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Texas Wholesale Beer Distributors

Microbrewery legal setback

Kind of a lousy Christmas present.

Three Texas brewers are going back to battle with the state after an appeals court reversed a decision that would have allowed them to sell their distribution rights for monetary compensation.

In 2014, Peticolas Brewing Co. (Dallas), Revolver Brewing (Granbury) and Live Oak Brewing Co. (Austin) sued the Texas Alcohol and Beverage Commission, saying a newly passed law related to who could sell a brewery’s distribution rights was unconstitutional. The mandate, which passed in 2013 with a bundle of other beer regulation reforms, said breweries may not accept payment for contracting with a distributor, but that a distributor could get a payout if it sold those same territorial rights to another distribution company.

Last year, a judge served victory to the breweries. But on Dec. 15, the Texas Third Court of Appeals reversed that decision. It stated, in part, the law does not prevent the brewers from successfully operating their businesses and that it also upholds the industry’s three-tier system, which aims to avoid conflicts of interest between alcohol manufacturers, distributors and retailers.

The decision will be appealed to the Texas Supreme Court, according to a statement from Institute for Justice, which is representing the breweries.

“It is well established that the Texas Constitution protects economic liberties, and these rights do not cease to exist when the government begins licensing and regulating individuals and businesses,” said Arif Panju, managing attorney for Institute for Justice’s Texas office, in a statement. “Every business in Texas should be concerned with the court’s ruling in this case. It is dangerous and we will ask the Texas Supreme Court to reverse.”

See here, here, and here for the background. You know how I feel about this. The three-tier system is an anachronism and a travesty, a glaring counterexample to any politician’s paeans to how Texas has a great business environment. Yet it persists, a lasting tribute to the lobbying efforts of the beer distributors and the big breweries that support them. As with so many things in this state, the ultimate solution is going to have to be a political one. Nothing will change until we elect enough people who want it to change. Austin360 has more.

The taproom bill is in effect

And it’s lousy, as expected.

The latest draft of beer legislation in Texas has left a bitter taste in the mouths of some craft brewers.

HB 3287, which lawmakers passed during their regular legislative session earlier this year, requires craft brewers that produce more than 225,000 barrels per year to pay a distributor to deliver their beer — even if the destination is inside their own facility.

Proponents of the legislation say it will maintain the state’s three-tier system — Prohibition-era regulations that legally separate brewers, distributors and retailers — and properly regulate large companies that purchase craft breweries. To opponents, though, the law targets newer craft breweries across the state, discouraging investment in their businesses while protecting larger and more established beer companies.

[…]

“When you get to a certain point, you’re no longer the little guy that needs the incentives,” said Rick Donley, president of the Beer Alliance of Texas, which represents distributors and supported the legislation. “Once they get to a certain annual production level, they’re really not new entrants into the marketplace.”

But [Charlie Vallhonrat, the executive director of the Texas Craft Brewers Guild] says craft brewers weren’t asking for any help from distributors, who he charges will benefit most from the new law. Carve-outs written into the law allow three craft breweries recently purchased by larger breweries to avoid the 225,000-barrel cap: Karbach in Houston, bought by Anheuser-Busch InBev; Revolver in Granbury, purchased by Miller-Coors; and Independence in Austin, bought by a Heineken-owned subsidiary.

“They claim that this is to protect the three-tier system,” Vallhonrat said. “This has nothing to do with protecting the three-tier system.”

See here for the background. As you know, I think the three-tier system should be ashcanned, but it remains the case that no one has asked me. I don’t know why it is that we can’t have a truly open, consumer-friendly market for beer in Texas, but clearly we can’t. The success that microbrewers have had in this state has been despite the existing regulatory environment, not abetted by it.

Weird taproom bill gets final passage

Bummer.

A bill that would force Texas breweries, once they’ve grown beyond a state-limited size, to sell and buy back their own beer before offering it in their own taprooms has now passed both houses of the state Legislature.

“To say that today’s outcome was incredibly disheartening would be to put it mildly,” the Texas Craft Brewers Guild said in a statement following a 19-to-10 vote in the Senate.

The House approved the measure May 6.

House Bill 3287 has been blasted as “anti-competitive,” “anti-beer” and a potential job killer by an unlikely coalition that includes Anheuser-Busch InBev and the state’s 200-plus craft brewers, which often find themselves at odds with the global giant. The Texas Association of Manufacturers and the conservative Texas Public Policy Foundation also opposed the measure.

The bill was supported by the state’s two distributor groups.

See here for the background. This all basically happened under the radar, when there was no organized grassroots efforts on behalf of the microbreweries. I suppose that says something about the power of the distributors’ lobbyists, but it’s also a reminder that what was won can be lost, and defense is at least as important a offense.

Weird taproom bill passes the House

I don’t understand this at all.

The Texas House on Saturday voted overwhelming to place new constraints on craft breweries that grow beyond a set size or become acquired by a larger beer company.

Supporters of House Bill 3287 also fought back efforts to amend the legislation to give craft brewers the right to sell some beer on site for consumers to take home – something the smaller brewers have tried to secure for years.

HB 3287, blasted as anti-competitive by critics, is opposed by the Texas Craft Brewers Guild and Anheuser-Busch InBev as well as pro-business groups and a conservative Texas think tank.

“Now we prepare for the Senate battle,” guild executive director Charles Vallhonrat said after the vote.

A 2013 package of laws gave breweries that produce less than 225,000 barrels of beer annually to sell up to 5,000 barrels directly to customers, who must drink the beer in the taproom before they leave.

As originally written, House Bill 3287 would have extended the prohibition against on-site sales to any brewery that is acquired by another company that collectively exceeds that limit.

That group includes Houston’s Karbach Brewing Co., acquired last fall by A-B InBev, which makes many of millions of barrels of Budweiser and other products across the globe.

A revision to the bill allows Karbach and the other larger breweries to continue to operate taprooms, but it would force them to sell their beer to a distributor and then buy it back for sale to the public.

The brewers say the bill would discourage investors and will hurt their ability to grow.

The only beneficiary, they say, are the distributors who already exert near-total control over how beer gets from producers to retailers.

Here’s an earlier version of this story from before the House vote and here for a story from two weeks ago when this was in committee. I can only presume the distributors were behind this bill, which should tell you all you need to know. I guess this should remind us all that despite the 2013 bill that allowed on-premises beer sales at microbreweries, the big beer distributors can still throw their weight around when they want to.

Microbreweries win their distribution rights lawsuit

Excellent news.

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A Texas law that prohibits brewers from selling territorial rights to distribute their beer is unconstitutional, a judge ruled Thursday, serving up a major victory to beer companies seeking to expand their presence in stores, bars and restaurants throughout the state.

The decision says the government has no compelling interest in prohibiting brewers from seeking cash compensation when negotiating a contract with distributors, who have almost exclusive authority to handle sales between producers and retailers.

“This law, it was written by beer distributors to enrich big beer distributors and that is not a legitimate state interest,” said Matt Miller, senior attorney and head of the Austin office of the Institute for Justice, which litigated the case on behalf of Texas craft brewers Live Oak, Revolver and Peticolas.

The law, passed three years ago, allows brewers and distributors to negotiate for things like equipment and marketing efforts, but not direct compensation. That denies brewers who have worked to build up their business the ability to “capture the value of their brand” once they are large enough to require a distributor, said Charles Vallhonrat, executive director of the Texas Craft Brewers Guild.

A cash infusion from a distribution contract also would allow smaller breweries to expand operations, hire new employees and build up marketing teams to increase sales, Vallhonrat said.

Thursday’s ruling by state District Judge Karin Crump in Austin came after both the brewers and the Texas Alcoholic Beverage Commission sought summary judgments in the lawsuit. After considering depositions from both sides, Crump declared the law violates state constitutional protection for economic liberty.

