In this episode, Chris and Katy sit down with Zak Koga from Karben4 Brewing out of Madison, WI to explore the blunt realities of contract brewing in the craft beer industry.
Are the headwinds in craft at least in part a product of a mature industry? Could Canabev just maybe be the answer to our capacity issues? How can breweries adapt with the use of contract brewing?
All this and more in this episode of The True Craft Podcast.
For inquiries about contract brewing:
Zak’s email: email@example.com
Transcription – Interview with Zak Koga
Chris: [sings] Welcome to the new —
Katy: [sings] Episode of the True —
Chris: Let’s try that again.
Zak: [sings a tune]
Chris: Welcome to the next episode of The True Craft Podcast. I’m your host, Chris. And today we have co-founder, CEO, head honcho beast —
Chris: — Brother of Karben4 in Madison, Wisconsin: Zak Koga. [cheers silently]
Katy: Welcome, Zak.
Zak: [cheers silently and claps] Thanks for having me. Yeah, good to see you all.
Chris: Good to see you too, man. Good to see you as well again. So for all the listeners, if you’re wondering how Karben4 got started, I’m just going to throw out the same-same. And I’m going to point you towards season one episode eight of The True Craft Podcast. This is going to give you a deep journey into how Karben4 got started. But, Zak, before we get started on our topic today, how has the summer been in Wisconsin?
Zak: Summer’s been okay. The weather has been pretty nice and temperate. We had a bit of a drought, but overall it was good from that standpoint. It seems like what we saw and it’s something that has been shared with many different people I’ve talked to is that it didn’t pop off as much as we thought it would in the beer world. I was just meeting with a really large customer, an institutional venue last week and they had budgeted for a total bounce back to 2019 and it didn’t happen. It was still summer and busy and fun and all that, but definitely still some kind of headwind in the system, I think, on the beer side.
Chris: What’s the recent festival that you guys have that’s just this massive Wisconsin party?
Zak: Great Taste of the Midwest. OG, my understanding, is that it’s maybe the second-oldest beer festival in the US? It’s one of the total OG’s of beer festivals.
Zak: And it’s a monster. I mean it’s a really good party. It’s in a park right in Madison on one of our lakes. I think they sell somewhere around 7,000 tickets or 7,500 tickets? And they still get away with pre-selling them in May and people sleep overnight for tickets. So it’s kind of neat to see that that energy still does exist in the world. Ya know? That where most other run-of-the-mill festivals — it’s like you’re trying to give away tickets just to get people there. But it’s a great sort of institutional beer festival. That’s usually the first or second week of August.
Chris: Is it only Wisconsin breweries or do they invite other states?
Zak: Oh, yeah, other states. Yep. I would call it a super regional. I don’t know if it’s kind of national, but I think it’s meant to be a little bit more focused on kind of regional to super regional.
Chris: So how many breweries are pouring?
Zak: Oh, gosh. I don’t know if I remember that number off the top of my head, but it’s a ton.
Chris: A hundred?
Zak: Oh, at least. Yeah.
Chris: Wow. That’s huge.
Zak: I’m like googling it here quickly while we’re talking because I was just, this came up just the other day and I’m like, “I don’t know if I had that number in my head, how many,” but it’s a ton. It’s overwhelmingly big. I mean, I don’t think it’s quite, it’s not quite GABF, but it’s like you can’t get through it. I mean, you can’t drink through it. It’s this big.
Katy: You’ll have to have… Like a half of a sip of every beer.
Zak: Yes. Yeah. You really have to meter yourself to get everywhere you want to get. It’s a great, great festival though. And it’s in a city park and food trucks and I think —
Katy: Sounds like a blast.
Zak: — they’ve done some education stuff and presentation stuff under some of the big tents and everybody kind of throws out all the stops and does a lot of gimmicky stuff. Like I know we used to do like a beer arcade. We pop up a whole mobile arcade for our stand with some other breweries and all sorts of things. They have a real L tent and it’s a great kind of old school beer festival that still is really strong. So, yeah.
Chris: That’s awesome. Alright. Let’s get into the meat and potatoes of today’s conversation and that has to do with contract brewing. Contract brewing. So I would say about two years ago I saw the writing on the wall that there was going to be a ton of capacity. There’s going to be a ton of capacity. In a lot of my talks, I talk about the profit margin in wholesale versus the profit margin in retail, taproom, pub. And somewhere in the middle of that, somewhere in the middle of that graph landed, landed contract brewing. And we came up with our own pricing methodology for contract brewing for our customers and we shared it with them.
But share Karb-, can you tell us about Karben4’s experience with contract brewing and kind of the. What you guys have done with it and and and how is it, how is it going?
