Struggling under debt, Sitka brewery defaults on $637K city loan

Sitka’s Baranof Island Brewing Company. (Photo by Robert Woolsey/KCAW)

Sitka’s Baranof Island Brewing Company has gone under, taking $637,000 of public funding along with it.

The popular business had one of its best summers ever, according to its owner, but was unable to get ahead of its large debt. The brewery was the first in the state to sell shares under Alaska’s 2016 crowdfunding law.

Baranof Island Brewing Company — or BIBCO — as just about everyone calls it, launched in 2010. It was Sitka’s second attempt in recent years at a brewery, and unlike its antecedent, it actually made and marketed product.

By 2016 BIBCO had expanded into a new facility and tap room, and had become the poster child for a new crowdfunding law in Alaska called the Innovating Alaska Act.

This video is still on the state Division of Economic Development’s home page.

The film features Penny Gage, a former Sitkan who worked previously for the Division of Economic Development, and has an appearance Ken Helem, a local Sitka businessman on the board of BIBCO.

Shortly after the crowdfunding campaign went live, BIBCO reportedly sold shares worth between $100 and $10,000 — the maximum allowed under the law — to 128 individuals. And the total maximum a company can raise under this form of investment is $1 million. It’s not clear how close BIBCO came to that goal. In a September 13, 2019, email to investors, BIBCO owner Rick Armstrong said that he was laboring under $1.2 million in debt, with $150,000 past due.


September 13, 2019
To: Baranof Island Brewing Company Investors

Hello,

This is Rick Armstrong, the founder, owner and manager of Baranof Island Brewing Company LLC. I am writing to announce that Baranof Island Brewing Company is unfortunately planning to close its doors for business as of October 1st, 2019. I am sorry you are receiving this information by email but I want to get it out to everyone equally and given the number of people and entities that are involved with the brewery, it would be impossible to personally call everyone.
BIBCO has been operating in Sitka since 2010, but it has not been profitable and can no longer sustain itself. Although business is good and we generate over ½ a million dollars per year, we also have approximately 1.2 million dollars of debt with $150,000 of that debt now past due in accounts payable. The reality is that these numbers will only get worse from here as we head into our slow time for the year. Therefore we must close sooner, rather than later.
I know this will come as a shock to many, particularly since this summer has been one of the busiest yet in the taproom thanks to locals and tourists. This really is a great business and we have continued to increase the bottom line by around $50,000 every year. I truly believe if we had more capital and time; the business could be doing very well within the next two years.
Please know that this has not been an easy decision. The Board of Directors and myself have tried very hard to avoid closing. There are a million reasons that could be listed as to why I believe the financial situation is the way it is. But, in the end, we grew too fast while lacking the capital to sustain that growth.
I am saddened that the employees will need to find other work, but they are all wonderful capable people that I am sure will continue to do great things. The support we have had over the years from numerous customers, strangers, friends and family members, to the City and Borough of Sitka has been amazing. We couldn’t have gotten this far without all of you and I truly thank you.
This is the end of an era for me personally as well as I have cashed out all my assets over the years to keep the business going and must now file for personal bankruptcy. I am not sure what the future holds for me at this point, but I will be here till the end doing what I can to wrap it up. I anticipate a lot of questions as this process unfolds so please forgive me if I don’t return your emails, calls or texts promptly. I’m working with a lawyer to help me through the process and will gladly share any information I have as it becomes available.
I also need to mention that there is some interest by a few individuals to purchase the brewery in its current state. I am remaining hopeful to the very last minute that a purchase might still happen as I want nothing more than for the business to continue, with or even without me.
I wish you all the best. Thank you and I am truly sorry this venture did not work out, for any of us, as planned.

Sincerely,
Rick Armstrong
Manager of Baranof Island Brewing Company LLC


A large portion of that debt is owed to the City of Sitka. In October 2012 the assembly approved a loan of $346,000 to BIBCO from the Sitka Southeast Economic Development Fund, at 3.7 percent interest for 20 years. Less than two years later, in February 2014, BIBCO took another loan for $350,000, again with a 20 year term at 3.7 interest.

Under documents released by the city in a public records request, BIBCO has been in default on its Economic Development Fund loan since last December, and owes a balance of $637,000.

In that September letter to investors, Armstrong goes on to attribute some of the brewery’s problems to rapid growth. He writes “I know this will come as a shock to many, particularly since this summer has been one of the busiest yet in the taproom thanks to locals and tourists.” And in that 2016 video on the state Division of Economic Development website, Armstrong indicated that things were looking up.

KCAW spoke with two investors about BIBCO’s closure, one of whom was taken by surprise, and another who said that trouble had been in the air for some time. A divorce proceeding in 2018 between Armstrong and his wife and business partner Suzan Hess created additional stress on top of the business’s financial problems.

Neither investor said they expected to recapture any of their $1,000 investment — although they may be entitled to. Unlike other types of crowdfunding, like Kickstarter, the Innovating Alaska Act actually gives small investors an equity stake in the company, so there might be some relief for BIBCO investors in bankruptcy court. However, large creditors like the City of Sitka usually get the first bite in a liquidation. Sitka’s chief administrative officer Jay Sweeney told KCAW in an email that the city’s legal department will “chart whatever course we follow.” In documents obtained by KCAW, BIBCO’s Economic Development Loan was collateralized by all of the brewery’s equipment, supplies, accounts receivable, and merchandise inventory.

Armstrong did not respond to several attempts to reach him for comment on this story. Clearly, the September 13 email to investors was painful to write. Whatever tipped the scales toward failure at BIBCO came fairly fast. Just three years ago, Armstrong was brimming with enthusiasm.

Baranof Island Brewing Company is a locally-owned and operated micro brewery,” he said. “It’s my heart and soul, and it’s everything I do, for sure.”

As of October 1, BIBCO’s official closing date, the brewery had not filed in the Alaska District of the federal bankruptcy court.

Correction: The original version of this story incorrectly stated the full amount of municipal loans extended to the company. The correct amount is $637,437, not $329,000.