[…]

Plaintiff Chip McElroy, founder of Live Oak Brewing Co. in Austin and one of the law’s most vocal critics, called it “unjust … unconstitutional … just plain wrong.”

“It took our property and gave it to them for free,” McElroy said Thursday.

Arif Panju, another Institute for Justice attorney in the case, said the ruling applies to out-of-state breweries as well. Miller said it protects all entrepreneurs looking to build up their businesses.

Miller said the ruling will help breweries going forward but does not address those who struck distribution deals while the 2013 law was in effect.

The Texas Alcoholic Beverage Commission has 30 days to file an appeal. A spokesman said agency lawyers are in touch with the Texas Attorney General’s Office and likely will appeal.

See here and here for the background, and here for a copy of the ruling. I hope the TABC will reconsider its inclination to appeal. This law serves no one’s interests except those of the Wholesale Beer Distributors of Texas. The state should not be spending its own resources pursuing a reversal of this ruling. As noted elsewhere in this story, if the original bill that forbade the microbreweries from selling their distribution rights had been about any other commodity, it would have been laughed out of the Capitol. Surely we have better things to do than this.

More from Austin 360:

Brewers and their fans might be rejoicing their victory right now, but they’re still holding their breaths over two other beer-related cases in Texas courts.

One case involves an issue that brewers unsuccessfully pushed for in the 2013 legislative session. As a result, Dallas’ Deep Ellum Brewing sued the Texas Alcoholic Beverage Commission last year to try and get breweries the ability to sell beer to-go from their facilities — something that wineries and distilleries in Texas are both able to do. (Operators of brewpubs, which sell food in addition to beer, also can sell their products to the public.)

Also, Cuvee Coffee decided to go to battle with the TABC over the issue of whether retailers can sell crowlers, which the TABC argues are one-use cans, rather than aluminum growlers, that only manufacturers of beer can sell.

Both cases are expected to be resolved within the next couple of weeks.

See here for more on the Deep Ellum lawsuit, and here for more on Cuvee Coffee. Let’s hope for a clean sweep. I’ll keep my eyes open for further news. The DMN has more.

Microbrewery lawsuit heard in court

I can’t wait to see how this turns out.

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Just how much is it worth for that Velvet Hammer or other local craft brew to make it to your favorite bar or convenience store?

That’s one of several key questions that came before a state district court Monday, as a group of craft brewers — including Peticolas Brewing of Dallas and Revolver Brewing of Granbury — challenged a contentious component of the state’s arcane alcohol regulations.

Namely, the craft brewers want to overturn a 2013 law that says they cannot accept financial compensation for their distribution rights.

In Texas and in many other states, the alcohol industry operates under a three-tier system: producers, distributors and retailers. That arrangement, which dates to the end of Prohibition, seeks to eliminate potential problems by keeping each operation independent from the others.

[…]

In 2013, the Legislature passed several new alcohol laws, many involving the burgeoning craft beer scene. Though multiple bills helped the upstarts, particularly brew pubs, there’s little doubt that the distribution rights piece boosted that middle tier of the system.

Consider that at least one brewery — Live Oak Brewing in Austin — sold its distribution rights for the Houston area for $250,000 before the law went into effect. Now, that would be impossible.

Some craft brewers, if they meet certain criteria, can use what’s called self-distribution as a work-around. But the restrictions that come along with that practice can make it difficult for some brewers to expand their reach, particularly across the state.

Adding to the frustration of the craft brewers is that a distributor, once it has the territorial rights to a certain brewery, can then sell those rights to another distributor. So what can’t be measured, by law, in dollars on the front end carries significant value on the back end.

“There’s just no rational basis for the law,” Michael Peticolas, owner of his eponymous brewery in the Design District, said in an interview after Monday’s hearing.

See here for some background. The lawsuit was filed in 2014, and its root is in SB639, which passed during the 2013 session at the same time as the other bills that allowed microbreweries to sell their wares at their home locations. The Statesman adds on:

Karen Watkins, a lawyer from the office of Texas Attorney General Ken Paxton, defended the law on behalf of the Texas Alcoholic Beverage Commission and said the state must not weaken the current regulatory system.

In Texas, the sales of beer and liquor are governed by post-Prohibition rules that maintain strict boundaries between manufacturers, distributors and retailers. In the three-tier system, makers of beer, wine and spirits create their products, distributors sell them, and bars and other retailers peddle the beverages to the public.

“The government’s interest is in preserving the integrity to the three tier system,” Watkins said. She said the state intends to prevent any overlap between the manufacturing tier and the distributing tier.

Watkins said the law helps the Texas Alcoholic Beverage Commission, for example, quickly remove tainted products from store shelves, if needed.

Arguing the case for the brewers, Matt Miller, an attorney for the Arlington, Va.-based Institute for Justice, said the case isn’t about the three tier system, but about fairness.

“It enriches distributors at the expense of craft brewers,” Miller said.

Miller said the law prevents many brewers from selling their products in some markets, which has the effect of providing less choice to consumers and fewer opportunities to expand for craft brewers that choose not to give away distribution rights.

As you know, I think the three-tier system is an archaic holdout from the Prohibition days that do nothing to enhance competition. Quite the reverse, in fact. Attorney Watkins went so far as to imply that success by the plaintiffs in this case would lead to organized crime, which thankfully the judge pushed back on. I’m rooting for the plaintiffs, as I’m sure you could guess. The judge says she expects to make a ruling in the next few weeks.

Craft beer lawsuit

This ought to be interesting.

On the same day merger talk surfaced regarding the world’s two biggest beer companies, a small Dallas brewery announced its own effort to shake up the industry in Texas.

Deep Ellum Brewing Co. launched the crowd-funded “Operation Six-Pack to Go” on Wednesday and said it had filed a federal lawsuit this week attempting to accomplish what multiple efforts in the Texas Legislature have failed to do: Give in-state breweries the right to sell their beverages directly to consumers for off-premise consumption.

While such sales are allowed at wineries, distilleries and brewpub restaurants, brewery visitors must drink any beer they buy before they leave.

John Reardon, the Deep Ellum founder leading the latest charge to allow these so-called dock sales, said antiquated laws hinder growth in the state’s rapidly expanding craft-beer industry. He and other craft brewers have long contended that to-go sales would provide startups with extra capital to expand and give all brewers a powerful marketing tool as people who visit the breweries take their product home and share with friends.

[…]

The lawsuit, filed in federal court in Austin against the Texas Alcoholic Beverage Commission and its three commissioners, calls the ban unconstitutional.

“The U.S. Constitution prohibits a state from creating irrational and arbitrary distinctions between similarly situated entities,” the lawsuit reads. “Texas, however, does just that by creating distinctions between various types of alcoholic beverage producers, which in turn harm those directly involved, including Texas businesses, citizens and tourists, and ultimately the Texas economy.”

Danielle Teagarden, a Seattle-based attorney who specializes in brewery law, said in these types of lawsuits states must provide some “rational” reason for the different treatment and show that it helps meet a legitimate state goal, such as facilitating taxation or maintaining orderly operation of the market. She said it is not a high standard and states have successfully defended their laws.

“It just has to move the dial a little bit toward that goal,” said Teagarden, who writes and edits the Brewery Law Blog.

[…]

The craft brewers should not expect any support from the wholesalers, said Rick Donley, president of the Beer Alliance of Texas, which represents some of the state’s biggest distributors.

Donley worked closely with craft brewers in 2013 to develop a package of successful bills that, among other things, gave production breweries the right to sell a limited amount of beer on site as long as it is poured and consumed there. This March, when the craft brewers returned to Austin in hope of lifting the ban on dock sales, Donley fought back strenuously. On Wednesday, he again insisted that the laws are not harming the craft segment of the industry.

“My god, they’re growing at 20 percent (annually),” he said. “Most companies would love to have that kind of growth.”

