Why Virginia and Maryland are Lapping D.C. in the Brewery Boom

Greater Washington’s brewery boom merits a hearty hoist of the pint glass. After all, the number of breweries in the region has grown from a mere dozen to more than 75 in the past five years, with several more on the way. But most are in Virginia and Maryland, with only 12—six production breweries and six brewpubs—in D.C. proper. City swillers find themselves crossing state lines with envy, wondering why the District isn’t seeing more substantial growth.

Despite the many ways in which D.C. is primed for progress, breweries looking to get started here face high costs, a limited supply of suitable spaces, regulatory barriers, and government bureaucracy.

In the win column for D.C. is the city’s educated, enthusiastic clientele. The District’s thriving beer bars, initial wave of brewpubs and breweries, and constant influx of new brands have birthed sophisticated beer drinkers. “Folks drinking here know a lot and have so much to choose from,” says Kathy Rizzo, executive director of the DC Brewers’ Guild.

D.C.’s distribution laws are also favorable. Breweries can skip wholesalers and peddle their beer directly to bars and bottle shops. Though it takes considerable effort, self-distribution is particularly advantageous for small breweries and new ones trying to establish themselves. Most D.C. breweries work with distributors, but if a brewery does not feel well-represented it can more easily dissolve its distribution contract in D.C. than it can in Virginia and Maryland, where franchise laws interfere. The absence of these laws also gives District breweries a bargaining chip when negotiating terms.

Other laws have also become more welcoming. Over the last four years, breweries like DC Brau have worked with regulators and legislators to pass a sequence of bills permitting the sale of growlers, allowing tasting rooms to sell pints, extending operating hours, and encouraging live music.

Development helps too. “The city is still growing and so many beautiful neighborhoods are still developing,” says Right Proper Brewing founder Thor Cheston, who opened a brewpub in Shaw and a production brewery in Brookland. “There’s just so much opportunity to find a great spot for a little pub.” He expected more to be open by now.

So what gives?

First, it takes a lot of cash to get started. D.C. rents are high. Brewery start-up costs often exceed $1 million, and it can be difficult to secure loans and investments, especially when breweries are still unfamiliar to many prospective investors.

“Most people don’t understand how a brewery is different from a restaurant or bar as an investment,” says James Warner, who is working with his wife Kim Carnahan to open City-State Brewing. “You need more equipment, a larger space, and there can be a much larger return but also large up-front costs that could take longer, maybe five years, to pay back.”

Those expenses often include significant renovations such as installing adequate floors, drains, appropriate cooling, and more. And D.C. building permits are costly. “Our building permit fee alone was $19,000,” says ANXO Cidery & Pintxos Bar’s Tim Prendergast. “That’s not including architects, lawyers, etc. That’s literally just the fee to stamp the permit.”

Finding a location also proves challenging. Brewpubs can set up shop almost anywhere restaurants can, but the space needs to be large and amenable to specialized upgrades.

Production breweries, on the other hand, can only operate in manufacturing zones. These scarce spots are primarily scattered along New York Avenue and Metro’s red line, the city’s two northeast rail corridors. There are far more ready-to-brew sites in the abundant industrial parks of Virginia and Maryland.

Location challenges can prove so trying that breweries avoid the overhead by leaning on others. Handsome Beer Company, which started selling beer in D.C. and Maryland last September, brews at Old Bust Head in Warrenton, Virginia. John Fleury and Josh Perry, the duo behind Pulaski True American, plan to open a neighborhood brewpub, perhaps in Ivy City or Anacostia, but will brew there sparingly. Instead, they’ll enlist another brewery for the majority of their production.

Brick-and-mortar shop or not, licensing fees are another hurdle. Breweries in D.C. pay from $5,000 to $8,400 per year regardless of operation size. The higher end of this range includes extra permits for production breweries to offer samples, sell pints, or host live bands. Brewpubs also pay licensing and permitting fees in order to operate as restaurants.