Zak: I would say it’s going, it’s going pretty well. It’s a big part of what’s keeping us going here, you know, from last year into this year, just with how inflation and COVID has impacted our, our general like profitability and model. So it’s a crucial piece of our business now and we’re trying to grow it a little bit going forward. And not just grow it forever and ever. Grow it to kind of right-size the facility we have. We’re still kind of a boutique high-end version of a contract brewing. But it came about, we saw it as, I mean we always saw it as, it’s the model in manufacturing globally, right? Across all industry: contract manufacturing. Co-packing, Co-man, that’s everything. It’s Kirkland’s best. It’s…
Chris: Trader Joe’s.
Zak: It’s everything. Trader Joe’s. It’s all the things. Your iPhone is made by Samsung and Foxconn. I don’t think people realize how much everything that they have is really made by, in some facility. But you’re experiencing the brand. So…
Katy: Yeah, definitely didn’t know that.
Chris: You didn’t know that Katy?
Katy: I don’t think so.
Zak: Oh, everything. Basically everything. So that is what is fun and novel about craft beer is that I don’t think we realize is just Joe consumer, is that you’re attracted to your connection with your producer. I mean we know that talking point that it’s like, “Oh I know the brewer,” or “They live here and they’re local and all that,” but I think part of what we miss is that we don’t realize how disconnected we are from the manufacturing of basically every other product that is not made by the brand that we’re thinking it is. Now that I’ve gotten into this, I’m aware of food plants where they’re making a food product and it’s just like change label, keep running. And that’s, that really is true for many, many, many things. So anyway, just the fact that we came to understand that more about the world going through just growing over the years of being in this business. And then as we were in the kind of 2018-2019 timeframe, I feel like I started ramping up my thinking and discussions with peers about, “Hey, at some point our industry is going to have to consolidate the manufacturing side at least.” You’ll certainly see some brands that are struggling or business models that are struggling have to go away because we’ve had such an inflation in the number of breweries and then SKUs per brewery to me as a sign of unhealth. So it just seemed like the writing was on the wall that there’s got to be like this dairy co-op, you know, kind of model or even the hop co-ops where they joined together to buy the pelletizing machines to make the hop pellets because it’s extremely expensive to do that.
Katy: And there’s a sustainability element to that too.
Chris: Oh, yeah.
Zak: Yeah, yeah.
Katy: That sounds like it’d be a good thing.
Zak: It’s a hugely good thing because the craft beer industry was the number, the number in my head comes from Mr. Wonderful on Shark Tank when one of the Wisconsin breweries went on Shark Tank years ago and Kevin O’Leary put them, you know, put it to them and said, “I know your industry, your industry is 60% overbuilt. You know, the whole industry’s operating about 40% of what they can really make in built infrastructure, which doesn’t work. Why would you ever build a brewery? I’m not—” know, basically, you know, he did his little Mr. Wonderful, like, get out of my face, kind of thing.
Zak: I thought, wow, I like, I think he’s, he’s right. You know, that’s part of this idea of it doesn’t make any sense to have to have 20 breweries in a town and the amount of cans that they’re making could be made on one can line and they all have a canning line. That’s not good for the environment. It’s not good for business. It’s just, it doesn’t make any sense. You can’t pay all of those employees as much as you’d like to because you’re just cutting the pie up too much. So anyway, that was just sort of like a general thought pre-COVID. And then when we hit COVID and everything got blown up we started jumping into some contract packaging work to help people around us and say, hey, there’s all these brewpubs around us that they don’t have any, they don’t have a can line. You know, they’re probably struggling to coordinate mobile canning or maybe they don’t have the right minimums for it. They probably have a whole bunch of kegs that they’re stuck on because all these kegs went to zero. We went through all of our like we pushed all of our kegs back into tanks and packaged them. That was like the first thing we did when COVID hit was, okay, quick before the beer gets old. We’re to push into tanks, we’re going put it in package, we’re going to sell it back out. That was one of the best things we ever did. Our distributors loved us for it. It worked well for us. It kept beer moving. Then we started calling our peers to say, “Let’s do this for you. I’ll be as cheap as I can because I want to help you just have a product to sell.” So that was our initial launch into it. Then it ramped up into actually taking on a more formal soup-to-nuts contract customer or two. Then as we got into ‘21-’22 and volume soft, costs are soaring. We really saw it as, “Wow, we have to double our output on this packaging line. Or we’re cooked.” So we invested in a little bit better packaging line. And we’ve been trying to grow our contract business ever since.
Katy: What I’m hearing as you’re describing all this is the necessity to be able to adapt to the industry. And some of that is COVID. But I feel like this, call me crazy, but I feel like some of this would have been true regardless if that hadn’t happened.
Katy: And so, yeah, that’s what I’m noting. I think it’s really interesting. And I think having a pulse on the industry as a brewery owner is what’s going to sink or float your ship.
