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Author: Lenore Palladino

Employee Ownership of Craft Breweries: Great Beer That Benefits Those Who Produce It and Those Who Drink It

Craft breweries are growing in popularity nationwide—in 2016, small-scale breweries had over 20% of total market share in the United States. Breweries combine well-made beer and places to drink it that have broad appeal. What may not be obvious from the varieties of pints on offer is that craft breweries are also embracing employee ownership and membership, and innovative forms of financing to build, grow and sustain their businesses.

The dedication that brewers have to their craft as well as the dedication that they expect from their drinkers, allows for the creation of an uncharacteristically dedicated membership. Craft brewers know that they’re going up against a highly concentrated industry—the five beer firms dominate 90% of the national market.

Though breweries have much in common with their dedication to their craft and to shared ownership, those that pursue shared ownership use a variety of legal structures. Twenty-one out of the twenty-three breweries used a consumer membership drive to raise funds on the front end, relying on the fact that people are willing to invest in what can become their home-away-from-home—a great craft brewery. Some breweries are augmenting consumer membership with external financing from a variety of sources.

In this initial blog, we profile several breweries that are using a variety of ownership and financing models, all with the same goal: great beer that benefits those who produce it and those who enjoy it. In a subsequent piece we will discuss the specific financing mechanisms and their related securities law requirements.

 

ESOP Ownership at Craft Breweries

New Belgium Brewing, a company with over 770 employees, transitioned gradually to 100% employee-owned through an ESOP from 2000 to 2012, and brought attention within the craft brewing world to the benefits of shared ownership structures. The company awards ownership after one year of employment, and practices open-book management, in order to create a culture of openness and mutual responsibility. The company has seen continued success since its conversion—they recently opened a second production facility in Asheville, NC. RAM Restaurant and Brewery in the Pacific Northwest formed an ESOP in 2014, bringing 1,100 workers into a 30% share of the company.

In full disclosure, our firm represents the New Belgium Family Foundation, a separate but related foundation.

 

Craft Brewery Worker Cooperatives

Black Star Co-op Pub and Brewery, in Austin, Texas, is the self-described “world’s first cooperatively-owned and worker self-managed brewpub,” with consumer membership and a Workers’ Assembly that manages the day-to-day operations. The coop also instituted a no-tipping policy in tandem with higher across-the-board wages for all employees, along with paid benefits. And their model has provided inspiration for others: the founders of Fair State Coop in Minneapolis, MN, credit Black Star directly with creating “a gravitational pull that proved too strong for us to ever escape.” Consumers can purchase membership in the brewery directly, receive patronage refunds, and hold voting rights to elect the Fair State Board of Directors.

Democracy Brewing formed in Boston, MA, under the MA Employee Cooperative Corporation statute (Chapter 157A), with a dual mission: to “brew the best beer in Boston, and serve it in combination with two great American ideals: democracy, and owning your own business.” The cooperative launched a Direct Public Offering, which sells equity in the company to residents on a single state (in Democracy Brewing’s case, Massachusetts), with no limitation on the minimum wealth that an investor can have. The offering was made with a minimum investment of $2,000, and the company set a target annual dividend of 5%, with a public goal to buy back the shares within five years.

 

Single Hill Brewing Co. is forming a brewery and social space in Yakima, WA, to generate sustainable community wealth that is rooted in a rural community known for its hops. Washington State does not have a cooperative statute that allows for new-generation Limited Cooperative Associations, so founders Zach Turner and Ty Paxton chose a Washington profit corporation structure, incorporating its multi-stakeholder model with employee owners purchasing an equal number of shares of common stock with voting rights, while outside investors purchase non-voting preferred stock shares. This model allowed them to resemble a Limited Cooperative Association even though the entity form is not available in Washington State. The Board of Directors is made up of elected worker and investor directors, where worker owners vote on a one-member, one-vote basis.”

As craft breweries continue to grow, ownership structures provide an opportunity for founders to build a dedicated membership base that is invested for the long-term. Communities with craft breweries that embrace ownership will benefit from brewers’ dual dedication to worker ownership and excellent beer.

 

Disclaimer: Case Studies provided for illustrative purposes but do not constitute legal advice. Democracy Brewing’s offering is limited to residents of Massachusetts. This is not a solicitation or advertisement of a securities offering.

 

The Best Way to Fight Uber? Own It.

Originally published at the Roosevelt Institute

Progressives should embrace employee ownership as one of the best ways to challenge corporate power from the bottom up and put supporting the growth of worker-owned firms in the center of our strategy. As the economy becomes Uber-ized and dominant firms in all sectors take up more and more market share, structural reforms like better antitrust regulation and portable benefits are absolutely necessary, but not sufficient, to reversing inequality.

What’s needed is a massive wave of support for shared ownership and community capital. The difference in an employee-owned business from another type of business is simply where the profit goes: Does it flow up to an executive suite and a small set of investors? Or, is it shared by the members of the enterprise, who put in the time and effort to make it successful? The product may be nearly the same from the perspective of the consumer, but the change inside the firm itself is durable, because it’s not subject to the shifting winds of legislators. Community capital allows those of us with the ability to invest to put our wealth into local businesses, rather than exclusively into Wall Street funds.

These models that were once seen as “niche” and hippie-like may be our best shot at centering working families as both value creators and value receivers in the American economy to come. For example, shared ownership of platforms—the rising business model that Uber embodies, where workers aren’t employees but instead “gig” workers, or independent contractors—can turn a platform into a way for its owners to best employ their skills in a just-in-time economy, as nurses in California have identified. And if the “gig” or “platform” business model is here to stay—and its embrace by millennials demonstrates that it is—there’s a real opportunity to move from the sharing” economy to the shared ownership economy.

In a way, shared ownership is simple: Through a variety of legal structures like a Limited Cooperative Association or partnerships with multiple partners, worker-owners have rights to the value created by the firm just as investors do, and they often have decision-making power over major corporate decisions, as well. Worker ownership of a firm does not mean that everyone sits around in a drum circle to decide what type of pens to purchase—firms owned by employees may look and feel just like a regular firm, where members-owners have the right to vote on the major issues that face the firm. In fact, employee ownership is much more common than people think, in the form of Employee Stock Ownership Plans (ESOPs)—over 10.5 million workers partially or wholly own their employers this way. A recent studyby the National Center on Employee Ownership found some striking statistics about the benefits of ownership: For employee owners aged 28-34, such workers had 92% higher median household wealth, 33% higher income from wages, and 53% longer median job tenure, when controlling for demographic factors.

What employee-owned firms have lacked for a long time is capital: New firms require investors willing to take risks on entrepreneurs with a vision, and investors have long been skeptical of founders who planned to share the value of the firm with employees. But the rise of social capital and impact investing, alongside new opportunities for community capital-raising after the implementation of the JOBS Act and investment crowdfunding regulations, means that capital is starting to unlock for such firms.

Policies to encourage worker ownership have slowly been getting more attention from lawmakers—several Democratic senators have introduced legislation this year to fund employee ownership centers in the states and to create a fund of public capital to support conversion to worker ownership. And prominent progressive voices like Roosevelt Chief Economist Joseph Stiglitz are speaking out in favor of the model. It’s crucial that spreading worker ownership becomes as central to the progressive economic narrative as raising the minimum wage and supporting financial reform.

The best way to fight Uber? Own it.