This Small Act Could Give Craft Beer a Big Boost

U.S. Senators and members of the House of Representatives are finally starting to agree on something: The excise tax on craft beer is way too high. Today we're taking a closer look at some proposed legislation kicking around the hallowed halls of Congress that might give your local brewer the break it needs.

The proposed act
The Small Brewer Reinvestment and Expanding Workforce Act of 2013, or Small BREW Act, would reduce the excise tax on beer for craft brewers by increasing the qualifying maximum barrel production from 2 million barrels annually to 6 million. The new framework cuts the excise tax in half on the first 60,000 barrels produced, and reduces it from $18 to $16 on the next 1.94 million barrels. All barrels produced between 2 million and 6 million will pay the original $18 tax.

The Brewer's Association defines a craft brewer as any beer manufacturer that produces no more than 6 million barrels of beer per year, so the new number is not as arbitrary as it may seem at first blush. The bill was first introduced in the House of Representatives in February, making its debut in the Senate in May.

Who wins?
If this legislation passes, the biggest winners will be breweries far too small for our stock market dollars, but it should still have a positive impact on Boston Beer (NYSE: SAM  ) and Craft Brew Alliance (NASDAQ: BREW  ) .

In fact, the new 6-million-barrel ceiling leaves plenty of room for growth at both of these companies:

Source: SEC filings.

Even when you factor in Boston Beer's most recent acquisition of Shmaltz Brewing's Coney Island brand, the Sam Adams brewer has a ways to go before it gives up its cherished craft brewer status -- and the potential Small BREW Act savings that come with it. A quick back-of-the-napkin calculation pegs Boston Beer's annual savings (based on 2012 production) at approximately $4.1 million.

We know the losers
If you're not winning, that ultimately means you're losing, and that's what's happening with our behemoth brewers Anhueser-Busch InBev (NYSE: BUD  ) and MolsonCoors (NYSE: TAP  ) . These giants are already struggling to maintain market share in the face of the craft beer surge. For the full-year 2012, overall beer sales were up 0.9%, while sales of craft brews were up 6.6% and volumes of craft beer were up 15%. If small brewers are able to save more cash and reinvest it in order to spur growth, things would certainly not get easier for Big Bud and Kid Coors.

On a whim, I searched the Senate's Lobbying Disclosure Act database, and sure enough, both AB InBev and MillerCoors (the SAB Miller/MolsonCoors joint venture) have thrown money at the Small BREW Act issue over the course of the last year. These two players would much rather see the BEER Act pass, which would reduce the federal excise tax on all brewers, great and small.

Bottom line
There is always a chance that absolutely nothing happens to the Small BREW Act, or the BEER Act, for that matter, but investors should be aware of it anyway. Despite the craft beer movement turning the industry on its head, there has been little to no legislative change affecting the beer industry's excise tax in decades. Change is brewing.

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