Zak: Oh, yeah, definitely. COVID just accelerated what was happening in so many ways. Hybrid work and all sorts of things. I mean, there was a lot of other crap too, but there was, you know, from an industry standpoint, consumers are still buying the things that they want. Those choices just got made faster for them, you know, and the way that they’re engaging with going out and staying in and whatever, having parties, having beers at a bar, that, a lot of things got accelerated. So yeah, I agree that we were kind of already on this path. I remember distinctly late 2019 talking to my main wholesale contact and having this discussion of, “It’s got to shake out, right? There’s just too many SKUs. It doesn’t make sense. Look at the plan we’re having for next year,” and then like boom: COVID hits and things start changing even faster.
Chris: You said something earlier that I’d never put the two and two together, but it’s just brilliant. You said stuff made in places that people would never imagine and it’s the connection to the brand is what keeps them going back, right? It’s the connection to the brand, which is really huge. And I know one of the talking points for me since COVID over the past two years has been: Breweries have to take a real strong look at their occupancy costs and they’ve got a real strong look at market rents, whenever that lease comes renewal. Because at some point, you’re never going to produce that much beer to meet that market rent. And we know what COVID did, it increased rent across the board. It increased rent in the suburbs, in urban locations, in sports locations. It just increased the cost of occupancy and rent across the board. So where I’m going with this is, and also back to the Mr. Wonderful reference, right? If you have a brand and you are confident enough to get people connected to that brand, why would you move into a new facility? Why would you go raise $4 million, $2 million to build a new facility versus finding the best partner? Number one, helping them stay in business, right? A local co-packer or local contractor to help stay in business. Number two, you could have your QAQC on it all day long since it is local. And number three, you don’t have to worry about a facility. You don’t have to worry about the CAPEX and the repairs and maintenance. So this has been a big, you know, beating stick for me, but, but I think we’re, we’re getting to a divide and Katy and I recorded something a couple days ago on the purpose of wholesale. And I think Katy, we need to record something on the purpose of having your own facility. The purpose of having your own location because that’s going to become uncool in the near future. Or once again, it’s just going to, it’s going to wash out the people who are stubborn just as wholesale is washing out the people who are stubborn. And are continuing to send out SKUs that are losing money, right? So let me kind of, let me kind of think about that for a minute, but that’s huge, a connection to the brand and leaning on, on wholesalers. I think that’s, that would be scary for some brewers.
Zak: Yeah, I think it’s still important to provide a sense of place, so I think the taproom is still a key function, to be in your community physically as a small brand, I think is still a huge part of the connection.
Zak: But that the next step of — you have to make that liquid exactly in this location to me is something that’s kind of already, you know, the umbilical cord has been cut a little. It’s not the best thing to be able to show it, but there’s all sorts of examples of that’s not exactly what people are looking for. They can still feel connected to you, and you’re still you, you know, at the taproom. Exactly how you manufacture it, you know, they’re sort of trusting you to do that. So that can be a co-packer, it can be a co-op, it can be just a warehouse that’s down the road, because it’s cheaper, you know, that like, it doesn’t matter as much that it’s right there. And I — it’s something we’re thinking about because we’re in our building, we have our production and our taproom jammed together. Our location is really far from ideal for a taproom. And I think that’s the case for a lot of breweries. And that’s starting to catch up to us little, that we really should have a stronger retail thing. And you can’t do that here. So what do we do about it? We got good rent from a production standpoint. We got really cheap rent from a taproom standpoint. But we don’t have that topline revenue in the taproom that we’d really be looking for. Especially as we take on more contracts, there’s some thoughts about what to do about that.
Chris: Sure. Yeah, definitely. When you are considering taking on a new contractee, does size matter? Does commitment matter? Walk us through what you’re thinking whenever someone comes to you and says, “I need you to produce something for me.”
Zak: It does. The big thing I look at is that in my model, I need to be filling and emptying full tanks, right? Because that’s, you have a piece of equipment and square foot space in the brewery. Those tanks need to be full when I use them because it’s the same amount of work to set them up and to clean them and all that stuff. So they better be full. So when I’m working with customers, that’s where I’m usually starting. I say, “Hey, this is where I’d really like to be as I want a full day from you, which is two full tanks on a packaging line,” but our position here is we’re not going to be the cheapest contract option out there is to be a little bit more flexible and say, “I’m not going to lock you into these big production commitments for the whole year for three years. I’m going to take you through a process where if you need us to develop the drink for you, I’m going to charge you for that and it’s reasonable, but there’s going to be kind of some charges I can do on the front end.” Because we need — one of the things we found is that you do all this work to set up whatever it is, beer or something else, and it’s one tank, and that’s it. Well, I just did all this onboarding work, and now it’s one tank and gone, so I’ve learned to start charging a little bit for some of that front end work. So if it’s one tank and gone, at least I got a few bucks. Then batches, I want them to be full tanks, and if it’s not a full tank, I need to have some good reasons why. One of the things I might do is just charge a premium per case if it’s less than a full tank. If it’s a different situation where we’re highly confident that we’re doing a lot more, and we just need a smaller start for some beta reason, then I’ll look at it. I’m looking at making sure that when I analyze our overall business, if I can fill an empty two full tanks a day, I can get to the place I need to go. So when I’m bringing in business, I’m just trying to fill tanks.
