Senate Bill No. 121 regarding distribution and recyclable containers

Aloha Everyone,

Our bill is now assigned to a conference committee to debate the change made by the House. The Senate's
version of the bill passed but the House changed their version by taking out the option to distribute to "Class
2 Restaurants". This is very important to us and would like to see the Senate's version win out. The House is
concerned with a circumvention of the 3 tiered System of manufacturing, distribution, and retail or dipensing.
This "system" was obviously altered with the original creation of brewpubs in the Hawaii legislature 1994. And
again with last year's successful passage of selling to consumers directly and self distribution to most classes
of licensees. I sent a letter to explain some history and our viewpoints to the Conferees today. It's included
below. If you have time please send the list of conferees provided below your reasons to support SB 121 in its
original form allowing Brewpubs to sell to Class 2 restaurants and to package beer in recyclable containers such
as cans. This is a last push to try to tip the scales in our favor.

Best Wishes TK

LIST of conferees to send letter of support:

"Roz Baker Senator" <senbaker@capitol.hawaii.gov>, senenglish@capitol.hawaii.gov, senespero@capitol.hawaii.gov, senhanabusa@capitol.hawaii.gov, senslom@capitol.hawaii.gov, repching@capitol.hawaii.gov, repherkes@capitol.hawaii.gov, rephiraki@capitol.hawaii.gov, repluke@capitol.hawaii.gov, repschatz@capitol.hawaii.gov

Copy of letter I sent:

Aloha Conference Chairs and Members,

Thank you for your support of SB #121 "Relating to Brewpub Licenses". The House of Representatives recently
amended the SB#121 with version HD1. This change undermines what we have been working towards for over 2
years to help Brewpubs survive and thrive in the State of Hawaii. Last years Act# 200 now allows brewpubs to sell
directly to consumers and all classes of liquor licenses #3 thru #13 except "class 2 Restaurant licenses", which was
mistakenly left off the list in 2004's bill. Restaurants are the best candidates to sell our products successfully to the
general public our product is a special product that enhances a diners experience by combining local cuisine with locally
brewed handcrafted beer a perfect audience to help grow our locally made beers. The brewpubs of Hawaii and the Aloha
Brewer's Guild strongly support the Senate's version of SB 121 in its original form.

Though America has seen dramatic growth in brewpubs over the last 10 years, Hawaii has not fared so well with 10 closures
and only 5 still operating "Class 14 brewpubs" in the State (Brew Moon - Oahu, Fish & Game - Maui, Sam Choys - Oahu, and
Waimea - Kauai, Gordon Biersch- Oahu). The changes we ask for are enjoyed by most other States and will go a long way
in helping Hawaiian Brewpubs compete against imported brands. I would like to explain some background information on the
issue to allow you the best chance to understand what is at stake.

With the original creation of the Class 14 Brewpub License in 1994 the three tiered system of manufacturing, distribution,
retailing, and dispensing alcoholic beverages was altered to allow a small brewery (producing under 10,000 barrels) the
opportunity to sell malt beverages made on the premises for consumption. This follows a trend nationwide beginning in the
1970s to allow breweries to make and sell local specially handcrafted beer for consumption rather than bland national brands.
Allowing brewpubs to self-distribute to bars & restaurants gives the brewpub a wider sphere of exposure and a chance to
grow their brand without the added cost of a wholesaler. Wholesale distributors are not always a good fit for a small producer
like a brewpub. A potential distributor often finds the volume a brewpub could offer to sell not worth the time and effort.
As an example Oregons Beer and Wine Wholesaler Association in 2003 testified in favor of self-distribution for brewpubs,
with successful passage in the Oregon Legislature; which allows a brewpub to grow its brand to the size where wholesale
distribution is attractive to both the brewpub and the wholesaler.

