Mull this over while you hoist your next pint: Boston Beer
The Brewers Employment & Excise Relief Act -- or BEER Act -- looks to redefine what constitutes a "small" brewer. Current policy puts the threshold at two million barrels annually, but Senators Kerry of Massachusetts and Mike Crapo of Idaho want to raise it to six million, meaning the politicians aren't looking to save Anheuser-Busch InBev
The bill would also halve the tax rate to $3.50 on the first 60,000 barrels produced and lower to $16 from $18 the tax on production above 60,000 barrels, with a cap placed at two million barrels.
Over a barrel
An obvious beneficiary will be Kerry's hometown favorite Boston Beer, which just passed the two million barrel mark last year. Privately held Pennsylvania brewer Yuengling passed the two million barrel threshold back in 2009, so it presumably would also stand to gain by the proposed expanded definition.
According to the Brewers Association, Samuel Adams is the largest "craft brewer" in the country, followed in annual production by Sierra Nevada Brewing, New Belgium Brewing, Spoetzel Brewery, and Pyramid Breweries. But the combined annual production of the four brewers following Boston Beer doesn't even surpass the original threshold, let alone the proposed new level.
Crafting a new identity
It should be noted that Yuengling, because of its use of corn in the production of beer, doesn't really qualify as a "craft brewer," though the trade group made an exception earlier this year and permitted it to join. Considering its independence, though, which is another important consideration, Yuengling carries the craft brew image with many beer drinkers.
That's why you also wont find on the list the maker of the popular Red Hook or Kona beers from the Craft Brewers Alliance
But the Brewers Association has been making all kinds of changes lately. Like the legislation under consideration, the trade group recently raised its own production level limits to six million to be considered a "craft brewer." At least it was upfront about its reasoning: if Boston Beer were no longer included in the category because it had grown so large, then the craft brew industry would lose one of its biggest advocates.
And by including Yuengling in the mix, the craft segment can now claim an additional 1% of the total beer market.
But those are trade association maneuvers, not tax policy. As much as I agree with lowering or eliminating taxes on any business or person, there's something to be said against juggling the tax code to benefit such a narrow slice of the economy. What can be cut today through surgically precise legislation can easily be raised tomorrow.
Brewing up an opportunity
Craft brews remain the most exciting segment of the beer market. While U.S. beer sales fell 3% last year, the decline fell on the shoulders of the makers of Bud, Coors, and Miller. Sales in the craft segment actually jumped 9% in 2010, and it continues to attract more beer makers. Costco
Shares of Boston Beer tumbled after its latest earnings report had investors thinking the brewer's outlook for the rest of the year was worse than skunked beer, as its Freshest Beer program takes a swipe at profits. Yet the brewer is willing to sacrifice short-term profits for long-term gains by having the freshest, best-tasting beer on tap for its customers.
That sort of thinking, rather than arbitrary definitions drafted by trade groups or politicians, is what sets a true craft brewer apart. I'll drink to that!
Costco and Molson Coors are Motley Fool Inside Value picks. Costco, Boston Beer, and Whole Foods are Motley Fool Stock Advisor choices. Diageo is a Motley Fool Income Investor pick. The Fool owns shares of Costco, Diageo, and Molson Coors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.