Update on our Draw Down and Clarifications

Who’d a thunk our decision to circle the wagons and try to fill the rising demand for Cold Smoke® in our own back yard would have caused such a stir?  We even got mentioned on one of our brewing hero’s, New Glarus of WI , facebook pages and a Catholic blog entry entitled “What Would Jesus Drink?”. Comments on Facebook and Missoulian web pages are heated.  Democrats blaming Republicans, Republicans blaming Democrats, cats and dogs sleeping together.  Nobody blaming the wolves yet but one guy blamed Obama.  So to clear up some confusion I thought some updates were in order:

First off, our decision to withdraw from Kalispell, Great Falls, and Helena was purely based on the time we’ve spent in those markets and the number of barrels of beer we sell in them. Our best markets are the ones we’ve been doing business in the longest. We were invited into the new markets years prior to our ability to produce the beer to service them.  Even with severe allocations in these markets, we could not keep under 10k bbls.

We  are still available in Missoula, Butte, Bozeman and surrounding markets.  Missoula’s distribution net extends up to Polson, down to Darby, over to Superior, and back to Drummond with most parts in between.   Butte’s territory picks up Anaconda, Butte, Ennis, Dillon and outlying towns. Bozeman covers over to Three Forks, back to Livingston, down to Gardiner, over to West Yellowstone and then down the Madison River back to Amsterdam and Manhattan (Montana!).   We’ve projected that even in these territories we will exceed 10k bbls if we don’t back off on shipments until June 30.

We will crank up production in July to pick up a brisk summer business supplying fishers and recreators with the highest quality beer available in Montana that is crafted from local ingredients. We strive for our beers to match the premium Montana outdoors while giving our customers a “That was the best beer I’ve ever had!” experience.  Preferably after an epic day fishing, skiing, rafting, hiking or other recreational endeavor.

Secondly, we will only attempt to change the law if our distributor and retail partners agree it is the right thing to do for all tiers.  I think I can make a pretty good case that it is, but I’ve been wrong before so we’ll see.  We are not blaming anyone but our loyal and growing fan base for this predicament.  We lovingly blame them.  I never thought 13 years ago that we’d have this much support so I deeply apologize to all the Cold Smoke® lovers in Kalispell, Great Falls and Helena for thinking too small back then.  That leads me to a question Whitefish Ski Ninjas posted on our facebook page:

“Why not just get a cabaret license and solve all those problems?”


We can’t legally purchase a Cabaret license. It is illegal in Montana for brewers to own any other kind of license to retail beer.  There are partnerships that have formed where a bar owner sets up next to another unrelated brewery and they have a brewpub.  But if we did this we’d be giving up control of our taproom to someone we hardly know.  Furthermore Cabaret licenses are meant for restaurants who want to serve beer and wine.  A significant portion of your revenue as a cabaret licensee must come from food sales.

We are not interested in the food and brewpub business model.  Our expertise is making beer not food. We are happy serving no more than 3 pints per person. We think it encourages moderation, and it serves as our single most effective marketing tool to grow our customer base.  To clarify a misgarbled quote of mine in the Missoulian: we think our taproom model enhances the downtown bar environment in that it provides an incubator for beers that may or may not do well in the bars when first released.  It takes time, and therefore money, to grow a brand and a new beer segment.  Sixteen years ago there was MAYBE one IPA on tap downtown. Thanks to the growing demand for craft beers brewed all over America, there are now around a dozen.

If we were to split up our business and offer a partner our hard earned taproom real estate, the partner would need to buy two beer and wine licenses to cover both of our facilities.  Every barrel of Cold Smoke®, no matter where it’s brewed, counts toward the 10k bbl limit under the taproom exception rule. The cost for those two licenses would be in the neighborhood of $400k.  That $400k would be tough to cover if they restricted their serving hours to 10-8 and limited their customers to 3 pints. So buying a beer and wine license could force our partner to open later and monitor the amounts people get by how visibly intoxicated they are or are not. This business model would put our partner directly in competition with Missoula downtown bars who carry Cold Smoke®. It’s all about what you do and how you handle yourself in your own backyard.

So the dilemma with a retail license partnership is that we could keep the taprooms open, but our margins would drop and we’d risk eroding support from our bar partners. The loss of margin and business would force us to expand our territories and sales.  That, in turn, would require building a bigger brewery. Which in turn would require more sales and a larger distribution network.  It’s sort of a chicken and egg dilemma, or cart before the horse, or maybe counting your chickens too early kind of deal.   We feel that is WAY too risky for a mom and pop operation like ours. We prefer sustainable growth that benefits not just us but all of our retail and wholesale partners.

Lastly, we are fielding many requests by customers, bar owners and others who want to know what they can do to help us solve this dilemma.  Right now the best thing to do is KEEP IT POSITIVE and stay tuned. I’m positive there’s a solution out there and that our three tiers can work together to find it.  We want nothing more than to get Cold Smoke® into the glasses of our devout Montana followers. We’ll continue to keep the quality high and the business on a sustainable growth trajectory.  We did miscalculate our ability to sustain our outlying markets. So if you want to point a finger, point it at me – the math minor.  And, once again, I’m sorry.

Tim O from the Kho