Katy: Ok I have a question.
Chris: Go ahead Katy.
Katy: In my mind, when I’ve thought about contract brewing, I have pictured people coming to you with their own recipes and their own beer that you are just using your tanks for. So what I’m hearing here is that you’re also at times coming up with recipes.
Zak: Oh yeah.
Katy: So how, what’s the split? Like how much more, like what percentage are you coming up with the beer and what percentage are you just kind of plugging away at what other people already have created?
Zak: I would say when it’s, when it’s beer? Maybe about a half to two thirds, they have a fairly specific sense of what they want the beer to be and they might have a real specific recipe. But there’s kind of a spectrum of, “Well I know, I know I want this particular, you know, want —
Katy: This particular hops or something…
Zak: Yeah, I want an Oktoberfest and I might have an exact recipe for that. But I also expect you to fix it or change it,” or whatever.
Zak: Or some IPA or whatever. Because Ryan’s got almost 20 years brewing and then our quality manager, Joe Waltz, is probably the smartest beer guy — I don’t know—in the Midwest, in the state. He’s really, really highly respected and he’s incredibly intelligent. He’s a huge beer nerd. No matter what people bring us, Joe usually has something to say and people listen. He’s usually like, tell me what you’re trying to do here or what your real romantic connections are, your visions about brands of malts, but I’m going to tell you maybe how to do this a little differently, especially for our equipment, because every brewhouse is going to be a little different. So, almost, basically always, we’re tweaking it.
Katy: Okay. Interesting. There’s a lot more involvement on your guys’ end than I expected.
Zak: Yeah. There definitely is. I don’t know that that’s always the case. I think that contract brewing has broadly been done pretty poorly. And I think that quality is an issue in the whole industry. So I think it’s, it would be safe to say it’s the minority of breweries that are really putting out super high quality beer all the time. It’s very difficult to do. I would say that we, you know, unbeknownst to us because bringing in Joe over the last few years, we’ve realized how many things we could improve. There’s times where we were being way more inconsistent than we ever thought we were, or should be. I would say we’re, that’s a real value add for our customers that they trust us, that we actually care about the recipes, that we want to make sure that the things are right and that we’re going to change it with them on the front end. And you know, you’re paying for that, that you’re getting a little smaller batch and you’re probably getting a better quality product than you make yourself. Like that’s, that’s kind of the premium that we are—
Chris: Circling back to the tank size. What size tanks do you use?
Zak: Our fermenters, we have one 15 barrel tank, one 15 fermenter, one 15 bright. So we have that kind of really small batch option, but it’s, it gets log-jammed because it’s only one tank if people want single turn batches. And then we have three 30 barrel fermenters and we have nine 45 barrel fermenters. And then we have like we have five 40 barrel brights and one 15. So generally speaking, we’re trying to do like a 45 barrel batch that we’re really targeting that broadly, but we can do the 15 or 30.
Katy: That’s huge.
Chris: It really isn’t though. You — I don’t know if Katy, everyone heard her, she just said it’s huge. You’re actually in a good spot. For a lot of our other customers and a lot of people I talk to, they’re, they can only brew into 60s, 90s, or 120s. And that gets really hairy.
Katy: Oh, interesting.
Chris: And they’re, they’re just kind of like, we gotta let this tank sit. We’re not going to put 15 barrel — 30 barrels in a 90 barrel tank. Yeah. We’re just not doing it. So you guys are built for this. It sounds to me like —
Zak: We’re a Swiss Army Knife. We can take, we tell brands, like, “Hey, we can do a 15 barrel keg batch for you. We’re not, that’s not what I’m trying to do all day, but it’s possible. You know, or I can take you to 50,000 cases or 100,000 cases.” I’m like, so I can really cover some ground. My, I would say my target, my ideal target is probably a brewery, like, what would be my favorite. It’s not exactly what we have is probably about 1,000 to 3, 4, 5,000 barrel brewery that packages. We’re going to be a really great sweet spot for them where we can do really high quality stuff. We do have an aggressive enough price that they can work with it and we can scale them in that scale no problem. I probably have more than one of those. Right now, I have a couple of breweries that are more like the 500 to 1000 barrel range and a couple that we’re looking at that are over that. And then we have our own, our Karben4 beer is still the bulk of what we make. That’s a little under 10. So.
