Expansion coming to Illinois brewpub rights (but not contract brewing) as brewpub brewing limit sharing bill passes Illinois House. *UPDATED*

An improvement for Illinois brewpub operators from Chicago to Effingham just passed the Illinois House and is on its way to the Senate. HB 3610 amends the Illinois Liquor Control Act’s brewpub provisions (specifically, 235 ILCS 5/5-1(n)).

The new law allows wholly owned and operated Illinois brewpubs (same licensee) to both combine their production limits to spread them across facilities (155,000 gallons are the current production limits per brewpub whether you’re in Chicago and serving liquor under a Chicago tavern license like a bar or whether you’re in Peoria, Illinois). This would allow a small brewpub and a larger facility with greater production capacity to increase the yield at the facility that can make more beer and then under the current Illinois brewpub law transfer between locations.

Here is the text that would be added by the bill.

(vi) with the prior approval of the Commission, annually transfer no more than 155,000 gallons of beer manufactured on the premises to a licensed brew pub wholly owned and operated by the same licensee, and (vii) notwithstanding item (i) of this subsection, brew pubs wholly owned and operated by the same licensee may combine each location’s production limit of 155,000 gallons of beer per year and allocate the aggregate total between the wholly owned, operated, and licensed locations.

Interestingly, an earlier version of the bill would have cleared up a contract brewing problem in Illinois that exists for brewpubs looking to contract brew. You see, under Illinois law currently, the law reads in such a way that brewpubs can only sell to the public what they make on the premises or buy from an Illinois distributor.

The new bill would have corrected this oversight (As other brewery tap rooms are allowed to contract brew and then sell what they’ve contracted from their own tap rooms under Illinois’s odd interpretation of contract brewing which runs completely afoul of federal laws by pretending under a legal fiction that “title” to beer can be held by someone who is not the brewer when the tax has not been paid – so in essence, only in Illinois would the federal government claim the brewery holding the brewer’s notice that brewed the beer had title to the beer and was responsible for it until taxes were paid or it was properly transferred in bond but the state government would say under its interpretation of “contract brewing” that title to the beer belongs to someone else, completely apart and contradictory to what the federal government says. In essence, two separate governmental authorities say title vests in two separate entities.) which keeps brewpubs from enjoying some of the benefits of being able to contract beer elsewhere by adding the following language to the statute:

(n) A brew pub license shall allow the licensee to only (i) manufacture up to 155,000 gallons of beer per year only on the premises specified in the license or through a written agreement with a brewer, class 1 brewer, class 2 brewer, or brew pub, (ii) make sales of the beer manufactured on the premises or through a written agreement with a brewer, class 1 brewer, class 2 brewer, or brew pub or, with the approval of the Commission, beer manufactured on another brew pub licensed premises that is wholly owned and operated by the same licensee to importing distributors, distributors, and to non-licensees for use and consumption, …

Alas, these provisions were removed in the updated amendment to the bill.

Note, I reached out to the main sponsor of the bill, Representative Will Guzzardi (Illinois 39th) about the removal of these provisions and [**UPDATED**] haven’t received a response. he responded that the language was removed from the most recent version of the bill “in order to reach consensus with the beer distributors.” [**UPDATED**]

So for now, Illinois brewpubs contract brewing and taking possession of the beer directly from the contracting facility under Illinois’s interpretation of “contract brewing” are arguably still operating in a grey area if not wholly an improper one.

And here’s another important point: the same goes for contracting breweries who take possession directly from “contracting” facilities that are licensed as brewpubs. The licensing law for brewpubs (subsection (n)) allows them to “only” … “make sales of the beer” … “to importing distributors, distributors, and to non-licensees.” The brewpub is a license granted to a “retailer” that allows it to “manufacture” – brewpubs arguably go beyond their mandate by manufacturing beer for others like a regular licensed “manufacturer” in Illinois is allowed to do under Illinois’s contract brewing laws. Even in the old Trade Practice Policies, the State maintained this interpretation of subsection (n) that brewpubs are retailers with a limited manufacturing privilege.

And the notion of a brewpub being a retailer then sheds light on the lack of a right to contract and take possession directly from a contract manufacturer that isn’t a brewery wholly owned and operated by the brewpub licensee as: 1) there would be no need for the wholly owned transfer language in the Class 2 brewery definition; and 2) no retailer is allowed to just private label and take beer directly from a manufacturer – it must come through a distributor or a self-distributing exemption holding craft brewer in Illinois.