Red Flags to Watch for When Buying a Brewery

How to spot warning signs before you pour your money into the deal

Buying a brewery can be a dream come true—creative freedom, craft beer culture, and a built-in customer base. But breweries are complex businesses with unique operational, regulatory, and financial challenges. Before you sign the purchase agreement, know what pitfalls to watch for so you don’t inherit expensive problems along with the equipment.

1. Licensing and Compliance Issues

Breweries are heavily regulated at the federal, state, and sometimes local level.

• Missing or expired licenses – Check TTB (Alcohol and Tobacco Tax and Trade Bureau) and state brewery licenses, plus any local permits such as health department, business permits and sidewalk café permits. Be sure they have valid and up to date permits for all business operations (transportation, warehousing, marketing and solicitor permits are some common ones).
• Violations or pending enforcement actions – Past infractions can cause delays or even prevent license transfers. The business may be transferable but understand the implications of pending enforcement activity and ensure it is resolved prior to closing.
• Non-transferable licenses – In many states, you must reapply for a license after a sale—timing matters. You don’t want to be surprised that it could take up to year to get licenses to operate and now you have rent and loans due and no ability to open for business.

Tip: In New York, the SLA must approve any change in ownership for a brewery license prior to closing but temporary permits can be obtained in the right circumstances to allow the transfer while the full license application is pending.

2. Weak or Declining Sales

Beer trends can change quickly.

• Review 3–5 years of sales data—look for consistent volume, not just spikes from one-time events. Consider the impact of things like Covid, hurricanes and other economic trends as one year may be an anomaly rather than indicator of long-term problems.
• Declining sales without a solid turnaround plan are a major red flag. However, if you understand the reason for the decline, it can also present an opportunity for you as a new owner to correct problems and significantly increase revenues and the value of the business.
• Overreliance on one distribution channel or a single large customer can be risky. Look at taproom sales, mug clubs, sales to local bars and restaurants and sales to grocery and convenience stores to understand the different channels and costs/margins associated with each.

3. Outdated or Overstated Equipment Value

Brewing equipment is expensive and loses value quickly if not maintained.

• Verify age, condition, and maintenance records for tanks, kettles, canning lines, and refrigeration.
• Get an independent appraisal—seller estimates are often optimistic and even a quick check on Craigslist can reveal more realistic values in the marketplace.
• Check for any leased equipment with restrictive terms.

4. Poor Production or Quality Control

Beer quality drives repeat customers and distributor relationships.

• Ask for brew logs, quality control testing records, and spoilage rates.
• High product returns, complaints, or inconsistent batches may signal equipment or process problems. Great beer in poor quality cans has significantly reduced shelf life.
• Inconsistent product quality can damage brand reputation.
• Check online reviews for customer feedback.

5. Distribution Problems

A great beer doesn’t sell itself—it needs reliable channels.

• Review all distribution agreements—are they exclusive? Hard to terminate?
• Check whether the brewery is locked into a franchise distribution law state, which can make changing distributors very difficult.
• Loss of key distributors can slash revenue overnight.

6. Weak Branding or Market Presence

In the crowded craft beer market, brand recognition is everything.

• Declining social media engagement or poor taproom traffic can be a warning sign.
• Lack of creative menu changes and events to keep loyal customers coming back for more and attracting new customer bases to increase sales and market penetration can also be a problem.
• Outdated branding or lack of consistent marketing strategy may require costly rebranding.
• Check for registered trademarks on the brewery name and best-selling product names—without them, competitors could use similar branding.
• Check for protection on can and label designs, logos and slogans—without them, competitors could use similar branding.

7. Inventory Issues

• Old or expired beer in storage indicates poor inventory rotation.
• Excess raw materials could signal production planning problems.
• Overstated inventory values can inflate the purchase price.

8. Financial Red Flags

• Large, unexplained swings in costs or revenue.
• High debt levels, especially if secured by brewing equipment.
• Excessive owner perks or personal expenses run through the business.
• Negative cash flow despite reported profits.

9. Lease and Location Risks

A brewery’s location is often as important as its beer.

• Check the lease term, renewal rights, and any restrictions on alcohol production or sales.
• If the brewery relies on a taproom for significant sales, confirm zoning and permitted uses.
• Rising rent or uncertain renewal terms can hurt profitability.

10. Cultural Fit and Staff Retention

Brewery culture is a big part of the brand.

• High turnover of brewers or key staff can disrupt production and consistency.
• Ask if the head brewer and sales manager will stay post-sale.
• Evaluate training programs and employee incentive programs to be sure you can attract and retain top talent in production, off site sales, and in your on-site taproom operations. Restaurants often have great incentives for servers to upsell that could be implemented.

Bottom Line

A brewery purchase is about more than stainless steel tanks and beer recipes—it’s about buying a living, regulated, branded operation with loyal customers and ongoing obligations.
The right deal can be a great investment. The wrong one can drain your finances before you ever raise a glass in celebration.

 

Tracy Jong is a Senior attorney at Evans Fox LLP with 30 years of experience focusing her practice in business law, intellectual property and licensing for alcohol and cannabis. Tracy Jong is a member of the New York Bar and is a registered attorney at the United States Patent and Trademark Office. She can be reached at Tjong@EvansFox.com.

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The content has been prepared for informational purposes only; it should not be construed as legal advice, does not create or constitute an attorney-client relationship, and readers should not act upon it without seeking professional counsel.