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Bellwoods Brewery co-owner Mike Clark, sampling a batch at the Ossington Ave. microbrewery in Toronto, hopes to open a second retail shop at their planned new location.

Kevin Van Paassen/The Globe and Mail

Bellwoods Brewery has a problem many small businesses long for. Their beer has become so popular, the retail shop at their brewery on lower Ossington Avenue routinely runs out of stock.

"Even devoting everything we make here on site [for sale at the shop], we still had to close our bottle shop on Labour Day because we ran out of beer," said co-owner Mike Clark.

They're expanding to keep up with demand. Bellwoods has secured a 20,000-square-foot warehouse at Dupont Street and Dovercourt Road where they plan to open a larger production facility to supplement their home base and hopefully expand to wholesale, which they do only very limitedly at the moment.

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But there's a catch. In order for a brewery to open a second retail shop, it has to be producing more than 25,000 hectolitres of beer a year – that's more than seven million standard beer bottles' worth of the good stuff. Currently, Bellwoods produces just under 2,500 hectolitres a year. They're hoping to triple production with the new facility and eventually grow to as much as 15,000 hectolitres annually, but that's still a long way off from the threshold.

"It is a big gap and we might not ever want to be a company that makes that amount of beer. That's a lot of beer. We tend to make smaller batches of a lot of different products," Mr. Clark said.

It's a threshold that seems arbitrary to small brewers looking to grow, and even the provincial agency that regulates the industry doesn't know why it's in place. The Alcohol and Gaming Commission of Ontario is looking to reform its regulations and says its main concerns are the safe sale and production of alcohol as well as to "help the industry to succeed."

But many small and mid-sized breweries in the province feel stifled by the current rules, which some would argue were put in place only to protect the interests of the major brewery corporations, like the three that own the province's beer retailer, The Beer Store.

Mr. Clark has set up meetings with local MPPs to plead his case and see if the policy can be reformed. But if nothing changes before they open – he says preparing the space will take about a year – Bellwoods will be faced with limited options. They can incorporate a second, separate business at the Dupont location, but they wouldn't be able to sell beer made there at their Ossington shop, so they'd still be running out. They can open without a retail shop, but ending a brewery tour with nothing to buy isn't a winning business strategy. Or they can close the popular Ossington location, to the frustration of the customers that have supported them since they opened in 2012.

"It doesn't solve that problem, but our bigger competitors don't have that problem. Why is there a regulation in place to essentially just keep us down?"

The AGCO say they don't know.

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"It's kind of been lost in the mists of time," said Jeff Keay, director of communications for the AGCO. But Mr. Keay said the 25,000-hectolitre requirement is exactly the kind of seemingly-arbitrary threshold that the AGCO is actively working to reform.

For the last year and a half, the organization has been meeting with stakeholders across the industry – everyone from craft breweries to the multinational beer corporations to MADD and CAMH – to get input as they seek to reform their policies in a way that supports the growing industry while keeping community safety in mind.

This month, they have established working groups to focus in on key areas they've identified to update, including the licensing renewal process and details about what can be sold at on-site retail stores other than alcohol.

It's a slow process, but Mr. Keay said it's because the laws are complicated and there are so many different viewpoints on what should be changed and how.

"When you develop policy, you want to develop good policy," he said, but added real changes are on the horizon.

"Sooner rather than later. That's the wish of all parties."

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But for small breweries like Bellwoods, the laws are an endless source of frustration that prevent newcomers from growing too big.

"They're prepared to give you a little bit, but that's all. They're not going to allow anybody to build any critical mass," said Jeff Carefoote, owner and operator of Amsterdam Brewery.

Amsterdam started out as a brew pub – a restaurant that brews some house beer on site – back in 1986. Over the years they've grown, opened new locations, and started to be stocked on shelves at the Beer Store and LCBO. They're in a different league than Bellwoods, but Mr. Carefoote is sympathetic to their plight. Amsterdam has faced their own barriers in the past, from limitations on what bottles they could use to how quickly they could expand. They're still small enough to qualify for the province's tax rebate for small brewers – those who produce less than 150,000 hectolitres of beer a year – and there's little incentive to grow further. Surpassing the 150,000 hectolitres threshold would not only eliminate the rebate, but also put the brewery in the same tax bracket as multinational corporations like Anheuser-Busch InBev, the largest brewing company in the world.

"That just doesn't make any sense," says Mr. Carefoote. For him, the regulations make staying mid-sized more appealing than growing.

"You'll get an okay return, but you'll never turn it into really anything and you'll never be a threat."

Liquor laws in Ontario are a perennial debate. Ahead of this year's spring election, Ontario's Progressive Conservatives made a hard push to allow alcohol to be sold in convenience stores, to mixed reactions from the public. This summer, Toronto restaurateurs were stuck in limbo for months after city council enacted rules that effectively prevented new businesses from obtaining liquor licenses (those rules were later revoked).

While the Beer Store, the province's retailer that is owned by three multinational brewers, runs a near-monopoly, they don't believe big brewers get special treatment.

"Just look at the number of small breweries that are popping up and that are growing in this province," says Jeff Newton, head of Canada's National Brewers, the organization representing the Beer Store's owners. He said a quarter of the brands listed at the Beer Store are craft brewers and their sales are growing faster than any others.

"Over the past five years their growth has been 67 per cent at a time when retail sales at the Beer Store have actually declined a little bit," Mr. Newton said. That's proof enough that the system isn't holding anyone back, he said.

"There's a lot of evidence out there that says [craft brewers] are doing very, very well."

Craft brewers argue they could be doing better under a different system; while craft beer holds about 5 per cent of the market in Ontario, it's closing in on 20 per cent in British Columbia.

Still, as much as a system-wide overhaul could benefit microbrewers, Bellwoods's Mr. Clark and others like him are just hoping for a few smaller, common-sense changes as they do their best to lobby Queen's Park while juggling their growing business.

"I'm hopeful that they will do something," he said. "They're putting a lot of smaller brewers in a trap where they're not creating conditions where they can actually sell their products and grow into successful companies."

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