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Date: 04/02/19

To: Carmelo Ríos, Senate Majority Leader of Puerto Rico, Antonio “Tony” Soto, District 06
Representative & President of Budget Office under PROMESA
From: Juan Carlos Rivera Cruz, AFCAPR President
REVISED Subject: Benefits of Project Bill 280 “Code Amendment of Internal Revenue Service
for a New Puerto Rico with the purpose to promote local craft beer industry economic
growth”.
________________________________________________________________________________
Honorable Senator Ríos and Representative Tony,
 The craftbeer industry in the USA encompasses an economic impact of 76 Billion dollars per
year.1
 Market growth has been steady at 5% year after year even though the total beer market has
remained stagnant. 2
 On a Global Scale the craftbeer industry is expected to reach $503 Billion Market by 2025.3
 Puerto Rico however has lagged behind in this sector to such an extent that it has a negligible
economical footprint impact on the national statistic scale.
 Puerto Rico has yet to set a “foot in the door” in the global market as still does not export craft
beer products.
 In the last decade a total of 10 local breweries in Puerto Rico startups have failed to survive.
 In terms of population, comparative statistics with other US states demonstrate that Puerto
Rico is far behind in Economic Impact, Production Volumes, Breweries per Capita, & Brewery
Growth.

1
https://www.brewersassociation.org/statistics/economic-impact-data/

2
https://www.brewersassociation.org/statistics/national-beer-sales-production-data/

3
https://www.grandviewresearch.com/press-release/global-craft-beer-market
No. of
Tax Population Breweries per capita Economic Impact
State Breweries
$/gal Millions per 100K population Gallons Millions 2011 2018
Hawaii 0.93 1.4 1.7 2,156,391 $245 7 18
Kentucky 0.08 4.45 1.6 3,884,362 $657 11 52
Oklahoma 0.4 3.78 1 1,637,017 $502 10 27
Conneticut 0.24 3.59 2.2 5,172,288 $718 16 60
Puerto Rico 2.55 3.66 0.3 206,832 $17 10 11 4

 States with lower tax rates have higher Economical Impact Trends than Puerto Rico by a factor
of 30X (compared to the listed average in the table above).
 Puerto Rico has the highest tax rate in the Nation by a margin of 2X to that of the highest taxed
state (Tennessee $1.28/gal).
 Proposed Project Bill 280 presents an incentive in local craft beer market growth by lowering
the tax rate to $0.95/gal up to 400,000 gallons of production per year.
 Such rate is similar to the State of Hawaii ($0.93/gal).

Benefits of Project Bill 280:

 Will spark local craft beer growth, economic impact, and jobs creation.
 E.g., A 1.6 breweries per Capita statistic (the state average in the previous table) equates to
potential brewery increment in Puerto Rico of 60 breweries.
 Puerto Rico Economic Impact can grow from $17 Million to $261 Million.
 The Farmhouse Bill: If this bill is not amended; the local cockfight industry will become
inoperable (78 centers island wide). These centers can reconfigure themselves as craft
breweries.
 55 direct jobs exist with our current operating craft breweries.
 Based on US projections with our current jobs per gallons produced at total of 800 jobs can be
created when the market has stabilized.
 Breweries with tap rooms will create and suction effect drawing tourist from traditional hotspot.
 This will have an economic ripple effect which will draw more tourist to visit Puerto Rico and
trickle down other industries like food, parks, recreation, hotel, transportation, etc…
 This is turn will increase property values. 5

4
https://www.brewersassociation.org/statistics/by-state/

5
https://www.foodandwine.com/beer/craft-brewery-home-prices-
study?fbclid=IwAR1KN406c_lwdiZf4Mj7aoD46ZFAidf0AwcI8cBnN6LUM51iQDu4LQL72J8
Impact to current craft beer importers:

 No Impact.

Annual Production
Brewery US Sate Parent Company
(gallons)
Sierra Nevada 31,000,000 California Independent
Lagunitas Brewing 30,504,000 California Heneiken International
New Belgium 29,295,000 Colorado Independent
Founders Brewery 14,446,000 Detroit Independent
Bells Brewing 14,384,000 Michigan Independent
Stone Brewing 12,028,000 California Independent
Kona Brewing Co. 6,820,000 Hawaii Anheuser-Busch Inbev
Boulevard Brewing Company 6,795,014 Kansas Duvel Morgaat
Brooklyn Brewery 6,727,000 New York Independent
Weihenstephan 6,000,000 Germany Independent
Abita Brewing 4,960,000 Louisiana Independent
Oscar Blues 4,619,000 Colorado Fireman Capital Partners
Harpoon Brewing 3,875,000 Boston Mass Bay Brewing Company
Rogue Ales 3,627,000 Oregon Independent
Bear republic 2,232,000 California Independent
Cigar City 1,860,000 Florida Fireman Capital Partners
Ommegang Brewery 1,085,000 New York Duvel Morgaat