Donley said the crafts should wait until the 2-year-old reforms have been in place long enough to see their full impact in the marketplace before trying to further tinker with the three-tier system.

“We have done everything in the world, bending over backward to help craft brewers,” Donley said. “They’re just never satisfied. … They want more, more, more.”

Teagarden, the legal expert, noted that in 2011 a federal judge in Austin ruled against an importer that made similar claims about the different ways breweries and wineries are treated. However, Judge Sam Sparks said the company had failed to provide any evidence the TABC reasons were not rational. The regulators do not have the burden of proof, he wrote.

In another aspect of that same case, the plaintiffs claimed victory because Sparks overturned a TABC requirement that beer be labeled either “Beer” or “Ale,” a distinction that had no scientific basis and was often cited by out-of-state breweries as a reason they could not afford to do business in Texas.

At the time, fellow plaintiff Jester King Brewery of Austin highlighted one of the judge’s comments regarding the failed part of the lawsuit: “The State of Texas is lucky the burden of proof was on (the plaintiffs) for many of its claims, or else the Alcoholic Beverage Code might have fared even worse than it has.”

You can go here if you’d like to contribute to the crowdfunding effort for the lawsuit. There was another lawsuit filed in state court in December 2014 over the requirement for microbreweries to give away their territorial distribution rights for free. I don’t know where that stands right now, but keep it in mind when you read Rick Donley’s words about what a bunch of whiners the microbrewers are, as opposed to those paragons of virtue the distributors and big brewers who are only just trying to hold on to the advantages they’ve always had. We’ll see what the court makes of this one.

More on this session’s beer bills

A story from the DMN about the state of microbreweries and beer-related legislation in Texas.

TexasCraftBrewersGuild

Brewers say they rely on word of mouth among diehard enthusiasts, so they want drinkers — particularly those from out of state — to introduce their beers to friends, neighbors and other connoisseurs. A measure offered by Sen. Kevin Eltife, R-Tyler, would let brewery visitors purchase beer on site to take home with them.

The financial gains from such sales would be minimal. But the ripple effects from word-of-mouth promotions could be big and even promote tourism in the state, said Michael Peticolas, owner of Peticolas Brewing Co. in Dallas who helps keep tabs on legislative issues for the brewers guild.

“Breweries get a huge number of tourists coming in,” Peticolas said. “So often they try something that they like and want to take a stout or a six-pack home for them or their friends. Right now, we can’t sell to them, but Texas wineries and distilleries already get to do this.”

Another bill would make further inroads in self-distribution by allowing brewers to store ale in a different county, expanding a provision that already applies to other beer styles.

Currently, if Peticolas wants to reach out to retailers in Austin or San Antonio to sell his Velvet Hammer Imperial Red Ale, a driver would have to return unsold products to Dallas that same day.

Read that last sentence and remind yourself of it the next time you hear someone go on about how much we love free markets here in Texas. While craft brewers are working to build on the gains they made in 2013, there are also efforts to restrict things further.

Peticolas, along with Granbury’s Revolver Brewing, is among a handful of brewers suing the state to have more control over distribution.

In 2013, the Legislature prohibited brewers from selling distribution rights. Before, distributors would pay brewers for the right to sell their beer in certain markets. Craft brewers say they would then use that money to reinvest in their brew.

But now, they must give those rights to distributors for free, although the distributors can sell the rights for profit.

Legislation offered by Sen. Senfronia Thompson, D-Houston, would slash distribution rights further. Her bill would reduce the number of barrels that microbrewers could self-distribute from 40,000 to 5,000. Each barrel is the equivalent of about two standard kegs.

Rick Donley, president of the Beer Alliance of Texas, said his group helped bring craft brewers and others together to compromise on legisation two years ago. So industry representatives were surprised when craft brewers sought legislation such as Eltife’s bill this year, he said.

“They made no attempt to engage those same stakeholders,” Donley said. “So there is a natural reluctance to not support it, especially when we don’t see the benefit for us. The legislative process is the spirit of compromise, and we certainly feel some of these bills violate the spirit of that agreement.”

Donley said craft brewers are thriving in the current system.

“They already have every tool they need now to have access to the market,” he said.

Brewers believe Thompson’s bill “would be a huge blow for us,” said Steve Porcari, a co-founder of Four Corners Brewing in Oak Cliff. “The day it was filed, one of my drivers asked what it meant, and I said it meant he’s out of a job if it passes.”

[…]

In a written statement, Thompson said her bill is meant get brewers back into the long-standing system of checks and balances.

The 2013 agreement “was intended to give craft brewers access to the market and move them to the traditional three-tier system as quickly as possible,” Thompson said. “There is a movement afoot to break the agreement, and I trust all sides will make good on their promise.”

[Charles] Vallhonrat, of the [Texas Craft Brewers Guild], acknowledges that craft brewers worked with distributors and others two years ago, but he disputed that the agreement included a cut in self-distribution rights.

Distributors, he argued, could be hurt by the new plan, too. They might have to take bigger risks on new brews before they’ve proved popular.

“I don’t know what it is we’re not honoring,” Vallhonrat said. “Business is growing, and we want to help it grow on both sides, for brewers and distributors.”

See here for more on that lawsuit. I don’t know where things are going to go from here in this session, but it seems clear that the brief period of consensus that we had in 2013 has passed. Also unlike 2013 and sessions before that, I’m not aware of any organizing efforts by the craft brewers. They have the Guild and I’m sure there’s a lobbyist or two on the ground for them, but there’s been little to nothing to engage the public as there has been in the past. I hope that doesn’t work against them this time.

Beer legislation 2.0

Just because craft brewers succeeded in passing a bill allowing them to sell beer for consumption on their premises last session doesn’t mean there isn’t more that can be done to advance the cause of beer freedom.

TexasCraftBrewersGuild

Twinned bills introduced this week would extend direct sales for breweries. The proposals by state Sen. Kevin Eltife, R-Tyler, and state Rep. Jim Keffer, R-Eastland, would let customers buy beer that they could take away and drink later.

“This gives Texas breweries the same rights already enjoyed by wineries, distilleries and many of their out-of-state competitors,” Keffer said in a written statement distributed by the Texas Craft Brewers Guild.

Under the bill, consumers would be restricted to a single purchase of no more than the equivalent of two cases of beer each month at a brewery. Advocates say this type of “souvenir” beer, often sold following tours or special events, can be an effective marketing tool.

“This legislation is designed to finish what we started last session and bring people from around the country to this state which is rapidly becoming the epicenter of craft brewing quality,” Eltife said in the statement from the Brewers Guild.

[Rick] Donley said the Beer Alliance [of Texas] is still digesting the details of this and other legislation affecting alcohol sales in Texas, but he sounded skeptical.

The Beer Alliance and major wholesalers have contributed many hundreds of thousands of dollars to numerous political campaigns in Texas since the beginning of 2013. Major recipients include Gov. Greg Abbott and Lt. Gov. Dan Patrick, but the Beer Alliance of Texas PAC also gave a total of $5,000 to Eltife in June 2013, Texas Ethics Commission reports show.

Donley said it has been only a year and a half since the most recent law changes went into effect, and his organization would like more time to see how that plays out in the marketplace.

He also said he thinks the two-case-per-month limit is too high and he would want an annual cutoff on how much breweries could sell this way. The exemptions approved in 2013 limited breweries to selling no more than 5,000 barrels of beer on site. While the bill currently does not specify an annual limit, a spokesman in Eltife’s office said the 5,000-barrel limit would still apply to all beer sold on site, whether it was sold for on- or off-premise consumption.

Donley said the ongoing success of Texas craft brewing further suggests the industry does not need additional help.

[…]

Brock Wagner, owner and founder of Houston’s Saint Arnold Brewing Co., insisted the craft brewers are not seeking to replace traditional retailers. Rather, he said, this legislation would address the most common question from tour and special events visitors – why they are not allowed to buy beer to take home – and boost awareness of the brands.

