Nebraska distilleries are advocating for two legislative bills that would increase their production opportunities and grant them access to a new product market.
LB415, introduced by Sen. Mike Groene of North Platte, would increase the maximum amount a licensed microdistillery can produce in a year from 10,000 gallons to 100,000 gallons. LB578, introduced by Sen. Tony Vargas of Omaha, would define and set a reduced tax rate for canned, ready-to-drink cocktails.
Vargas also introduced LB311 with provisions nearly identical to Groene’s bill. So the committee agreed, with all the sponsors’ support, to merge the two as LB415.
Microdistilleries are defined in the bill as “a distillery located in Nebraska that is licensed to distill liquor on the premises of the distillery licensee and produces ten thousand or fewer gallons of liquor annually.”
Vargas partnered with Zac Triemert, president and master distiller at Brickway Brewery and Distillery in Omaha, to draft the text for both LB311 and LB578.
“We introduced [LB311] because we wanted to make sure that we are not halting small business production,” Vargas said. “We’re also looking at what other states are doing. Most other states have between a 50,000 to even beyond a 100,000-gallon limit, so we brought this bill so we can ensure that we’re increasing the gallon limit to support our small distilleries.”
Operating as the largest distillery in the state, Brickway hit the 10,000 production cap in December 2020. The first distillery to reach the state statute’s limit, Brickway had to shut down its distillery’s operations for three weeks until the start of the new year meant a production count refresh.
The production cap has stood since 2006 when Triemert worked with former state Sen. John Synowiecki of Omaha to spearhead legislation to allow for craft distilling. The initial bill called for a production limit much higher than 10,000 gallons but was cut down when another state senator disliked the terms of the bill. In 2020, Triemert aimed high again.
“I went and looked at how the federal government looks at small distilleries, and their definition of a small distillery is a distillery under 100,000 gallons,” Triemert said. “And I also don’t want to be back in the Legislature in five years doing this all over again. Honestly, I don’t even know why there is a cap.”
The General Affairs Committee voted to send LB415 to the floor for the first round of debate, moving the bill into the next phase of the lawmaking process.
“The hope is that we will debate this in the next several weeks and then I’ll be able to work with my colleagues to convince them that this is the best thing for our small distilleries,” Vargas said.
An emergency clause has been attached to LB415. If the bill is passed, it will take effect as soon as it is signed by Gov. Pete Ricketts instead of going through several months of waiting time that bills usually endure before becoming law.
At its current rate of production, Brickway is set to hit the 10,000-gallon cap again, this time well before the end of the year. Triemert hopes the emergency clause means the bill will become law before Brickway faces another production shutdown.
“We’re going to hit the cap on it probably in July or August, so I need that bill to get signed sooner than later,” Triemert said. “In January, we did 15% of the 10,000-gallon cap. I bet we do that again this month. We’re gonna run out of bandwidth here pretty quickly.”
While proponents of LB415 are pushing to get the bill into debate, LB578 remains in committee. This bill would define ready-to-drink cocktails produced by Nebraska distilleries as “a beverage containing spirits in an original package which contains 12.5% or less alcohol by volume.” The bill would also set the tax rate for this new category of beverage at 31 cents per gallon.
Canned cocktails are currently being taxed by the wine gallon. A wine gallon is the definition of an actual gallon of liquid – regardless of the alcohol percentage of its contents. In Nebraska, wine gallons are taxed at $3.75 per gallon, making it financially impractical for local distilleries to produce these types of beverages.
Brickway, already in the design phase on the drinks it plans to produce, has been unable to compete in the market for canned cocktails at the current tax rate. To make any money at the current rate, Triemert estimates Brickway would have to sell a six-pack of beverages for upward of $18.
“No one is going to buy an $18 six-pack,” Triemert said. “So my goal is to copy what was done in Iowa, which is tax the canned cocktails under 12.5% alcohol at the same rate as beer, which is 31 cents per gallon, which then allows us to compete with hard seltzers and other like drinks.”
Triemert was not the only distillery executive to lend his voice to push for the passing of these bills. Representatives from Lazy RW Distillery in Moorefield, a small village near North Platte, and Cody Schmick, co-owner of Sideshow Spirits in Lincoln, appeared at the capitol to offer their testimony.
“Legislation is supposed to make a path that you can legally and safely do something,” Schmick said. “And I like going to those things and talking and explaining to those [senators] because a lot of the time they just don’t know what they don’t know. If I can go there and present my case in a clear and concise manner, I’ll pretty much never say no to that opportunity.”
The Nebraska Liquor Control Commission testified neutrally on behalf of LB578 but recommended instead that canned cocktails be taxed the same as wine at 95 cents per gallon. While significantly lower than the current $3.75 rate, 95 cents per gallon would still limit local distilleries’ ability to compete with hard seltzer products for the same customers.
Vargas said LB578 is undergoing work to get it out of committee after a positive hearing. The bill will likely be part of a larger package of bills that will pass through the legislature as a single bill.
Other alcohol-related bills in the legislature include LB72, which would allow the holder of a Class C liquor license to sell a mixed drink or cocktail to a person 21 years of age or older for consumption off the premises.
LB80 would amend the Liquor Control Act to reduce the fee for an annual manufacture direct sale license and annual retail direct sales license and LB274 would create a promotional farmers market special designated license for alcohol vendors.