The Birth of Lagunitas Brewing Co.
When Tony Magee’s printing business went belly-up in the ’90s, he decided to open a craft brewery, trying his hand at creating new home-brew flavors. Living off credit cards and home-equity loans, he built Lagunitas Brewing Co. into a brand known for its pot-smoking founder and freewheeling pub parties. Lagunitas, now fully owned by Heineken International, had $228 million in annual revenue in 2016, and Magee remains as chairman of the board.
I studied music composition at Northern Illinois University. I was good, but not great, and I dropped out. I moved to California and in 1987 took a sales position in San Francisco with a printing company. Printing is a lot like music. Somebody creates a piece of art, and you have to translate it into something that can be printed into infinity.
I got married and was printing Visa card solicitations for banks. When the Gulf War happened, my printing business collapsed as the banks canceled their mailings.
It was 1991; I had no income. My wife, Carissa, was working at a recycling center. The house was moving into foreclosure, and our credit cards were being closed one at a time. We were young and had marital problems.
When you’ve achieved a couple of things, and it’s all taken away, those can be mystical junctures in life. As Kris Kristofferson wrote, “Freedom is just another word for nothing left to lose.”
For Christmas 1992 my brother—who worked for a brewpub in Oregon—bought me a home-brew kit. The first batch of beer was beautiful, which gave me the courage to do a second batch. The second batch was a failure. But I thought I had a chance at doing something great, so in 1993 I decided to open a brewery.
At that point I could either pay back income taxes or invest what I had in starting a new business. So with $35,000 I bought some brewing equipment and started Lagunitas. The taxes eventually got paid.
I was a college dropout, smoked a lot of pot, and my brewery took up 750 square feet of the back of an old grocery store in Forest Knolls, Calif. From day one, I was the CEO, CMO, CTO, COO, everything. Every chance I could, I would hire a virtuoso to play one of those roles.
The best things happen when you just go, go, go. I didn’t have a business plan. I was just going to sell beer and make more than it cost me to brew it.
I refinanced the house constantly. I would take $1,000 from the business, redo two bathrooms, then have the bank assess the increased value and give us a $12,000 loan. We paid all the brewing bills late.
In 1999, at the peak of the dotcom boom, I raised $600,000 to move the brewery to a larger space. Our investors included my landlord, a teacher, a chaplain, and other ordinary folks. A veterinarian gave me $15,000, and when we finalized the Heineken sale years later, I gave him $7 million back. But from 1999 to 2015, none of the investors saw any return at all.
We were never in it for the money, because there was no money. We were in it for the people—our employees, our distributors, our investors—whom we had made promises to. Because of those promises, there was no way I could let the business fail.
Our marital issues worked out when we focused on making good things happen with the company. Carissa scheduled the plant operations and logistics for the first 15 years. I designed all the labels, the recipes, and marketing copy, then later handed the recipe writing to a head brewer. We don’t have any kids, but at one time I had 900 employees.
It was easy to sell our beer because we were different from other brewers. We’d throw a party at the brewery, and 2,000 people would come for five hours. It created stories that we used to promote the brand.
For example, in 2005, the California Department of Alcoholic Beverage Control investigated us for several weeks. Their agents tried to buy pot from our employees, and no one would sell it to them. They’d offer it to them for free.
On St. Patrick’s Day, out came the badges, and they suspended our license for 20 days for not properly policing marijuana use in a licensed facility. They were nice about it, though. They allowed me to pick the time frame when we’d shut down. We created the Undercover Investigation Shut-Down Ale, which became really popular.
In early 2015 I was thinking about getting older and looking at how the company would continue without us. Anheuser-Busch was buying up breweries around the U.S. There was a lot of controversy in the industry about who was a craft brewer and who wasn’t. I took a meeting with Heineken.
I offered them a 30% stake, and they said, “No, how about fifty-fifty?” My jaw went slack. I was initially hesitant because if there are disagreements and we’re fifty-fifty, how would we resolve things? But we developed trust and went forward. It became the perfect relationship.
Heineken provides finance and the expertise to grow into new markets, while the marketing, the voice of the brand, and the decision on making new brews is ours. Last year they bought the rest of the company.
I’m proud of having gotten the ship into port. All my employees have career opportunities that were undreamed of five years ago. All my investors got a great return, and my wife and I are financially safe now.
The three beers that put Lagunitas on the map.
The company describes its No. 1 seller as a “well-rounded India Pale Ale with a bit of caramel malt barley richness to mellow out the twang of the hops.”
A Little Sumpin’ Sumpin’ Ale
Lagunitas’s No. 2-selling beer is a pale wheat ale that has enough hop bitterness for IPA fans but with the smoothness of a Hefeweizen.
The Waldos’ Special Ale
The brewery’s “420” celebration ale is described as “herbaceous, botanical, dank, and resinous.” Definitely one for the Deadheads out there.
A version of this article appears in the March 2018 issue of Fortune with the headline “Top of the Hops.”