Wagner also said lawmakers are probably more inclined to view craft brewers as important small businesses that deserve the state’s support.

See here and here for some background. As noted by the Texas Craft Brewers Guild, the bills in question are Senate Bill 1386 and House Bill 3086. I understand the Beer Alliance’s hesitation – and it should be noted that they were among the good guys in 2013 – but it’s still crazy when you think about it that brewers can’t sell a six pack or two to the people that come to visit their facilities. It would be one thing if there were a blanket prohibition on all forms of booze, but that’s not the case – Texas’ wineries and distilleries can sell bottles on site. So can microbreweries in other states. What Texas does makes no sense, and it’s all about what the big brewers and distributors want. The difference between the faith in free markets that people constantly proclaim in this state and the actual freedom of some specific markets never fails to boggle my mind.

Anyway. As those links above point out, there were other issues that the 2013 legislation did not address that remain untouched by these bills. Licensing fees remain high, and microbrewers were forced by another bill from 2013 to give away their territorial distribution rights instead of being allowed to sell them. Again – crazy, right? A lawsuit was filed last December to overturn that law. I don’t know where that stands now, but there’s apparently no legislative fix for it. So, while this has been a lot more low-key this session, there’s still a lot to be done to make the beer market in Texas what it should be.

Microbreweries file lawsuit over distribution rights

Interesting.

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Three Texas breweries filed a lawsuit against the state on Wednesday seeking to to overturn a 2013 law they say violates the Texas Constitution by forcing them to give away their territorial distribution rights for free.

In their complaint, filed in state district court in Austin, the heads of Live Oak Brewing in Austin, Peticolas Brewing Company in Dallas and Revolver Brewing in Granbury, say that were it not for Senate Bill 639, they would be expanding. Instead, their plans to bring their beer to new markets around the state have been put on hold.

In the suit, they accuse the law of “stifling the Texas craft beer renaissance.”

[…]

There are three “tiers” in the alcoholic beverage industry: brewers who make the beer, retailers who sell it, and distributors who pick it up from the former and bring it to the latter.

Prior to 2013, craft brewers could negotiate payment from distributors for the exclusive rights to deliver their beverages in a certain area. But the law, authored by state Sen. John Carona, R-Dallas, prohibited the sale of these territorial rights.

Carona was not immediately available for comment on Wednesday. He told the Dallas Observer in 2013: “What happens when the large manufacturers decide to require payment from a distributor for the right to distribute their brand? We could be back where we started from, with those who won’t pay to play getting muscled out of the marketplace.”

Distributors are not prohibited from selling territorial rights that they have acquired to another distributor. The craft brewers’ complaint says, “A distributor is thus able to receive territorial rights for free and re-sell them for a profit.”

This strikes the brewers at Live Oak, Peticolas and Revolver as unfair — and in violation of the state’s constitution, which says that a person’s property can not be taken without consent unless it is for use by the public or an entity granted the power of eminent domain. Miller said it was likely that other craft breweries will join the lawsuit.

These territorial rights are “a valuable piece of property” that brewers should be able to sell in order to generate revenue for the growth and expansion of their companies, the lawsuit says.

You can read the lawsuit here. SB 639 generated controversy from the moment it was filed; it was clearly seen as a sop to the distributors that were trying to derail the package of craft beer bills that ultimately passed last session. It was a modified version of SB 639 that ultimately passed, but the objections to it remained. Austin brewery Jester King singled out SB 639 after the session as a remaining obstacle to the continued success of craft beer in Texas. I’ll be very interested to see who else gets involved in this litigation, and what bills get filed in the Lege this session to address those lingering concerns with SB 639.

A preview of the next beer battle

Texas microbreweries are now officially selling their wares on premise. Woo hoo!

In business for nearly 19 years, Saint Arnold Brewing Co. sold its first cold one directly to a customer [in June], thanks to a new law liberalizing the way beer is bought and sold in Texas.

The buyer, 22-year-old Dale Edwards, made his $8 purchase to the click and whir of cameras and a round of cheers from the afternoon tour group, then sipped a heavy stout that marked a turning point for Saint Arnold and the state’s fast-growing craft-brewing industry.

[…]

Customers must drink the beer there, however, as some of the competing interests successfully resisted efforts to allow people to take home packaged beer.

Just hours after the ink dried on Perry’s signature, Houston’s Buffalo Bayou Brewing sold its first beers during its Saturday tour. Owner Rassul Zarinfar said he sold $18 worth of beer in addition to the samples that are included in the admission price.

Saint Arnold also plans to continue including samples in its tour prices but in addition will offer select special-release beers for sale.

CultureMap rounds up what the other craft brewers in town plan to do with their new freedom. It’s been such a long time coming that it’s almost hard to believe. Saint Arnold is at the forefront here, and I really look forward to how they and their colleagues innovate now that they have this capability. But while we celebrate this achievement and all the good it will bring, it’s important to remember that there’s a lot more that could have, and still should, be done. The Jester King brewery lays it out.

While the new laws represent major progress for Texas beer, there are some realities that we are not pleased with. There still exist exorbitant licensing fees in Texas that keep beer from small, artisan brewers out of our state. We still will not be seeing beer from Cantillon or Fantome on Texas store shelves anytime soon. We feel strongly that in order for Texas to become a truly world-class beer state, it must eliminate the massive licensing fees that keep out beer from small, artisan producers. We have written extensively on this topic before, which you can read here.

We are also not pleased with the passage of SB 639, which makes it expressly illegal for breweries to sell the right to distribute their products to wholesalers, while making it expressly legal for wholesalers to sell those same rights to one another. This law is tantamount to legalized theft, and we will join future efforts to see it overturned. For our complete commentary on SB 639, please follow this link.

Again, we are thrilled for Texas law to have changed. We were skeptical whether it would ever happen after repeated defeats in the legislature. First and foremost, we want to thank beer drinkers across the state who voiced support for the bills and gave their time and/or money to our cause. We would also like to thank Open the TapsThe Texas Craft Brewers Guild, Brock Wagner of Saint Arnold Brewing Co., Scott Meztger of Freetail Brewing Co., The Beer Alliance of Texas, and journalists who helped shed light on the injustices inherent in Texas beer law. There is still much work to be done in making Texas a better place for beer and beer drinkers, but these changes represent a dramatic, positive step forward.

See here and here for my blogging on SB639, which helped to land Sen. John Carona on the Ten Worst Legislators list for this session. You should also follow the Jester King link to learn more about what still needs to be done. Here’s an excerpt:

Imagine a local event, right here in Austin, where you could sample hand-crafted beers from both the world’s most highly regarded artisan brewers, and talented newcomers whose names you probably never even heard before. OK, now stop imagining and instead start planning your trip to wherever next year’s festival is going to be held, because without some serious changes to Texas law, there is absolutely no chance that it will ever come here.

In order for an event like this to take place in Texas, every individual, participating brewer, including foreign brewers, would need to pay up to $6,128 in licensing fees, fill out extensive paperwork (available only in English) and submit each of their beers that they planned to pour for label approval, along with either samples or a certified laboratory analysis, even if they had no intention of doing any future business in the State. Of the 70+ artisan producers in attendance, you could easily count on one hand the number whose products are currently available in Texas, and unless the law changes, we aren’t likely to see that number increase all that significantly anytime soon.

There’s been a good deal of focus placed on the need to change the laws prohibiting Texas production brewers from selling their products to the general public on site and preventing Texas brewpubs from distributing theirs off site, and we absolutely, wholeheartedly support the collective efforts that are being made to eliminate these restrictions. At the same time, however, we also feel that in order for Texas to develop a truly world-class artisan beer scene, in addition to supporting its local brewers and easing the path to market for small in-state start-ups, it also needs to remove the economic and regulatory barriers that seem virtually designed to deny its citizens access to world-class artisan products that happen to be made outside its borders.