Katy: How hands-on are you with the whole contract brewing process?
Zak: Oh, very much. I mean, me and Ryan and I, my brother, I probably spend a little bit more of that like front end sales effort of look, manage the pipeline, look at what the the holes are and what we’re trying to fill and what the goal is and then what are some good targets for what would fill those holes, you know, which breweries in the state or might even be not even beer. And try to work through finding those people and bring them in a little bit and then. And then there’s kind of a, like, if I have a fish on, know, if we have like a real prospect, get Ryan involved and start talking turkey about what the beer, the product is going to be. And then as it hands off into like bench-top testing and recipes that really just goes to Ryan and then we have another colleague here, Dan, that’s in the process and he’ll, I’ve built a pricing model where he can kind of on his own be able to react to pricing and billing without me needing to look over the shoulder the whole time and slow it down. So once we bring someone in, there’s a group of about three or four of us that are handling them. But I’m more of like the like get it into the funnel and hand it off to the team and then monitor along the way and make sure that the pipeline is going to stay full.
Katy: Do you see that being its own position in the brewery someday or do you think you’ll keep your hands on it?
Zak: There’s not a lot of room for like isolated jobs, you know, it’s still small scale. So. Yes, but I think that I think that the combination of the things I’m doing and probably what Dan’s doing could just be one person. So. Because I’m still dealing with everything else marketing and taproom and accounting and different things. Yeah, I think the supply chain kind of production manager role. If I can, you know, that could grow as sort of a funnel filling like sales input role too and not have it be me.
Chris: Do you lean towards certain styles that want to contract brew or will you entertain any style?
Zak: We’ll do anything. We’ve really been very successful with hazy’s and sours and lagers. Now, lagers are slow. So —
Chris: That’s my point. Tank time.
Zak: That dog doesn’t hunt sometimes. But it’s fun beer to make. It’s beer that we want to make and do really well. It just takes time. So we usually talk about that. We usually talk about yeast decisions and doing some pilot work on when we’re in those categories, which hurts a little because we, you know, making a traditional Pilsner or lager is fun. That’s good beer stuff. That’s a thousand-year-old beer stuff. So we like to do that where we can. But it’s tough. It comes up the schedule. We’re happy when it’s a fast turnaround beer or if it’s a blend and package product like lemonade or cannabis or soda or something else.
Chris: Oooo, let’s talk about cannabis.
Zak: Yeah haha.
Katy: That’s where I was gonna go next. I was like you mentioned non-beer stuff and I wanted to hear about that too.
Zak: So, what I looked at, what we could do, we built a brewery that would max out around 15,000 barrels depending on the mix of lagers and ales, you know, could go up to 16,500, maybe or 14,500. But when I look at filling and emptying two tanks a day on the packaging line, that’s more like 20,000 barrels and that’s more like the level that to me we have to be at to really have enough revenue and enough things going on to be healthy. So, the only way to get there is to fill in the packaging line between all the beer that’s fermenting. And so, we needed to start looking for ways to get into that blend and package, you know, NA market. And the first big foray into it was Ryan and I acquired Whiskopop, which is an organic fruit soda company, they have sparkling water as well, and contracted it to ourselves. We went out and got debt separately and have K4 run it to fill that hole in our schedule. And also to learn and test that for seeking new other customers in that space, whether it’s going to be cannabis or other soda-type things. So, that was the beginning of getting into the NA world was that. What was that? That was 2022. Beginning 2022. We took that on.
Chris: How have you enjoyed making the soda and building the soda brand? And do you recommend other breweries consider this?
Zak: Oh absolutely because blend and package beverage is way better business than beer. It’s not from a margin standpoint, but from a production density standpoint, there’s just less time that goes into it. It’s the same packaging line, it’s the same tanks, but if you can find the business or build a brand that can really go, when you can blend, when you can do, depending on the product, you might still be in the brewhouse to do a killstep or like a dissolve sugar with heat. Hot water step. So maybe it’s a two-day process and you’re packaging on day three. If you’re touching the brewhouse and doing a step with the fruit on day one, making sure it’s cooled and carved all the way by day two, package day three, depending on exactly how you do that, you could package on day two or if you’re this big soda manufacturer, you blend it and package it at the same time. So that’s just for the same product, same category, you can make way more of it. So, just on a raw business standpoint, it’s a really great idea. It’s not everybody’s passion project that’s in beer, so that’s hard. But we have liked it. It’s been a pain in the butt. You know, dealing with that much fruit is different. Being in sleek cans more is different. The different canning issues you have with foaming and how the liquid behaves is different. The food safety issues are different because you don’t have alcohol that’s killing everything and keeping everything safe. So, there’s a lot more challenges. But I would say over almost two years now, we have learned so much more about just beverage in general. And I think it’s made us a lot better even as it goes back to the beer and better operators of the filling equipment. So it’s been great and then it has unlocked so many great opportunities.
