We have some legislative beer controversy on our hands.
Texas brewers would lose a potential source of capital and some flexibility in negotiating sales under a bill before the state Senate.
The Texas Craft Brewers Guild immediately opposed the legislation, as did one of the state’s two major groups representing wholesale distributors – which called it “asinine” and “anti-competitive.”
The bill, authored by state Sen. John Carona, R-Dallas, chairman of the Senate Business and Commerce Committee, would prohibit brewery owners from selling distribution rights for their beer and it would restrict them from selling beer at different prices in different geographic areas.
Scott Metzger, owner of Freetail Brewing Co. in San Antonio, has been actively involved in talks regarding a separate package of bills designed to help the state’s growing number of independently owned craft breweries and brewpubs.
He said the major provisions of the Carona bill were not raised during pre-session negotiations among lawmakers and industry stakeholders and he said the Craft Brewers Guild opposes all of them, whether in this bill or if they should be added later to other legislation.
Under the state’s three-tier distribution system, brewers cannot sell directly to retailers or consumers but must, with a limited exception for smaller breweries, enter exclusive contracts with wholesalers to sell the beer to retailers in designated territories.
Distributors can pay breweries for those rights, although payments are not required and can take different forms.
Donley said the practice is becoming more common as the craft segment grows. These generally smaller brewers reach a point where they need an infusion to expand, he said, and selling distribution rights is a potentially large source of capital.
Denying breweries this option goes against the charge of the pre-session working groups to stimulate economic development in the craft industry, he said.
Carona’s bill would not stop distributors from selling the rights to individual brands to other distributors.
The bill in question is SB639. Donley is Rick Donley, president of the Beer Alliance of Texas, which represents Silver Eagle Distributing and other major wholesalers, who opposes it; Keith Strama of the Wholesale Beer Distributors of Texas, supports it. There’s no quote from Sen. Carona’s office, but he did send a statement to author Ronnie Crocker after publication. Among other things, we learn that Carona is no longer one of the authors of the craft beer bills that would finally loosen some of the archaic restrictions on microbreweries and brewpubs; apparently, he decided to go a different route. Scott Metzger of Freetail has an interesting perspective on this at his blog:
It has not gone without notice that the proponents of this bill don’t have an interest in restricting themselves from raising prices in different markets, or from selling brands rights, but that they are only concerned about what they have to pay. In essence, this bill is one step short of the Texas Alcoholic Beverage Code having Mandated Profits for the middle tier. This is self-serving protectionism at its most blatant.
This Legislation amounts to nothing more than a blatant money-grab by the Wholesale Beer Distributors. It distorts the free market by protecting wholesalers from paying the cost of doing business. Ironically, no one has ever forced any distributor to pay for the distribution rights of a brewer. These are voluntary private-party transactions that occur because craft beer distribution rights are actually valuable and distributors are eager to out-bid their rivals for those rights. If you don’t want to pay, then don’t.
Luckily, this proposal is likely to go nowhere at the Capitol. My contacts up there have told me the Legislature is highly unlikely to move on Legislation that most of the industry hates, benefits only certain players, and goes against free-market principles.
Lastly, I’m thankful to Chairman Carona for filing this legislation. The WBDT was trying to amend Senator Eltife’s craft beer bills with this anti-competetive, self-serving language, and were promptly told no. But I suppose everyone deserves a chance, and I’m looking forward to hearing the WBDT try to explain any shred of public interest that might exist for this money grab.
See also this post for related matters, and this post for a fuller response to Sen. Carona’s statement. Metzger makes it clear in that latter post that he is speaking on behalf of the Texas Craft Brewers Guild. If they are OK with Sen. Carona filing this bill then I don’t see any reason for me to be unhappy about it at this time.