Note: Fireman Capital Partners Owns 7 beer/breweries brands. Total Beer Production may exceed above 9M gallons/yr.
Note: Duvel Morgaat Owns 4 brands / breweries. Total Beer Production may well exceed over 9M gallons / yr
Note: Kona Brewing Co. is partly owned by Anheuser Busch

 The previous table shows these imported craft beer brewers produce way beyond the 400,000
gallons per year and are above the 9M gallons/year $2.55 per gallon cap.
 Some breweries having production volumes less than 9M are owned by a parent brewery and
as such, per our tax code, must include the total production volume of their parent company
and subsidiaries for tax ranking. This easily puts them above the 9M cap. 6,7,8

6
https://www.firemancapital.com/portfolio/canarchy/

7
https://www.brewersassociation.org/directories/breweries/

8
http://www.duvelmoortgat.be/en/the-beers
Local Tax code Law 108

 Per local tax code created by Law 108 Every Fiscal Year the total local brewery production
volume is reset.
 This means the volume starts at 0 gallons.
 I.e., A local brewery pays only $2.55/gallon until it reaches 9M gallons. After 9M it pays a
growing tax bracket per certain volume ranges.
 Law 108 is UNIQUE BENEFIT available only in Puerto Rico for local beer production and was
established to promote local market GROWTH.
 CERVECERA DE PUERTO RICO is the ONLY brewery in the WORLD with such benefits.
 CERVECERA DE PUERTO RICO produces around 17 million gallons per year.
 Because of Law 108 CERVECERA DE PUERTO RICO pays in average $2.92 per gallon in
Total.
 Because of Law 108 CERVECERA DE PUERTO RICO saves $16.2 million dollars on this tax
incentive ALONE.
 Note: When Law 108 was created there was only a single brewery operating in the island
(CERVECERA DE PUERTO RICO).
 Note: During those times CERVECERA DE PUERTO RICO had the lowest beer market share
and was losing ground to imported beer brands (Heineken, Coors, budlight, etc..).
 Note: Since then CERVECERA DE PUERTO RICO has increased their market share
dramatically and is, because of Law 108, reached the critical capital required to produce and
sale in the continental United States.
 The market has now changed much since then. About a dozen breweries now exist and
operate in Puerto Rico.
 AND there are a handful of ongoing startup projects thru the island.
 To have a FREE MARKET and PROMOTE GROWTH this single entity benefactor equation
provide by Law 108 shouldn’t exist anymore.
 Tax Bracket ranking should be based on the previous year production volume ONLY.
 NO MORE RESETS.

Recommendations to Project Bill 280:

 INCLUDE For 0-100,000 gallons, $0.50.


o Most of our Breweries will start (AND ARE) here because they cannot grow further
given the current high tax rate.
o These are known as nano breweries (1-5 barrel batch size).
 INCLUDE For 100,000<400,000 gallons, $0.95.
o 2nd Major Expansion (15 barrels thru 30 barrel system design).
 INCLUDE For 400,000 < 1.86M gallons, $1.50.
o 3th Expansion which brings exportation (100 Barrel batch size aprox).
 INCLUDE For 1.86M< 9M gallons $2.55
 For 9M<10M $2.76
 For 10M<11M $2.97
 For 11M<12M gallons $3.18
 MODIFY For 12M<31M gallons from $3.39 to $3.50
 For 31M+ gallons, $4.35.

By following these recommendations, including the removal of Law 108, there would be no
fiscal impact. On the contrary an immediate increase in tax revenue in the short term (removal
Law 108) and an increasing revenue stream over the long term (local craft beer growth) will
occur with local industry growth and indirect positive impact in other local industrial sectors
(Tourism, Food, entertainment, property values).

AFCAPR mission statement is to make Puerto Rico Craft Beer Industry become a center of
quality excellence in a local and global scale. We are certain that this project under your
authorship will create the conditions required to launch this industry in the right direction.

Thank you,

Members:
Aviator Brewery, San Lorenzo. Beer Box, Aguadilla. Boquerón Brewery. Boquerón, Dragon Stone Abbey,
Rio Grande. F.O.K. Brewery, Caguas. Ingeniero Brewing Co., Manati.Pura Vida Brewery, Cabo Rojo,
Ocean Lab Brewery, San Juan. Old Harbor, Carolina. R.E.B.L. Brewery, Utuado.
Señorial Brewing Co., Ponce, ZURC Brauhaus, Coamo.