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How Cider, Mead, and Marijuana Are Changing the Craft Beer Industry

By Rich Duprey – Nov 8, 2018 at 8:48AM

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Trade group considers altering the definition of what a craft brewer is to protect its most famous member.

The Brewers Association is once again thinking of changing its definition of craft beer to reflect changes occurring in the industry. Because brewers are experimenting with more innovative ingredients, it is thinking of dropping one of its three criteria that define a craft brewer: that most of the brewer's volume come from traditional ingredients like barley, malt, and hops.

In a time when the potential for marijuana-infused beers appears ready to take off, it would seem forward thinking of the trade group to reflect the recent trend. Yet this isn't the first time the Brewers Association has changed its definition, and that raises a question: Why bother having one if it can be so fluid?

Brewer examining a frothy glass of beer

Image source: Getty Images.

A rose by any other name

The three criteria that define a craft brewer are:

  • Small, with annual production of 6 million barrels of beer or less
  • Independent, with less than 25% of the craft brewery owned or controlled by a noncraft brewer
  • Traditional, meaning a majority of its total beer volume comes  from traditional or innovative brewing ingredients and their fermentation

This will be the third time the Brewers Association has changed its definition of what it means to be a craft brewer since first delineating it in 2007. Before then, it essentially followed the federal government's tax policy of including brewers producing no more than 2 million barrels of beer annually, but in 2011 it raised the annual production maximum to 6 million barrels to recognize the growth of the industry and the fact that Boston Beer Company (SAM -2.57%) was poised to crash through that lower threshold. Without the change, the trade group would have lost its biggest, most important member.

In 2014, it added the caveat that brewers could use adjunct grains, since some otherwise craft brewers like D.G. Yuengling & Son, the country's oldest operating brewery, and Straub Brewery, a brewery founded in 1872, use ingredients like corn and rice. Excluding some of the longest-operating breweries from membership seemed foolish.

This new amendment would reflect the current state of the craft beer industry. Beer consumption is on the decline, and though craft beer volumes continue to rise, production at the biggest craft brewers, like Boston Beer and Sierra Nevada, which are significantly larger than most other American craft breweries, has stagnated or is falling.

Following the face of the industry

In beer's place, brewers have crafted other alcoholic beverages that are gaining popularity. Most notable have been Boston Beer's hard tea, cider, and seltzer. In the brewer's most recent quarterly earnings report, depletions, or sales to wholesalers and retailers (an industry benchmark for consumer demand) soared 18% year over year almost solely on the performance of its non-beer portfolio. Depletions for its flagship Samuel Adams brand, however, fell yet again, the 15th consecutive quarter they've been down.

Ultimately, that is what the newest definition change is about. If Boston Beer continues on its current trajectory, the volume of its non-beer portfolio will soon surpass that of its beer, and the trade group will again be threatened by the loss of its best-known brewer.

The industry site Brewbound reports that the Brewers Association disputes this, saying, "This move was not made because of Boston Beer, but the timing of evaluating and revising the definition is related to Boston Beer." That sounds a lot like it is because of Boston Beer, as well as the fact it stands to lose 8% of its total craft beer volume.

Key takeaway

It can't be denied that the craft beer industry is changing, and as new drinking trends gain traction and marijuana legalization spreads, more brewers want to experiment with using THC and cannabidiol to create different experiences.

Hard cider sales are growing again, led by Boston Beer's Angry Orchard brand, which revived sales with the introduction of its rose style. In addition, mead, or honey wine, remains one of the country's fastest growing alcoholic beverages, which could be why it became a focal point of Anheuser Busch Inbev's "dilly dilly" commercials.

However, for an industry that has disparaged megabrewers for producing "crafty beers," or beers that would otherwise be considered craft had they been brewed by someone smaller, editing the definition once again so that a brewer that produces more cider, tea, or seltzer than actual beer can still be called a craft brewer seems disingenuous at best.

Maybe craft beer is about the process of brewing beer, and the passion behind it, rather than any arbitrary set of criteria.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.

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