Small and Start-Up Brewers: Initial License Class Considerations

With summer approaching, thoughts turn to spending time outside with a nice cool beer. Many home brewers have recently begun expressing an interest in turning their fun hobby into a business. With several licenses available for small brewing operations at a reasonable cost that have varying pros and cons to them, you might be getting clients who want to begin brewing beer commercially. Formerly called craft brewer licenses, the state now has four different types of licenses that can be a good fit for various small or start up breweries. In this article, I will outline the main privileges of those licenses that new brewers need to consider, so you can assist your clients in picking the right type of license for their operational needs.

As an initial note, before clients can obtain a state liquor license, they must first get a federal brewer’s notice. To sell alcohol at retail, the client will also likely need a local liquor license. While there are various items needed to obtain those licenses, those applications and processes are not covered in this article. We will be looking exclusively at the types of state liquor licenses available to small brewers.

The Illinois Liquor Control Commission issues four different types of licenses for smaller brewers: Brew Pubs,¹ Class 1 Brewers,² Class 2 Brewers,³ and Class 3 Brewers.⁴ Each has different gallonage caps for both production and sales, self-distribution rights, and other privileges and responsibilities that can differentiate them. To obtain a Class 1, Class 2, or Class 3 Brewers License, your client will also need to obtain a brewer’s license in the manufacturing tier.⁵ A brewer’s license is not required for a brew pub licensee⁶.

Many clients who are opening a new brewery find that the most important factor is being able to self-distribute their product to local retailers. Only two license classes permit self-distribution: Class 1 and Class 3 brewers.⁷ Class 1 Brewers may self-distribute up to 232,500 gallons per year while Class 3 Brewers may self-distribute up to 6,200 gallons per year for each licensed Class 3 Brewer location but may not self-distribute more than 18,600 gallons in aggregate.⁸

Clients often want to be able to sell their products or others at retail, in a taproom or restaurant environment attached to their Brewery facility. Brewpubs may sell any type of alcoholic liquor on their licensed premises.⁹ Class 3 Brewers may sell beer, cider, mead, wine, and spirits for consumption on their premises.¹⁰ Class 1 and Class 2 brewers may only sell beer, cider, or mead at retail on their licensed premises.¹¹ An important caveat to the retail privileges for these license classes is that any product the client does not produce on the licensed premises that they want to sell at retail must be purchased through a licensed Illinois distributor or manufacturer with self-distribution privileges.¹²

Once self-distribution and retail sales are considered, the final factor to consider is how much beer your client will be producing. Each license class has its own limits on the maximum gallonage that can be produced in a year. Brewpubs may produce up to 155,000 gallons per year.¹³ Class 3 Brewers may produce 155,000 gallons per licensed location, but not more than 465,000 gallons in aggregate.¹⁴ Class 1 Brewers may produce up to 930,000 gallons per year.¹⁵ Finally Class 2 Brewers may produce up to 3,720,000 gallons per year.¹⁶

There are many factors to take into consideration when your client is determining what the best license class is for their initial license application. While there can be other considerations if there are plans for large-scale growth or a specific business model, these are the main factors that clients need to be aware of when deciding how they want to start their brewery business. Every business is different though, so be sure to review all the relevant statutes and your client’s proposed business to best advise them on what type of license they should apply for, especially as there may be interactions with other kinds of manufacturing licenses they may want to apply for that will make them ineligible for certain classes of brewer’s licenses.

Rob Anderson is a partner with Bahr Anderson Law Group, LLC, located in Wheaton. Bahr Anderson Law Group has extensive experience in assisting clients in all three tiers of the liquor licensing process: retail, distribution, and manufacturing. Rob has assisted clients in all three tiers for the last 10 years and works with clients to address their needs and obtain their licenses quickly and efficiently. Rob also works with clients who have been cited for violations of their liquor license to defend their licenses and help them continue to operate. He can be reached at rob@bahrandersonlaw.net for questions about liquor licensing and associated regulation.