They have a chart of per-unit costs for breweries of various size to illustrate their point. It’s clear that everyone who was involved in getting the good bills passed recognizes the need for more work, and I expect they’ll be back in 2015 to push for more. That fight will be more difficult – as far as the public is concerned, the problem has been solved, and as SB639 represented a last stand by the Wholesale Beer Distributors of Texas you can be sure they’ll lobby like crazy to protect it – but it needs to be fought. Again, this is about making the beer market in Texas more closely resemble an actual free market. You’d think the way so many politicians in this state croon about the virtues of the free market that this would be a no-brainer, but then we’re really much more about being pro-business than pro-market. The two are very much not the same, as the long slog to get any freedom for craft brewers attests. The fight picks up where it left off in another 18 months.

Craft beer bills pass the House

Hallelujah!

A raft of bills that would dramatically alter the way beer is sold and consumed in Texas sailed through tentative approval from the House on Friday after a lengthy and disputatious process between brewers and beer distributors. If finally approved next week, the legislation will go straight to the governor’s desk without another stop.

The bills represent the largest overhaul of the industry in Texas since the Legislature legalized brewpubs in 1993. Under the new regulatory scheme, brewpubs and craft brewers would be allowed more flexibility to sell their products — privileges beermakers have sought for more than a decade.

The package includes Senate Bills 515, 516, 517, and 518, by state Sen. Kevin Eltife, R-Tyler, which decrease restrictions on craft brewers and brewpubs.

Under the new rules, the cap on brewpub production would be doubled, from 5,000 barrels a year to 10,000. Brewpubs would also be allowed to sell their beer to distributors, in addition to selling limited amounts of their own beer directly to retailers.

The bills adjust breweries’ right to circumvent beer distributors and sell beer directly to retailers. Larger breweries than before would now be allowed to self distribute, but the limit on how much they are allowed to self distribute has been lowered.

Also, breweries would now be able to sell beer for on-site consumption — a major victory for Frank Mancuso, the Central Texas sales representative for the Saint Arnold Brewing Company of Houston, the oldest craft brewer in the state. Mancuso came to the House Gallery with a large number of other Texas brewers, who broke into applause when the last of the bills finally passed.

“We’ve been working on this for eight sessions now,” he said. “Selling beer at our location is something we’ve wanted to do for a long while.”

I only remember this going on in the last four sessions, but regardless, it’s been a long and arduous road to this point. I’m going to crack open a Saint Arnold’s to celebrate. Major kudos to everyone involved – I’m especially proud to say that my State Rep through 2012, Jessica Farrar, was an early and ardent leader in this fight. Here’s a little beer music to commemorate the moment. Please note that it contains some naughty language, so exercise care while watching:

We do love beer. Thanks to these bills, it’s easier to love.

Craft beer bills pass out of the Senate

A good day indeed.

The Texas Senate voted Monday to give craft brewers and brewpubs new opportunities to sell their beer.

“To see that happen was amazing,” said Scott Metzger, a San Antonio brewpub owner who worked with other brewers, legislators and wholesalers in negotiating a compromise.

Brock Wagner, owner of Houston’s Saint Arnold Brewing, called it a critical step toward passage of the state’s most significant beer-related legislation in 20 years.

“We still have a path to follow,” he said.

Metzger watched via his office computer at Freetail Brewing as the Senate voted 31-0 to approve two bills promoted by the Texas Craft Brewers Guild. An economic impact study Metzger prepared for the guild predicts the measures will spark even stronger growth for the state’s burgeoning craft beer industry.

[…]

Rick Donley, president of the Beer Alliance of Texas distributors group, which supported SB 515 and 518 from the beginning, called it “a good day for the craft-brewing industry,” including manufacturers and wholesalers.

As Metzger noted, SBs 516 and 517 were not taken up because the Senate can only vote on so many bills on a single day at this point in the session. They were subsequently passed unanimously on Wednesday. SB639, the Carona bill, was also approved after some modifications were made that settled most of the objections to it. All bills now await hearings in the House, and signs look good for passage. Put some beer in the fridge in anticipation of it finally happening.

Craft beer legislation advances

Moving forward.

Legislation authorizing the most significant changes in 20 years to the way beer is bought and sold in Texas passed a key Senate committee Tuesday with broad support.

Under terms of the bills, Houston’s Saint Arnold and other Texas craft breweries could sell a limited amount of beer on site and brewpubs like San Antonio’s Freetail Brewing could package some of their product for sale in stores, bars and restaurants.

The breweries, meanwhile, would be prohibited from accepting cash payments for the rights to distribute their beer in specific geographic regions, but they would be allowed to continue to share marketing and some other costs with their distributors.

“It’s an exciting day,” said Scott Metzger, the owner of Freetail Brewing, who has been negotiating on behalf of the Texas Craft Brewers Guild. “ … We have a path ahead of us.”

Final terms of the bills – four of which were developed after yearlong negotiations between brewers, lawmakers and distributor and consumer groups – were hammered out under a tight deadline set last week by the chairman of the Senate Committee on Business & Commerce, who introduced a competing bill and ordered the two sides to reach a compromise.

The committee approved all five amended bills unanimously Tuesday and sent them to the local calendar committee for expedited scheduling before the full Senate. Metzger said a signed agreement among stakeholders with an interest in the bills should expedite companion bills in the House.

Metzger and Brock Wagner of the Saint Arnold brewery both expressed positive thoughts on this, while spokespeople for the Beer Alliance of Texas and the Wholesale Beer Distributors of Texas, who had played the role of villain prior to this, both basically said everyone got some of what they wanted and no one got everything. In its summary of the legislation, Open The Taps says that “at least a few craft brewers are not pleased with the limitation on selling their brand territorial distribution rights”, which is an aspect of the Carona bill that had been criticized by everyone except the Wholesale Beer Distributors. My feelings on this are in line with Open the Taps, which writes in its analysis of the bills:

This is by no means a perfect package of regulatory changes, but again it is a good step. Things happen incrementally in legislative bodies, and we will be back next session if necessary to continue the fight to OPEN THE TAPS in Texas.

We still have a few points on our wish list to accomplish, and we are looking for ways to implement those points, but this may be the most we can get at this time and we will consider it more progress than has been made since 1993 when brew pubs were first allowed in Texas, post-prohibition.

See also Scott Metzger’s analysis of the bills and the process that led to the package that emerged from committee. This is tangible progress and a big deal in its own right, but hardly the end of the line. Now let’s get this across the finish line, and we can see where to go next from there. Good job, y’all.

Craft beer bills get their hearing

From the Trib:

The Senate Business and Commerce Committee on Tuesday acted as legislative referee over bills that would allow craft breweries to sell on their premises and self-distribute in Texas, but critics said the legislation would hurt the state’s system of alcohol production and distribution.

“It’s two different visions of where the beer industry in Texas needs to go,” said Rick Donley, president of the Texas Beer Alliance.

State Sen. Kevin Eltife, R-Tyler, filed a package of bills in February that would make significant reforms to the Texas Alcoholic Beverage code and the state’s three-tiered system that regulates the production, distribution and retail sales of beer separately, dating to the end of Prohibition.

Eltife said the legislation also puts Texas brewers “on a level playing field with other states” in their treatment under the law. The change is strongly supported by the Texas Beer Alliance, which lobbies for major-brand beer distributors and some craft brews. Donley said the legislation supports the growth of craft breweries and addresses lawsuits surrounding the Commerce Clause.

[…]

The Texas Beer Alliance did not always champion these changes, but craft breweries have recently become the industry’s gold mine. “It is the only segment in the industry to show growth in the last four years,” Donley said.

But Eltife’s bills are being challenged by Senate Bill 639, filed by state Sen. John Carona, R-Dallas, and supported by the Wholesale Beer Distributors, which presents a host of complex changes to the code, centered on severability, reach-back pricing and distribution — problems that Carona’s staff argues go unaddressed in Eltife’s bills.