For Andy Oetman, D.C.’s fees are a concern. His environmentally focused, grassroots project Fishbowl Brewing and CoHoperative may produce as few as 1,000 gallons of beer  a year, but he will still owe at least $5,000. “If I want to do a small artisanal project, it’s the same price as a large production brewery,” he explains. “I’ll have to figure out the scale that still makes sense financially.”

Virginia, meanwhile, has a tiered system. A brewery producing 500 or fewer barrels per year pays $350 to $550 annually for state licenses, while those brewing more than 10,000 barrels pay as much as $4,500. Brewpubs pay anywhere from $150 to $3,300, depending on the type of restaurant liquor license they choose.

But Virginia isn’t without its burdens. Breweries pay a hefty excise tax of $8 per barrel for beer sold on site. (In D.C. and Maryland, excise tax is only $2.79 per barrel.) Counties and cities in the Commonwealth often charge additional fees, especially for brewpubs. Alexandria will charge forthcoming Portner Brewhouse an initial $600 fee and then a minimum of $250 each year on top of a percentage of all sales. In Arlington, New District Brewing—the county’s first production brewery in a century—pays a 4 percent meal tax on tasting room beer sales.

In terms of state licensing, Maryland is the Promised Land. A farm brewery may pay as little as $200 per year and can engage in a wide range of activities from offering samples and selling beer to go, to serving food and selling crops to other breweries. At the higher end, a large production brewery making more than 22,500 barrels per year pays only $1,500 for state licensing and can sell pints and beer to go.

County and city fees vary in Maryland too. In Montgomery County, for example, Denizens Brewing Co. pays $1,025 annually for their restaurant and alcohol licenses—with state fees substantially less than they would pay in the District.

Licenses and permits can cause headaches regardless of location, but difficulties with regulation in D.C. may discourage would-be entrepreneurs. Horror stories abound. Right Proper had to retrofit its high-capacity boiler and pays $12,000 annually for daily inspections. Hellbender, which just filed for Chapter 11 bankruptcy, had to spend an unplanned $35,000 to seal their floor before opening. And then there’s Bardo Brewpub, which sued D.C.’s Alcoholic Beverage Control Board after the agency denied Bardo’s application for an outdoor riverfront beer garden.

Arlington’s a different story. “I can’t say enough about Arlington County,” says New District Brewing Company founder Mike Katrivanos. “The Arlington Economic Development team was instrumental in setting up early meetings with people from each government office to plan together.” They even helped New District avoid signing leases on maligned properties.

Looking toward expansion, Katrivanos plans to apply for a Virginia Department of Agriculture grant, which Arlington would match. This matching program recently awarded Port City Brewing $500,000 in funding.

This support can make all the difference and, fortunately, the D.C. government is making some changes. For example, the D.C. Council and Alcohol Beverage Regulation Administration have been supportive with progressive legislation changes. And the Department of Consumer and Regulatory Affairs offers free consultations and workshops through its Small Business Resource Center, and recently began offering the option to apply for licensing online with a tool that streamlines processes across agencies—only breweries and brewpubs are not yet included.

“D.C. really does a lot to support local business,” says Rizzo, who works with the government on behalf of D.C. breweries. “They just don’t know all there is to know about the brewing industry yet. They want there to be a clearer path and for us to let them know what we want them to do to support us.”

So what needs to happen? Along with changes in the law, the restructuring of license classifications and fees and adjustments for brewery-specific construction and health codes will be critical in paving the way to a District brewery boom. Likewise, government loans or grants like those offered in Virginia, or tax credits such as the one recently passed in New York, could help ease high costs for D.C. breweries. More zoning for production breweries is also needed.

D.C.’s brewery scene is still nascent compared to its neighbors, but as the industry matures, more favorable conditions are sure to follow. Breweries seem to beget breweries, despite concerns about the craft beer bubble bursting. If Loudoun County can support 22 breweries, the District should be able to accommodate more than its current 12. CP

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