Brewery Kickstarters

Of course there are strict regulations on how (and when/under what legal circumstances/structures and with what licenses in place) you must provide that product, but I have not read any law that says every state forbids investors from receiving beers in exchange for their investment in the enterprise. Can you provide links to the specific laws and/or a list of states that show where this is illegal?

 

It's not an issue with legality of product-based crowdfunding "rewards", the issue is that giving away alcohol for free is illegal in many states.

EDIT: I see @mwa423 beat me to this.

 

Yes, any unlicensed brewery cannot give away product that can in any way be construed as a reward for any service/donation/etc. Nor can an unlicensed brewery ask for donations with the promise of free beer, as long as they remain unlicensed. However, these breweries-in-planning are only offering the promise of beer from a fully licensed operation (assuming, of course, that they receive such licensing).

 

Kickstarter works really well for many niche markets that larger companies don't want to bother with. There are many successful Kickstarter campaigns, but there are horror stories too. The tricky part is spotting those who over-promise or don't have the credentials/experience to see a project through all the details; and there are the outright fraudsters too. As with many things, it's buyer beware.

 

Also the ones I've noticed (admittedly a biased subset) are not offering free beer but rather "club" type discounts and/or first access to members club releases which I believe is quite legal given the number of mug clubs folks can join.

 

I've donated to a few crowd funding things, mostly struggling musicians trying to get a CD made, or a writer trying to self-publish something, I've always gotten my CD/book. Under those circumstances, I would probably donate to someone who has homebrew experience, and wants to make a jump up to being a nano (1/2-1bbl system).

But when established, profitable breweries come hat in hand, they can kiss my ass. We all have to judge these things on our own. But, when we give 50-75k to someone starting a food truck or brewery, and they no brewing or restaurant experience, we really shouldn't be surprised when things don't turn out optimally. Caveat Emptor.

 

I don't think you understand how Kickstarter works

 

Absolutely agree. Similarly, someone trying to fund their overall -- or even initial -- operations through crowdfunding should definitely raise red flags. However, someone funding, say, an ancillary operation (a club, fest, etc.) might warrant more consideration. In any investment, though, everything should be as thoroughly vetted as possible.

 

Also, the Securities and Exchange Commission has nothing to do with regulating breweries or non public companies.

 

If you violate rules regarding investment solicitation, the SEC and/or your state's security regulators might think differently.

 

I'll own up... I did a bad job of getting back to donors after I did an Indiegogo for my brewery to help pay for my brewing school. I still feel bad about it, but I did eventually get everything out. The honest truth is I was extremely busy and it did keep slipping my mind. No, that does not make it right, but so many of us are so small, we have trouble delegating tasks and some things slip. That would never happen to us today, but it did happen to us in the past so I can understand how it happens.

 

Wrong. Non public (i.e., private) companies have to comply with securities regulations when selling securities (i.e., shares).

 

I would be surprised if there was any law that specifically said "it is illegal to exchange beer for an "investment via crowdfunding". But crowdfunding has been around what, a year and a half? Liquor laws really don't keep up with the times...aren't there a few states where alcohol can be only bought with cash because when laws were written before "consumer credit" was a thing? Hell, if I didn't know better, I wouldn't be surprised to learn that Indiana bans cold beer sales outside bars and liquor stores because the laws were written before refrigeration existed.

But, if you want to go in front of a judge and make the case "your honor, we didn't sell beer in exchange for money on kickstarter before we legally could, we sold a promise we would give beer at a later time if we were given money today"...good luck.

Alternatively, look at all of the other issues, like Indiana where (if I'm remembering the law correctly) you can't discount alcohol on premise (no happy hours, mug clubs, etc.), you must sell at the same price to everybody all the time. So, for my prior example, if you do a $10 kickstarter for 2 pints and you open the brewpub and sell pints for $5.50, your ass is grass.

As @drtth pointed out, many of these kickstarters are essentially pre-sale mug clubs. Cool, unless you're in Pennsylvania or Texas where, if I recall correctly, those are illegal as well. (I'm sure there are some other states, but those just come to mind).

 

Call them out on their Facebook page or Twitter or whatever. Never from a brewery, but I've been dicked around by customer service before and eventually posted a comment and got a resolution within a half hour. They don't like negative press on social media for everybody to see. I wasn't being a dick, but I also didn't mince words.

 

There are definitely antiquated laws out there -- shit, I live in SC, so I should know! That said, much of the recent legislation around crowdfunding has tended to be much more loose about such things as providing product -- even alcoholic product -- in return for investment. The lawyers I have spoken to tend to agree that it is not an issue to really worry about. That said, if you or anyone else have/has some precedents you can point to that show otherwise, I would be thankful to see them.

 

What you remain confused about is that I'm not talking about where crowdfunding runs afoul of new laws on business investment, it runs afoul of laws that are already ones on the books relating to alcohol sales. I'm not getting into issues surrounding equity stakes, investment laws or where startup capital comes from, I'm talking about beer sales laws.

I don't knows SC liquor laws well but a couple quick google searches (so take it for what it's worth) suggest that you have to have brand and label approval from the state before sale of a beer. So, if you've never brewed the beer before commercially and are having to raise money via kickstarter and saying you'll get two pints of Herr IPA or Burgess Brown Ale, you probably haven't bothered with either of state approvals, so again, you're selling a product illegally.

If you're starting a brewery and don't want to follow liquor laws, it isn't my problem. Heck, wasn't there a brewery in Massachusetts (Trillium?) who didn't bother to renew their brewer's license for three years before they got shut down then attempted to crowdfund money to pay the fines and get a new license? I almost wonder if the lawyers you've talked to were dreaming about the new car they were going to buy with your legal defense fees when the advised you "not to really worry about" alcohol sales laws...

 

Right. You can get brand and label approval before you start a crowdfunding campaign.

 

...So, a brewery that can't even attract start-up capital is going to spend the time/money on legal formalities and label approval? If you're talking about yourself, you might be that one guy who is really on top of these things and if you send me a link to your kickstarter and promise to send me a growler full of great beer, I'll buy; but the majority of this thread (including embarrassed confessions from a brewer who raised money on kickstarter) shows that many of these "breweries" can't even successfully manage to fulfill the promises they made in a kickstarter campaign, much less actually build a brewery, brew beer and start selling it.

I stand by my statement above, if a brewery cannot attract sufficient financing to open, whether by selling the idea to angels, banks, SBA, etc. then I'm skeptical they have a strong enough business plan to ever brew the first pint, much less actually sell the finished product to customers, distributors and accounts.

 

Correct, but this thread is about Kickstarter. Which is essentially a donation for which you might possibly receive back some value Not a security.

 

I never said anything about crowdfunding to "build a brewery." And, sorry, I don't have a kickstarter...just some pretty good lawyers.