As you well understand lawmaking is an evolutionary process, and the regulation of brewpubs in many States like California,
Arizona, and Oregon have gone through this process to accommodate business needs in a responsive and responsible manner.
The majority of States now allow brewpubs to self-distribute and enter the retail tier by selling bottles, cans or kegs. This
is because of the small production size a brewpub is limited with and the cost of small production versus a larger economy
of scale. But in fact this limitation is considered a blessing as beer is best produced in small, hand-crafted batches with the
highest quality ingredients obtainable, and sold for consumption very close to its source. With this concept in mind, hand-
crafted beer has a long international cultural tradition of character and flavor. These beers are enjoyed by most consumers
in moderation with an appreciation of the "art" of brewing all natural flavorful beers

Senate Crossover Bill SB #121 addresses some mistakes in last year's Brewpub Amendments, Act #200, which the 2004
Hawaii State legislature passed into law with no opposing votes.

We inadvertently left "Class 2 Restaurant Licensees" off the list of licensees we would be able to distribute to. All other
licensees from #3 to #13 are now approved for us. The Classes of liquor licensees designated by the HRS which Class 14
Brewpub Licensees are allowed to sell directly to is as follows:

class 3 wholesale dealer licensees, class 4 retail dealer licensees, class 5 dispensers' licensees, class 6 club licensees,
class 7, 8, and 9 vessel licensees, transient vessel licensees, tour or cruise vessel licensees, class 10 special licensees,
class 11 cabaret licensees, class 12 hotel licensees, and class 13 caterer licensees,

This became effective with the unanimously supported Act #200 of the 2004 Hawaii State Legislature.

Testimony from last year's bill included testimony for the opportunity to sell in restaurants, bars, and dispenser establishments.
Restaurants are the largest category of potential customers and are the most likely places to sell our products successfully.
So, last years self-distribution approval is rendered much less effective with this omission. Local handcrafted beer goes
naturally well with cuisine from all over Hawaii. In fact, we sell our beer outside of our Brewpub to 4 different restaurants
but we must use a distributor because of the omission of "Class 2 Restaurants". Using a distributors services raises the
costs for the brewpub 25%.

This means that these small businesses must pay a wholesaler to deliver their products to restaurants outside their modest
brewpubs. Because of the small profit margins associated with brewing, paying someone else to distribute the brewpub's
products can be financially unfeasible. Manufacturing handcrafted beer in Hawaii can be as much as 45% more expensive
than mainland costs. Yet these challenges can be aided with the allowance of self-distribution to restaurants and the ability
to use recyclable containers such as cans.

These restrictions have limited the opportunities for brewpubs to sell their beers to those who want to enjoy it outside the
brewpub at other establishments. This restriction diminishes the potential for a local brewpub to sell their product to consumers
who then must settle for purchasing an imported product not made locally. On Maui alone in the last 6 years, 5 brewpubs
have opened and then closed in part due to the restricted business environment facing brewpubs in Hawaii. Fish & Game
Brewing Company is the only Brewpub left on Maui, and hopes with the rest of the Hawaii brewing community to change
these restrictions to improve the opportunities for success in this business.

With the rise of popularity of brewpubs and handcrafted beer there are now 5 times the amount of breweries in the US today
than 10 years ago; most of the growth being in brewpubs and micro-breweries. However, Hawaii's breweries have not done
so well. Ten breweries State-wide have opened and are now closed in part due to the same problems.

These options for the brewers of Local Handcrafted Beer will help their business grow to meet market demands which already
exist. With a more natural, wider base of sales to local and tourist consumers, Hawaiian brewpubs could be more successful in
competing against imported products and weathering off-season business slumps and creating more economic stability for their
business and employees.

I urge you to support this bill in its ORIGINAL form by allowing Class 14 Brewpub Licensees the opportunity to self-distribute their
products to Class 2 Restaurant Licensees and the ability to use recyclable containers such as cans in addition to glass bottles
and kegs.

Thank you sincerely for your time and consideration on this important issue for Hawaii brewpubs.

Please feel free to contact me with any questions or concerns.