Khali brew is a beer that can be bought from Angor in the bar on the south west corner of the Fight Arena for 5 coins. Doing so requires partial completion of Fight Arena to the point after you talk to the Lazy Khazard Guard. When you talk to Angor, he suggests lying down before you drink it so there is less distance to collapse. However, there is no drink option so players cannot consume it.
Khali brew is used in the Fight Arena quest where it must be given to a jail guard to get him drunk so that the player can steal the Khazard cell keys from him.