Seven Stills hit with 60 tied-house violations, will shutter Bayview and Mission spaces
Food // Beer
Alyssa Pereira, SFGATE
Feb. 3, 2020 Updated: Feb. 3, 2020 5 a.m.
1of2Buy PhotoThe barrels at Seven Stills on Friday, Sept. 30, 2016 in San Francisco, Calif. Seven Stills is a brewery and whiskey distillery in the Bayview neighborhood.Santiago Mejia/Special to The ChronicleShow MoreShow Less
2of2Buy Photo
Founders Tim Obert, left, and Clint Potter, right, pose at their brewery Seven Stills on Egbert St. with pet dog Tango on Wednesday, June 20, 2018 in San Francisco, Calif. Although Seven Stills is only two years old, it's about to open its fourth location in the city.
Liz Moughon / HearstShow MoreShow Less
Seven Stills Brewery and Distillery's LLC is ceasing operations for 90 days, following the receipt of 60 or so tied-house violations over two years and a subsequent license suspension.
The brewery-distillery, opened in San Francisco in 2016 by Tim Obert and Clint Potter, found early success in a niche space in the drinks industry landscape. Their unique business model involved brewing craft beer (or buying it from other craft breweries) and then distilling it into small-batch whiskey.
However, legally dubious marketing practices — accidental as they may have been — resulted in what's called tied-house violations, prompting the California Bureau of Alcoholic Beverage Control (ABC) to suspend the company's license.
Since December 2018, when Obert says Seven Stills received its first violation, the brewery has garnered around 60 in total. Each charge comes with a fine of $10,000, which would have meant the brewery would have had to cough up $600,000 to stay in operation. That wasn't feasible, so, working with the ABC, they went the other route: a 90-day suspension. To mitigate the financial hit, they also decided to close their Egbert production facility and the Mission District taproom. (The Stanford Court location closed in mid-2019.)
"We were trying to address each [violation], and each time they started opening more stuff they were looking into," Obert tells SFGATE. Obert didn't outline specific incidents, but noted the ABC began asking for involved information, like the sales records at the taproom over the last two years, old social media posts and the brewery's production logs.
"It started getting really crazy," Obert says. "It started snowballing. They started digging into every facet of the business."
The purpose of tied-house laws is to maintain separation between the three tiers of alcoholic distribution — producers (like breweries), wholesalers and retailers like bars and stores — and to level the playing field for smaller craft breweries competing in the market. The laws prohibit companies, particularly large ones, from offering gifts of value, or straight-up monetary payments to retailers, in exchange for selling their beer.
The issue, says Obert, is there's a lot of gray area in the interpretation of "value."
"A brewery has to be incredibly careful, because something of value can be anything from a branded kegerator, to a neon light-up sign, to coasters, to something as simple as an Instagram post stating 'our beer is available at the neighborhood bar we love!'" Obert writes in a press release. There are other such potential violations he also noted: A brewery cannot, for example, say $1 of each pint will be donated to particular charity; rather, a brewery must donate a predetermined amount.
Despite what unfolded, Obert doesn't feel like Seven Stills was singled out, but he does feel the need to warn other breweries about their own marketing practices.
"It's better for them to know that what they're doing isn't okay," he says. "It does seem like the agency is trying to make changes to support craft breweries, but at the same time they're getting [us] for stuff that we weren't trying to do wrong … It wasn't like we were trying to get away with anything."
Such tied-house issues are more common than consumers might think. Brendan Palfreyman, a craft beer attorney with Harris Beach in New York, says while it's more typical that a macro brewery might receive such citations for "pay-to-play"-type sales efforts, it's not unheard of for small breweries to also get dinged.
"You don't hear a ton about it in the news," he tells SFGATE. "[But] It's happening more frequently than it's being reported is my guess."
Oftentimes too, breweries don't get caught on such violations.
"Every state has a byzantine series of these laws," he continues. "Are they always enforced? No. But they could be."
In Seven Stills' case, the ABC has at least been relatively nice to work with so far. Seven Stills has over the last couple years been in the process of migrating its operations over from an LLC to a C-Corp. The merger isn't complete yet, so Seven Stills is currently running two businesses. As a result, the ABC is allowing them to move operations over from its LLC to its C-Corp, where it can continue brewing, distilling, and selling under that second license at 100 Hooper in Mission Bay during the LLC's suspension.
RELATED: Seven Stills opens its massive new Mission Bay distillery, brewery and restaurant
That doesn't mean it's business as usual. The company's first Bayview facility on Egbert Avenue, under the LLC, has to close, and the new, exceedingly expensive and not-yet-operational production facility at 100 Hooper isn't yet ready to take over brewing and distilling. That project, a 22,500-square feet brewery, distillery and restaurant (the last of which opened in Fall 2019), wound up costing four times what Obert and Potter initially estimated.
"We don't have the cash right now to finish the production facility," Obert says. "If we had the money we could get it up and running in 6-9 weeks."
They can, at least, continue to keep the restaurant and taproom at 100 Hooper open uninterrupted, which is particularly important now at the advent of San Francisco Beer Week (which begins February 7). Seven Stills' Sunset taproom, on Lawton Street, will also be forced to close for 15 days as a result of the suspension, though the brewery hasn't yet signed off on a start date for that.
"That's the thing that majorly sucks," Obert says of its Sunset District closure. "We signed an agreement with the ABC in November, [and] we thought suspension from that day [on] was in effect, so we stopped operations."
That wasn't the case, as they soon found out, and Seven Stills' production and sales as a whole slowed as a result. The financial hit will be substantial, but Obert says one area he and Potter are prioritizing to keep things normal is employment.
A "handful" of Seven Stills' 65 employees have opted to leave the company due to what's happening, but the others who worked at the shuttered locations will be relocated to work at the main Mission Bay location.
"Our employees are by far the number one [priority]," he says. "I put keeping our employees paid far and above the rest."
And as for what happens after the suspension, Obert says they'll pursue marketing efforts differently.
"I just don't do anything that falls in the gray area at all anymore," he says. "Now we're not doing anything in that borderline gray area."
Alyssa Pereira is an SFGATE digital editor. Email: alyssa.pereira@sfgate.com | Twitter: @alyspereira
Alyssa Pereira
Reach Alyssa on
Alyssa Pereira is a culture editor and contributing beer writer for SFGATE. She previously worked for CBS San Francisco and SPIN Magazine and has contributed to Good Beer Hunting, Paper, Vice's i-D and Paste, among others. She is a Bay Area native and graduate of New York University and SFSU.