“For whatever reason, the working groups didn’t anticipate the issues that you find in 639,” said Steven Polunsky, Carona’s committee director. “If passing craft beer was easy, it would’ve been passed three sessions ago.”

With all due respect, the reason why this has been so difficult and so time-consuming is because there are entrenched interests at work. Big breweries and the big distributors have fought for the status quo because it’s a great deal for them, and they don’t want the competition. Thanks in part to a scaling back of their ask, a persistent grassroots campaign, and a welcome alignment with the Texas Beer Alliance, Sen. Eltife’s bills have a chance. Sen. Carona’s alternate bill is opposed by the craft brewers, the TBA, and as this AP story notes, the Texas Association of Business, the Texas Association of Manufacturers and Anheuser-Busch InBev as well. The Chron has more on what a pasting Sen. Carona’s bill took.

“That is very simply a government-sponsored price-fixing cartel,” Mario Loyola of the Texas Public Policy Foundation said in testimony before the Senate Business and Commerce Committee in Austin.

He cited a provision that would force manufacturers to charge one price to distributors statewide, regardless of varying market circumstances, but allow the distributors to sell to retailers at any price they wished. Supporters say this would clarify existing law and prevent dishonest dealing by brewers, but it was widely derided Tuesday

“From the consumers’ point of view, that’s the worst of all possible worlds, restricted output and higher prices at every level,” said Loyola, who has written for conservative publications and served as a state policy adviser to former Republican U.S. Sen. Kay Bailey Hutchison.

“In fact, the law, in our view, should be amended in exactly the opposite direction.”

In a crowded hearing room lined with craft brewers and other industry representatives, the lone supporter testifying for the measure, Senate Bill 639, was Randy Yarbrough of the Wholesale Beer Distributors of Texas.

State Sen. Leticia Van de Putte, D-San Antonio, politely grilled Yarbrough after noting that the wholesalers group had not raised these issues during a yearlong series of meetings that brought industry and legislative leaders together to hammer out legislation.

Another critic, Anheuser-Busch’s Dallas-based region vice president of sales Keith Diggs, pointed out that in other states where such pricing mandates have been enacted, consumer prices increased markedly. He said SB 639 ignores that “what goes on in East Texas is not the same as what goes on in Brownsville, Texas.”

Ouch. The thing is, the Wholesale Beer Distributors don’t need a bill to pass to win – they just need to play defense. Filing Carona’s SB 639 was an extra layer of defense, and perhaps a sign that this time they’re worried. But it’s still easier to kill bills than to pass them, and just because there’s been progress doesn’t mean there will be success. Keep letting your Rep and your Senator know that you support a genuinely free market for beer in Texas. Open the Taps presented written testimony for the Eltife bills and has a recap of the hearing, and the Rivard Report has more.

I knew all this beer harmony couldn’t last forever

We have some legislative beer controversy on our hands.

Sen. John Carona

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.

More on the microbrewers’ legislative strategy

The Statesman returns to our favorite subject.

The small brewers, generally a young and passionate group, always have been better at creating hoppy and original brews than navigating the Legislature and the network of big-money lobbyists who are experts at quietly influencing politicians. The lack of political savvy among craft brewers has hampered their efforts to make Texas more friendly to craft beers, as Oregon, California and Colorado are.

“Part of our frustration in the past is we have seemingly been fighting against invisible enemies,” [Freetail Brewing CEO Scott] Metzger said. “We never really felt like we got our fair shot.”

They will try again during the next legislative session, which begins in January. But this time, they have a new tactic: befriend the two powerful wholesale beer distributor lobby groups that opposed their measures in the past: the Beer Alliance of Texas and the Wholesale Beer Distributors of Texas.

“We’re trying to build consensus with the stakeholders who have been in opposition in the past,” said Metzger, founder and CEO of Freetail Brewing Co. in San Antonio and an economics professor at the University of Texas-San Antonio.

The lobby groups have said recently that they appreciate craft brewers and support them. Still, they have been reluctant to back the small brewers for fear that fracturing the three-tier system could threaten their ability to make money.

Craft brewers selling at breweries might take a small piece of distributors’ business, but if larger beer makers somehow exploit exemptions to the three-tier system to self-distribute, then distributors could find themselves losing money.

Rick Donley, president of the Beer Alliance, said his organization is in the middle of “delicate negotiations” with the craft brewers and that his group might be on board next time. “We’re not closing the door,” he said. Still, he has concerns. He said he fears federal court challenges if the three-tier law is changed too much. He wasn’t specific, but he said a federal case could open floodgate for legal issues that could hurt his clients.

Keith Strama, a general counsel for the Wholesale Beer Distributors of Texas, said his organization sees “craft brewers as a strong ally to promote the industry in the state” and gladly will work with them. But, he said, “we’re reluctant to support proposals that further deregulate the system.”

Yes, God forbid we should ever have a free market for beer in Texas. It’s a good thing for the distributors that they have clout in Austin, because if this were ever put to a vote of the people, they’d get creamed. See here for more.

Our stupid beer laws in action

Stop me if you’ve heard this one before.

Owners of the popular Eatsie Boys food truck will open their first stand-alone restaurant later this year on Montrose Boulevard, serving everything from breakfast items to sandwiches to house-made gelato.

Closer to downtown, and possibly around the same time, the young entrepreneurs will cut the ribbon on their 8th Wonder Brewery. They recently took possession of a brand-new brewhouse and three shiny tanks that will produce craft beers like Alternate Universe, Hopston and Intellectuale, “the beer that makes you think.”

But don’t expect to see any of those brews on tap at their restaurant. Texas law forbids it.

“What a joke is that?” asked Ryan Soroka, a founding partner of both operations. ” … It makes no sense that we’re doing things the way we have to do them.”

[…]

In Texas, brewers must decide whether they want to be a shipping brewery, á la Saint Arnold or Anheuser-Busch, which are prohibited from selling their own products directly to consumers, or a retail brewpub, which cannot distribute to bars, stores and other restaurants.

The catch for 8th Wonder as a shipping brewery is that holders of a Texas brewer’s license are barred from selling alcohol on-site or at any other establishment they own. Licensees are forbidden even from giving away samples at any retail site they own, a Texas Alcoholic Beverage Commission spokeswoman said.

So for now, at least, Soroka and his business partners will make beer in an old warehouse east of downtown and run a separate (and dry) cafe in the former Kraftsmen site at 4100 Montrose.

Despite what the shill for the Wholesale Beer Distributors of Texas says later in the story, this arrangement, which is solely to the benefit of the distributors and the big brewers, is hurtful to small outfits like 8th Wonder and to beer drinkers everywhere. It’s the same old story and will continue to be until there are enough members of the Lege who are willing to do something about it. Towards that end, I will point you again to Open the Taps and their Beer Voting Guide. Beer lovers have made progress in each of the past three legislative sessions, and as long as we keep up the pressure, we will eventually get the Lege to do the right thing.

RIP, HB602

Dammit.

Texans won’t be buying liquor on Sunday and the state’s 29 brewpubs won’t be competing with their out-of-state rivals on local grocery shelves.

And Texas breweries or liquor distillers still can’t sell a 12-pack of beer or a souvenir bottle of bourbon to tourists, as the Legislature has killed all bills related to changes in state laws on beer and liquor retailing.

“We got railroaded,” said Dan Garrison with Garrison Brothers Distillery, a Hill Country distiller who wanted the ability to sell a souvenir bottle of his bourbon to tour groups.

Garrison’s comment could sum up the frustration of the smallest players in the state’s beer and liquor industry that is controlled by giants.

Rep. Mike Hamilton, R-Mauriceville, chairs the House Committee on Licensing and Administrative Procedures, where most of the alcohol-related bills died this session.

He said it’s difficult to change decades-old laws without affecting someone’s financial interest.