One is the Wisconsin Union here on campus. So, you know, AW Madison is this huge, really vibrant sort of entity on campus and their main memorial union building on the lake has the Union Terrace and it’s like an all-time patio on the lake, just like the best place on earth in my opinion. And I’ve always gone there, you know, just as a consumer and alum. And they reached out to us this year and we developed lemonade drinks for them under their brand. So now we’re a licensed beverage manufacturer of the UW and who knows what else is going to fall out of that tree. I already have a request for like three more beverages they want. And we didn’t even get into Motion W’s and Bucky Badger. This is just like Union Terrace. So that’s a big unlock. It’s a big unlock when you talk to other companies too, like the local co-op. I’ve thrown an idea at them if they want to make a branded, you know, organic fruit drink of some kind, we can do that.
And then cannabis, I think THC beverages are going to be a monster. I think it’s going to be a slow, steady climb, not the gold rush that everybody wants it to be. But in my mind, as the whole cannabis thing plays out here over the next 10 years, I really see the edibles and beverage being the big behemoth of the segment because it really takes the stigma away from it. You get away from smoking. There’s so much going on with smoking, whether it’s vaping or smoking the flower. And I think people are really going to respond to a beverage in a sleek can. It just totally changes the stigma of what that kind of product is. And you can put it into a bar setting and at a low dose and replace it with wine or beer.
Chris: And you referenced THC. Are you talking about the Delta 8 and Delta 9 strands or? The stuff that’s federally legal that I’m seeing pop up all over the place? Or are you talking about like THC?
Zak: So regular THC, you know, as we knew it growing up is Delta 9 THC. That’s like D9 THC is, that’s your like normal, natural THC. That’s the cannabinoid, you know, the spectrum that gets you high. That’s the one that everybody like thinks of. There’s dozens, if not 100 or 200 of like different types of cannabinoids. D9 THC is the one that makes you high.
Zak: The main one. And so this is, hemp, hemp is just a marijuana plant that was harvested before it went over 0.3% by dry weight D9 THC. So Delta 9 THC. So they’re the same plant, it’s the same molecule. They just breed it and harvest it to under index on Delta 9 THC. Which keeps it legal and it’s called hemp now.
Chris: Ok, so hemp-derived THC?
Zak: Yes, hemp-derived. So as long as that THC came from hemp, you can use it. And there’s a lot of gray area about how you can use it. But they also really can’t enforce it much. So there’s this weird gray area of we’re kind of learning. And I think we’re part of the tip of the spear here in Wisconsin, because we’re trying to be good partners with DAACAP, the state agency locally. That’s like, they don’t know how to act to regulate this, they really don’t have any rules to work with.
Zak: But we’ve kind of figured out that you can pretty much make a regular THC product. But you just have to make sure that you got it from hemp and that it’s actually produced as a food product. And now you’re producing a drink. Or they’re already being done in gummies and tinctures and all these other things that we’re used to. The drink is really no different.
Chris: So I am predicting that the Canabev is what I refer to it as. I’m predicting that Canabev helps the capacity issues in craft. Meaning it fills it.
Zak: It’s got to, right? Cause why is Tilray and all these people buying breweries all over the country? To me, it’s like, let’s regionalize production in small facilities so we can manage trucking costs and distribution costs out to those market areas and have kind of a distributed manufacturing network and we’re going to go buy them cheap because they’re existing and sitting here as bottling and canning plants. To me, I have to think the smart money is betting the same thing because that’s what they’re doing. I mean, Bud, Bud is the money behind Tilray is my understanding. And Tilray is out there buying all these breweries just to have manufacturing capacity.
Katy: So what I’m hearing from you, Zak, as you talk over the course of this episode, is just your skillset in adaptability is kind of mind-blowing to me, to be honest with you. Like, I want to understand how you, if it’s just innate to you, or what goes through your mind when you’re assessing the state of the industry and then going to make decisions for the success of your business. Like, how do you do it?
Zak: Survival. [laughs] I don’t know. I mean, I appreciate the compliment. It doesn’t feel all that smart, you know, or skilled as it’s playing out because it’s really survival. It’s just trying to be really aware and honest about what’s going on, you know, what’s happening in our industry, what’s happening to our brand, what’s happening to our town, what’s happening to our business and what can we do about it and let’s work the problem. I think I have two advantages maybe is one is that I have an engineering degree from the UW Madison and I — any young kid that says, “What should I do at school?” I’m like, “Just get an engineering degree.” You don’t need to know what you want to do.
