San Diego's financially troubled Green Flash brewery has been sold to a group of investors following a foreclosure by the company's principal lender, Comerica Bank.
As a result of the sale, which closed Friday, a new ownership group calling itself WC IPA LLC is taking over and making a number of top management changes.
Former Green Flash Brewing Company CEO Mike Hinkley will continue as the new company's vice president.
The announcement of the sale comes just a week after Green Flash closed its Virginia Beach brewery, which had a 16-month lifespan. There was more troubling news last week as the brewery closed its Poway barrel-aging facility, Cellar 3.
While Green Flash had ambitious plans to become a national force in craft beer, distributing to all 50 states from its San Diego and Virginia bases, it was unable to make payments on the $20 million loan it had with Comerica.
"After a general slowdown in the craft beer industry, coupled with intense competition and a slowdown of our business, we could not service the debt that we took on to build the Virginia Beach brewery, and in early 2018, the Company defaulted on its loans with Comerica Bank," Hinkley wrote in a note to Green Flash shareholders. "While we took substantial efforts to recapitalize the Company over the past several months, both before and after the bank default, we were ultimately unable to close a transaction."
The Green Flash and Alpine breweries will continue to operate under new ownership, Hinkley added, but Green Flash Brewing Company and Alpine Beer, which Green Flash purchased in 2014, will be dissolved. Separately, Comerica is in the process of trying to sell the Virginia Beach brewery.
Pat McIlhenney, co-founder of Alpine, said he heard from Hinkley on Monday.
McIlhenney and his wife -- Val McIlhenney, who was vice president of Green Flash's Alpine Beer division -- will have no role in the new company. Their son, Shawn McIlhenney, remains under contract as a Green Flash brewer.
Hinkley and his wife, Lisa Hinkley, started Green Flash 16 years ago. A news release said he will lead the new company, although a California Department of Alcoholic Beverage Control document identifies him as vice president.
That development drew barbed comments from McIlhenney. "I don't have a lot of faith in the management," he said, "especially if they keep Mike on management.
"He has no business being in this business. His business prowess is abysmal."
Hinkley could not be reached for comment.
Despite the financial troubles, the Green Flash Brewhouse & Eatery in Lincoln, Neb., will open this month, and will brew specialty beers serving the state of Nebraska.
The rise and fall of Green Flash reflects the peculiar state of America's craft beer industry, which is enjoying record sales and witnessing an unprecedented number of failures. Last year saw the demise of 165 craft breweries (the term describes operations that are small, independent and devoted to traditional beer styles and ingredients).
At the same time, 997 breweries opened across the U.S. There are about 5,600 craft brewing companies, operating from 6,622 locations.
"We haven't seen those numbers ever in our country's history," said Julia Herz, craft beer program director of the Brewers Association, a Colorado-based national industry group. "This is still the best time ever to be a beer drinker."
But the rapid growth in breweries means fierce competition for shelf space in stores and tap handles in bars and restaurants. At the same time, industrial breweries like Anheuser-Busch and MillerCoors have been buying numerous craft breweries, using their nationwide distribution and sales networks to undercut their independent rivals.
"That's changing the environment and tipping the scales," Herz said. The business, she added, "is certainly harder than ever."
Green Flash is not alone in struggling with these changes. Last month, New Hampshire's Smuttynose Brewing Co. was auctioned off to an investment group. San Francisco's Speakeasy Ales & Lagers was bought by the former owner of a beer distributor last May, two months after its closure.
"There's still value in these businesses," said Bart Watson, the Brewers Association's chief economist. "The brands still have value to customers so for the right price there is still interest."
While the craft beer sector is still growing at a healthy 5 percent, that doesn't mean there won't still be casualties as companies try to expand their brands outside the local region, said David Barnett, a Chicago-based senior research analyst for JLL, a commercial brokerage firm. which last year released "The Craft Beer Guidebook to Real Estate."
"If you want to make that step of going from a local to a national player, you need to grow your brand loyalty in alignment with new customers, and you're not going to see every business successful in doing that, whether it's operations and distribution, name recognition and picking the right location," said Barnett, a former San Diegan who at one time was a server at Karl Strauss Brewing Company.
For now, the new company says the Green Flash brand will still be sold in eight states: California, Arizona, Colorado, Hawaii, Nevada, Texas, Utah, and Nebraska. The breweries in Mira Mesa and Alpine will continue to operate.
Dave Mills, a veteran of San Diego's Ballast Point, was named vice president of sales and business development. He replaces Jim Kenny, who had held that position for eight years. Also departing is Chris Ross, who had been president since 2016.
Erik Jensen, the brewmaster since 2015, retains his position as vice president of brewing operations.
The president of the new company is identified as Richard Alan Lobo, founding partner of Muirlands Capital, a San Diego private equity firm. Lobo also has been a board member of Green Flash since April of last year.
Raising some eyebrows in the craft beer community is the addition of Joshua Yelsey, formerly of Anheuser-Busch, as manager of Green Flash's new owner. Not only was he a manager in Anheuser's mergers and acquisitions department, but he also worked as head of finance for such Anheuser-acquired craft breweries as Goose Island and Blue Point.
Since January, when Green Flash laid off dozens of employees, the company has been showing signs of decline. For fans of the beer and friends of the Hinkleys, like San Diego Brewers Guild president Paul Sangster, that's been tough to watch.
"I think all of us in San Diego are hoping Green Flash and Alpine brands continue to be made the way they've been made recently," Sangster said, "so we can continue to enjoy them."
Pat Korn, a former Green Flash brewer who was Cellar 3's barrelmaster, said the brewery made several fatal mistakes: expanding to the East Coast before its West Coast brewery had reached peak production; raising prices on its beers; and tinkering with the recipe of its flagship ale, West Coast IPA.
"West Coast built that Mira Mesa brewery," Korn said, "and they decided to change it."