Translation: It’s difficult to give small brewers and distillers an even break because doing so might put a tiny dent in the massive, oligarchic profits of the big distributors.

Most attempts to change beer or liquor laws eventually bump up against the state’s post-Prohibition rules that maintain distinct boundaries between manufacturers, distributors and retailers, in what is commonly called the three-tiered system.

House Bill 660 would have allowed brewpub owners to sell their beer through distributors at retail outlets. The brewpubs said they would expand and create jobs.

The Beer Alliance of Texas and the Licensed Beverage Distributors supported the bill, while the rival Wholesale Beer Distributors of Texas opposed it. That was enough to kill it in Hamilton’s committee.

Likewise, Rep. Jessica Farrar’s House Bill 602, which would have allowed microbreweries to sell 12-packs of beer to tour groups, fell victim to competition between two distributor groups.

And once again, the deciding factor in this debate is what’s good for the distributors, and not for the customers. The customers always lose. On the one hand, legislation to allow microbreweries to sell their product onsite made it farther than it had before, and given the way the Lege works you have to hope that this represents progress. On the other hand, to come this far and see it fall just short is that much more wrenching because you could see the finish line. I’m sure I’ll feel hopeful again in time for the next session, but for now I’m just pissed off. Lee Nichols has more.

UPDATE: Here’s the Chron story.

Saint Arnold Brewing Co. founder Brock Wagner, one of the driving forces behind this and two previous legislative efforts, said he was “annoyed” at the continued failure to pass a bill that had no other organized opposition.

“We just got outgunned,” he said.

“The laws in Texas need to be changed,” he said. “Right now, the laws in Texas are biased against in-state craft breweries. It makes no sense.”

I couldn’t agree more.

HB602 clears Senate committee

One more step forward for microbreweries and their ability to let customers bring their product home after a tour, as HB602 gets voted out of the Senate Business & Commerce Committee.

HB 602 is a compromise – it still bans true retail sales, but would allow small breweries to give away up to 144 ounces of their product to a brewery visitor at the end of a paid-admission brewery tour.

Language was added limiting the privilege to only breweries producing less than 75,000 barrels per year in order to get WBDT on board, but last Wednesday, Anheuser-Busch objected to that amendment, saying it unfairly discriminated against big breweries. And as one of the world’s largest breweries, including a facility in Houston, you can guess what kind of clout A-B carries. The bill, which had already passed the House, was pulled down by its Senate sponsor for further discussion.

The bill, including the production cap, has now been recommended for the “Local & Uncontested” calendar in the Senate.

“I thought the bill was dead,” said Brock Wagner of Houston’s Saint Arnold Brewing, one of the leading proponents of HB 602. “I’m cautiously optimistic. I hope it continues moving forward with no baggage to weigh it down.”

See here for the earlier drama. Here’s the text of the bill as it passed out of committee. This is definitely encouraging, but we’re very late in the session, and the differences between the House and Senate versions of the bills, with the differing lobbyist perspectives, means there will be no guarantees. If someone wants this dead enough, it can be killed. Keep your fingers crossed, and keep calling your legislators to let them know you want to see this bill passed. Via I Love Beer.

Compromise microbrew bill voted out of committee

From Brewed and Never Battered:

Congrats to Brock Wagner, the folks at St. Arnold, and all the other Texas brewers, distributors and retailers supporting HB 602 which today passed the House Licensing and Administrative Procedures Committee by a vote of 6-0. Next up is the Local & Consent Calendar Committee, which will place the bill on the Calendar for a vote before the entire house.

As far as HB 660 goes, we are still trying to arrange for it to be brought up for a vote before the committee. No further news at this time.

HB602 is Rep. Jessica Farrar’s bill, the compromise bill that even the beer distributors support. Farrar’s 2009 bill did make it out of committee, but not until May, and it died even before the Great Chubfest of 2009. Maybe this year it finally makes it, and if so it will be a big step forward. As always, now would be an excellent time to call your State Rep and State Senator and let him or her know that you favor a Yes vote on HB602. And HB660 too, if it ever makes it out of committee.

From the “Capitalism is scary!” files

If you’ve been following the brewpubs’ efforts to get a bill passed that would allow them to sell their wares elsewhere in Texas then this Statesman story doesn’t bring much new to you. What it does do is cleanly capture the absurdity of the arguments against giving brewpubs and microbreweries greater access to the market in Texas.

The [Wholesale Beer Distributors of Texas] is very protective of the state’s post-Prohibition alcoholic beverage laws, which divide the industry among breweries, distributors and retailers and bar anyone from owning businesses in more than one category.

That means anyone wanting to sell outside of his own premises to consumers has to go through the distributors.

There are minor exceptions, including the legalization of brewpubs in Texas in 1993. Texas regulators consider brewpubs to be retailers, even though they also brew beer.

It’s a tiny industry. In 2009, Texas brewpubs produced 12,755 barrels of beer and grossed $31.9 million in sales, according to a report commissioned by Texas Beer Freedom.

But Mike McKinney, a lobbyist with the Wholesale Beer Distributors, says too many exceptions might invite industry giants to lobby the Legislature to change the system.

“We don’t want Anheuser-Busch to own a chain of grocery stores or nightclubs,” McKinney said.

[…]

Both sides cite the Texas wine market, which allows wineries to sell both to consumers at the vineyards and to wholesalers for distribution in stores, in their arguments about HB 660.

McKinney says the wine market is “chaotic.”

Scott Metzger, an economist who also owns Freetail Brewing Co. in San Antonio, says the number of Texas wineries jumped from 46 to 181 after the Legislature loosened the regulatory restraints.

[…]

The key to passing HB 660 is the House Committee for Licensing and Administrative Procedures, where the bill was pending while both sides lobby behind the scenes.

The chairman, state Rep. Mike “Tuffy” Hamilton, R-Mauriceville , echoes McKinney’s concerns that the bill could “open the door” to unintended consequences.

You mean like something resembling a free market? Oh noes! Whatever will we do? Very simply, the distributors have a nice little setup for themselves that guarantees them eternal profits, and they don’t want that to change in any way. It’s all about them trying to maintain a status quo that serves their interests a lot better than anyone else’s. Brewed and Never Battered has more.

More on the microbrew compromise

Brewed And Never Battered gives its report from the House Licensing and Administrative Procedures Committee hearing yesterday.

Briefly on HB 602: No one expressed opposition, not even the Wholesale Beer Distributors of Texas, who have opposed the bill in the past. There is some forthcoming compromise on that bill that apparently everyone is happy with and it looks like you’ll be able to take beer home after a brewery tour later this year.

HB 660 had a tremendous number of supporters, and the roll of names read into the record as supporters of the bill was long and impressive. Among those in support but not wishing to testify were a number of beer distributors and the Texas Restaurant Association.

As you may have read, we’ve gained the support of the other tiers through thoughtful discussion with interested stakeholders. Beer distributors were concerned about self-distribution for a business type that already sells directly to the consumer, and we understand their points. Self-distribution has been removed from the bill. We also lowered the annual limit for aggregate production to 15,000 barrels per brewpub. A number we are very comfortable with. I’m pleased that we were able to come up with a bill that all three tiers really like.

We did have one person oppose our bill, however. Keith Strama, representing the Wholesale Beer Distributors of Texas, stood up and presented a semi-coherent rambling about how we should allow these kind of changes to the code because… well, just because. Seriously. Strama did present some other barely comprehensible argument, which was called onto the rug in short order by Committee Vice-chair Chente Quintanilla of El Paso. Video of the entire hearing, which you can find here, proves quite entertaining. Strama should have just stuck to “Uh… just because” – turns out that was a better argument than the one he was trying to make.

[…]

What’s Next.