Katy: That’s funny.
Zak: Just get an engineering degree. If you want school to actually be worth going to, do that because you’re going to learn how to be a professional problem solver. That’s what engineers are. They take big hairy things and they teach you how to break it down into little pieces and put the pieces back together and tweak all the pieces. That’s all engineering is. Then it’s just whether it’s molecules or chemicals or buildings, they teach you how to be a problem solver and at a really sophisticated level, I think. So having that background helps because I don’t look at the problem and think, oh, it’s this big hairy problem. I’m always looking at the parts and how I play with them. What do we have? And the second advantage I have is that I wasn’t a beer guy. I didn’t come in as a home brewer or beer nerd. I didn’t have any romantic connection to craft beer. I got brought into beer through my brother, was a brewmaster out in Montana. And even he’s not a huge beer nerd. He got, he threw his whole life into this, but he can barely drink any beer because he gets drunk so fast. So we have the advantage of not having some of those really deep, kind of like, stubborn, romantic notions of beer and only beer or only a type of beer. I think in some cases that’s been a real disadvantage to us because maybe we don’t resonate exactly right with the nerds. Although we do try to bring it for them. But then on this business side, I think it’s kept us really flexible that we’re willing to, we’re willing to try things. We’re willing to be curious and try stuff and look at the reality of the situation and say, well we need to, you know, the only way we last is if we’re filling and emptying two tanks a day. Well, how do we do that?
Katy: And it sounds like you have, like going into the NA beverages and, and then it’s also interesting to see how in turn stepping into that is positively impacted how you make your beer.
Katy: That’s cool. You know? Like,
Zak: I agree.
Katy: That adaptability has in turn positively affected Karben4, you know?
Zak: Yeah, it makes us way better operators. We’re way more hyper-aware of our weaknesses and things that we were overlooking, you know, when you’re doing beer kind of the old fashioned way.
Chris: Yeah, I’m going to add to everything that Zak said, I mean, as, as an entrepreneur, if you’re not, if you don’t have your finger on the pulse and — just have your spidey senses of what’s happening. Within your industry, with complimenting industries, with competing industries. You’re just not gonna make it right? You’re gonna be a sitting duck.
Zak: And this idea of being overbuilt as an industry, the reactions that I got to that over the years and still get to that is like, “What are you saying to me? How could I ever even consider making beer together?” You know, like, how could you not?
Katy: You’re like, “Good luck out there!”
Zak: Like don’t you look at your costs? I have the same things you have.
Chris: There are some beating sticks. That’s what I call this whole wholesale thing. There are some beating sticks that Katy and I are going to break. We’re going to break — through this podcast, we’re going to break the beating sticks of this industry.
Chris: Call it a pulpit, call it a badge of honor. We’re gonna rip badges of honor off. We’re done. We’re done.
Zak: I’m so — Romance and I don’t know. Maybe it’s the engineer in me or maybe I’m just like getting cynical. But I find the romantic, biased view of anything just so boring and ignorant. I don’t know. It’s so blind. It’s not interesting. It doesn’t adapt. It doesn’t move forward. It’s not honest. Maybe honesty is the real core of it for me. If it’s romantic and these other things, it’s not honest. It’s not self-aware. So it’s just like, no, I don’t want to be that. It’s both and I want to make really awesome beer because that’s a lot of fun and the beer industry is great. And I want to have a business that’s healthy. And I want to have a manufacturer facility that’s actually running into capacity. And these other things.
Katy: It reminds me of a conversation. Chris and I have been having around the purpose of distribution and why are people distributing? Is it because it’s a good marketing strategy or is it because —
Katy: Yeah! You beat me to it. It’s ego. A lot of the time I think it is. Are you running a business to sink it? Or are you just wanting to be popular or what is it? Those are harsh words. But…
Zak: It’s ego, it’s popularity. I could tell you unequivocally it is because of my contract experience.
Zak: People that have no business, there’s absolutely no case for putting cases of things out there and that’s what they want to do because they want, you know, they want…
Katy: The fame.
Zak: They want the fame of it. They want their product to sit on a shelf.
Katy: It’s interesting.
Chris: Speaking of that, in your ancillary services, I was going to ask this earlier and I forgot, in your ancillary services, do you ever look at someone and give them a shot of truth serum and be like —
Chris: You don’t have a distributor, you want us to make X amount of beer. You have a taproom that’s doing X amount. Like, this sounds like you’re going to be drinking from a fire hose. Can you drink from a fire hose?
Zak: Yeah, I always do that.
Chris: It’d be irresponsible not to.
