts and graphics… highly recommend to click through to take a look!
New York Makes a Change
Service Brewing is located in Georgia, but a bit further north, Governor Cuomo just signed into law a bill aimed at promoting growth in the craft brew (and more broadly, spirits) industry. Great news, right!
Gov. Andrew Cuomo on Thursday signed into law a bill that relaxes several regulations to reduce fees on small manufacturers looking to increase production. The new rules will also ease rules on tastings and allow farm distilleries to operate additional retail outlets.Cuomo also announced $3 million in grants for marketing locally produced wine, beer, cider and spirits and promotion of wine trails, beer events and other tourism activities related to the state’s craft alcohol industry.
So What’s the Deal with Craft Brewer Valuations?
Glad you asked. And we don’t have a clear answer without looking at a specific context. We always look at factors that potentially increase or decrease a particular valuation away from the norm. For instance, a brewer in NY might now have an environment more conducive to growth than, say, a similar brewer in Virginia. More growth = higher relative value, right?
Well, maybe. We’d also want to get an understanding if a more permissive regulatory environment will result in a more competitive environment with a glut of offerings. As it stands craft brewers are popping up everywhere, so the notion that the regulatory environment is stifling growth may be overblown. I’m loathe to suggest that increased regulations are healthy, but perhaps the drag that those regulations have on new market entrants is good for incumbents?
Regardless, we love these scenarios. We’ve talked to a bunch of you (brewers) about real world business valuation issues for breweries. More questions? Great. Let’s talk!