What’s The Difference Between Contract Brewing and an Alternating Proprietorship?

*Originally published by LaszloLaw

What is Contract Brewing?

A contract brewing arrangement is a commercial relationship between businesses in which one business pays a brewing company, the “contract brewer,” to produce beer for them. The contract brewer is completely responsible for producing the beer, maintaining all required brewery records, labeling the beer with its name and address, obtaining necessary certificates of label approval (COLAs), and paying all associated and required taxes. The contract brewer retains title to the beer at least until the beer is taxpaid or removed from the brewery.

Under a contract brewing arrangement, only the contract brewer can have any involvement in the production of the beer. The party hiring the brewer has no real involvement. When the hiring party is a retailer, wholesaler or other brewery, they will likely buy the beer from the contract brewer. Each state will have its own particular requirements for these type of arrangements, and it is critical you understand them before entering into a contract brewing relationship.

What is an Alternating Proprietorship?

An “alternating proprietorship” on the other hand, is an arrangement in which two or more businesses take turns using the same physical premises and equipment of a brewery. In an alternating proprietorship relationship – often called an “AP” – the proprietor of an existing brewery, called the “host brewer,” rents space and equipment to the “tenant brewer.” The tenant brewer obtains a Brewer’s Notice from TTB and the necessary state manufacturing licenses. The tenant brewer produces beer, keeps appropriate brewery records, labels the beer with its own name and address, obtains the necessary COLAs, and pays taxes and retains title to the beer at all stages of the brewing process.  Under and AP arrangement, the tenant brewer IS the brewer.

What are the Key Differences Between Contract Brewing and Alternation Proprietorships?

Type of Contract/Agreement:

• Contract Brewing: Contract Brewing Agreement.
• Alternating Proprietorship: Alternating Proprietorship Agreement.

Production of Beer:

• Contract Brewer: Contract brewer in control of all aspects of the production of beer.
• Alternating Proprietorship: Tenant brewer in control of all aspects of the production of beer.

Title to Beer:

• Contract Brewer: Title remains with the contract brewer at all stages of production.
• Alternating Proprietorship: Title remains with the tenant brewer at all states of production.

Permits and Licenses:

• Contract Brewing: Only the contract brewer must qualify as a brewer. If the person on whose behalf the beer is brewed plans to resell the beer to a dealer, then they must hold a TTB basic permit as a wholesaler.
• Alternating Proprietorship: Both the host brewer and tenant brewer will hold individual brewer’s notices.

Beware of Many Unforeseen Issues and Pitfalls!

These types of arrangements contain a myriad of unforeseen pitfalls and challenges.  TTB and state licensing and permitting; labeling, trademark licensing, distribution agreements, beer franchise issues, and more.  This is an area where working with an experienced beverage lawyer is very important.

The TTB’s “Alternating Proprietors at Brewery Premises” industry circular on the matter is a critical resource.