Zak: Yeah, it’s just and it’s not like some Batman, you know, Dark Knight feeling. It’s just kind of, I think I’m, I’m just a, I’m a little bit blunt and I’m not always tactful and —
Katy: Me too!
Zak: I’ll say, “Why are you doing this?”
Katy: Chris, all of us are raising our hands.
Zak: This is not a good idea, even though it’s good for me. I’ll tell them, I’m like, well, it’s good for me. I’ll make it for you, but you’re going to give me a deposit and pay me right away because, you know, I think this is the wrong plan.
Zak: A lot of times we get them steered a little bit because of that and they really appreciate it.
Chris: Because you and I both know, you and I both know there are co-packers out there that do not do that.
Zak: Oh, they don’t care. Just make it.
Katy: Well, it’s a kindness to them.
Zak: You know, it’s like, yeah, it’s interesting. We’re like a quasi-consult when we bring anybody, we bring in. Absolutely anybody. We talk about, “What are you doing now? Where are you selling it now?” Because it doesn’t — it also helps me understand very quickly, the full tank, partial tank thing. If I talk to them and they have a real business and a real product, I’m a little bit more willing to make a partial tank because there’s a real reason for them to have less to start and I fully expect them to keep going. When I get a sense of where they’re at and I’m like, this is a bad idea. I’m going to say, “Nope. You’re filling a tank and I’m getting paid and see you later.” I’m going to take you off the pipeline because I know you’re not coming back.
Katy: Yeah, you turn people away.
Zak: It helps, yeah, it helps me for planning, just knowing what they might come back with. But I also don’t want them to go burn a bunch of money and get stuck on 500 cases of some drink they’re not going to sell. That’s the biggest problem in cannabis, by the way. The distribution side of it is totally not happening yet. All the alcohol wholesalers are concerned about their federal wholesale permit and I get that. So the biggest problem we have there is almost everything is like one and done because they think it’s a gold rush and they think that they just make THC and put their label on it. It’ll sell. But then I kind of asked, “Well, where are you going to sell it? Do you have a store? Do you have 10 stores? Are you going to go deliver it?” And they’re like, “Oh, you know, yeah, we got it,” and you make cases and they sit or they have one wholesaler that’s committed to it that they bring in one round and then they’re stuck on it because they just can’t, the engine is not rolling there yet. So.
Chris: Zak, you’re a wealth of knowledge, man. We can go on and on and on. Where can people — number one, can people reach out to if they have any questions about this topic?
Zak: Contract brewing? Probably just email me at firstname.lastname@example.org.
Chris: Do you mind if they reach out?
Zak: Yeah, I mean, hopefully, I don’t expect to get bombarded, but I have a lot of unread emails, so I apologize if I am slow to respond, that’s probably the, I don’t have a contract sales email set up. It’s just me kind of looking at the world and trying to find local people to work with. It doesn’t have to be local. We’ve talked to brands around the country too, but we’re going to do best, you know, in the Midwest, just for logistical purposes.
Chris: So what if a brewery wants to start contracting and has questions?
Zak: Oh, yeah, I’d be happy to share a little bit of wisdom.
Chris: Yeah, I would love for this to turn into a sales bonanza for you, but I doubt that.
Zak: I doubt it. Yeah. It’s not why I’m doing it. I just wanted to see you, your pretty face Chris.
Chris: Yeah, you too bro, but you’re a wealth of knowledge. I mean, you have so much experience in this and you, I’m sure you’ve hit the speed bumps and you’ve hit the walls and you’ve bounced back.
Zak: Oh, we’re still doing it. Yeah, we, you know, I’m learning all this. We’re still like, we’re dancing on a razor’s edge right now. I’m trying to make sure we keep the pipeline full, going through winter.
Katy: That sounds extremely dangerous, Zak. Be careful out there.
Zak: Oh, it is. You can cut your toes very easily. We still have a lot of work to do to keep the pipeline full. I mean, we’re in the middle third of the year, we’re doing great. And then the colder months it’s still thin and we’re working on it.
Chris: Where can people learn more about Karben4, just the brand in general?
Zak: Karben4.com is our website. Facebook and Instagram is the stuff that gets updated daily versus just the general info on the website. So there’s that. Google us. There’s stories and things that we’ve done here over the years.
Chris: It’s carbon with a K and the number four.
Zak: K, A, R, B, E, N, the number four. And we’re in Madison, Winsconsin.
Katy: And I’ll throw this all in the show notes as well.
Chris: Buddy, thank you so much. I really learned a lot today. Really loved this conversation. Loved it!
Zak: I always love talking to you. And great to see you on the video here, Katy.
Katy: Yes, nice to meet you.
Zak: And thanks for highlighting us, whatever, two years ago. Yeah.
Chris: We’ll talk to you soon, thank you.
Katy: Thanks so much.
Chris: See ya.