With the WBDT exposed, the ball is back in our court. We have one or two weeks at the most to earn the votes of the committee, after that it will be too late to advance this session. Right now I think we have 4 votes. We need 5. Time to turn up the pressure and continue to urge members of the committee that this the right thing to do. Continue those calls and emails (I’ll post a sample follow up letter tomorrow).

The link to find committee members is here – you can search for the Licensing & Administrative Procedures committee, or just take my word for it that it contains the following members:

Chair: Rep. Mike Hamilton
Vice Chair: Rep. Chente Quintanilla
Members: Rep. Joe Driver, Rep. Charlie Geren, Rep. Roland Gutierrez, Rep. Patricia Harless, Rep. John Kuempel, Rep. Jose Menendez, Rep. Senfronia Thompson

It would be especially helpful for you to express your support for HBs 660 and 602 if one of these folks is your Representative. There clearly is a lot of support for this bill, but until the committee votes it out, that doesn’t mean anything. Lee Nichols has more.

Compromise on microbrew bills

As Brewed and Never Battered noted, HB660 and HB602 were scheduled for a public hearing in committee today. I’m delighted to say that it looks like there was progress achieved on them.

Rep. Mike Villarreal, D-San Antonio, laid out HB660 before the House Licensing and Administrative Procedures Committee today. The measure, in its original form, would’ve allowed brewpubs — restaurants that brew their own beer — to distribute directly to other bars, restaurants and stores. But after a compromise with the Beer Alliance of Texas, the bill would only allow brewpups to sell their bottled wares via a beer distributor.

Villarreal told the committee that brewpubs are already manufacturing beer, and that Texas’ regulatory system is stunting their growth. Brewpubs in other states are allowed to sell to distributors, meaning Texas is losing out on what could be a growing business, Villarreal said.

“If it is putting our playing field at a built-in disadvantage to our brewpubs, versus out-of-state brewpubs, then it needs to change,” said Villarreal.

But opponents of the bill, including the Wholesale Beer Distributors of Texas, say allowing brewpubs to sell to distributors would break down the three-tiered system that regulates the production, distribution and retail sales of beer separately — and which has been around since Prohibition. The system is meant to make it easier to regulate and tax beer sales and keep any one company from gaining a monopoly.

They suggest a round-about alternative: HB602, which would allow breweries to charge admission for tours and include up to two six-packs of beers to give to tourists at the end of the tour. Keith Strama, who represents the Beer Distributors, told the committee if HB602 passes, brewpubs could change their licenses to become manufactures of beer, so that they could sell to distributors, sell during tours, and open a restaurant on the premises.

Rick Donley, president of the Beer Alliance of Texas, told the committee that he is a staunch supporter of the three-tier system, but that after working with Villarreal and the brewpub owners, a compromise was reached. Originally, the bill would have allowed brewpubs to sell a limited amount of their product directly to stores and other restaurants and bars, bypassing the distributors. The amended bill makes the distributors the middle man.

Scott Metzger, a brewpub owner and executive director of Texas Beer Freedom, said he’s pleased with the compromise. Being able to sell his beer to a distributor will help him grow his business, Metzger told the committee, but would also help grow the state’s economy and its tax revenue. Metzger, who is also an economics professor at the University of Texas at San Antonio, told the committee the bill has the potential to create $680 million a year in economic activity, 6800 new jobs at brewpubs and $57 million in new tax revenue per year.

Personally, I’d prefer to see the three-tier system thrown onto the ash heap of history, but if Scott Metzger is happy with this compromise, then so am I. If what they say about HB602 is true and it gets passed, it’ll be a huge step forward. I’m genuinely optimistic about their chances now. Kudos to Metzger, Rep. Villarreal, Rep. Jessica Farrar (the author of HB602), and everyone else involved in brokering this deal. Now let’s get this bill passed so we can all enjoy the benefits of it.

Elsewhere in alcohol-related news, two other bills moved along, though neither are bills I’d been following.

The first will require liquor stores to begin reporting the final sales destination of booze they sell — and could boost state revenues as much as $25.8 million — was approved this morning by the Texas Senate.

State Sen. Kevin Eltife, R-Tyler, the author, said that under current law, the stores do not have to report the final destination of liquor sales like they do for beer, wine and malt liquor.

“This changes the reports filed with the Comptroller, and is expected to increase tax revenue to the state,” Eltife said, noting that the improved tracking of sales is expected to improve auditing and tax collection.

The second bill, by Sen. Craig Estes, R-Wichita Falls, will increase the limit for Texas winery off-premise tasting room sales from 35,000 gallons to 50,000 gallons. More wine sold will mean more revenues for the state, officials said.

Estes said that the increase is expected to allow the wine industry to continue growing at its current rate. Between 2007 and 2009, the economic impact of the Texas wine industry grew from $1.35 billion to $1.7 billion annually.

The bills in question are SB576 and SB411. With the news about HB602, I’d say it’s been a good day for Texas beer and wine lovers.

The last bill of alcohol-related interest is SB595, which is a bill to allow Sunday liquor sales, and on which there has been no further action. There’s still time in the session for it, but as Yogi Berra once said, it gets late early out there. I’m not nearly as optimistic about this bill’s chances.

The Sunday liquor sales debate

As we know, one of the Legislative Budget Board recommendations for generating revenue is for the state to allow liquor sales on Sunday. The Statesman takes a look at the debate this proposal has generated.

Legislation to allow Sunday liquor sales died in 2009, but the issue gained momentum this session when the Legislative Budget Board included Sunday liquor sales on a list of revenue-raising options for the Legislature to consider.

It’s an issue that splits the distilled liquor industry.

Distillers are pushing the legislation because they think Sunday sales will increase the demand for liquor. But the Texas Package Stores Association — there are almost 2,500 stores in Texas — opposes it.

David Jabour , the president of Twin Liquors, which has 63 locations in Central Texas, said the legislation would be a burden to store owners.

He argued that opening on Sunday would just spread six days of sales over seven days and increase a store’s overhead.

“It doesn’t pay for itself,” Jabour said. “It ends up costing more in labor and overhead.”

[John Roenigk, co-owner of the Austin Wine Merchant on West Sixth Street,] disagreed.

He said Sunday is second only to Saturday as a popular shopping day. He said he wants a level playing field with his competitors — grocery stores, mainly — who are selling wine on Sundays to his customers.

“The rest of the retail world has changed around us,” Roenigk said. “For the life of me, I don’t know why our industry opposes it.”

Allowing Sunday sales is a no-brainer to me. Let’s be honest, the basis of this restriction is Christian morality – a very specific kind of Christian morality; I can attest that Catholicism has no particular injunction against alcohol. I say that has no place in the law. Individual stores may of course choose to remain closed on Sundays as they see fit, but as Roenigk said earlier in the story, they should have that choice.

The amount of tax revenue at stake here is relatively tiny, which opponents of Sunday sales have used to misdirect the debate a bit.

The budget board staff estimated that allowing Sunday sales would increase liquor consumption by almost 3 percent. That could raise an additional $7.4 million in taxes over those two years, a number that the comptroller has not verified.

Based on the budget board’s numbers, the store owners association estimates that on average a store would only sell an additional 10 bottles of liquor.

“That’s not generating much, even according to their numbers,” Jabour said.

Suzii Paynter with the Texas Baptist Christian Life Commission agrees.

When Texas lawmakers face a budget shortfall as high as $27 billion, Paynter said, $7.4 million won’t go far.

The real money, she said, would be in raising taxes on all alcohol, including beer.

She said the state’s excise tax rate on beer has remained the same since 1984. In 2006, the last time the Legislature considered — and rejected — raising alcohol taxes, some plans to increase taxes on all alcohol would have raised $800 million a year. The tax on a can of beer would have increased to 22 cents from 1.2 cents.

Mike McKinney, a lobbyist with Wholesale Beer Distributors of Texas, said that kind of increase in beer taxes would cripple the industry.

Let me pause for a moment to call BS on Mike McKinney. People aren’t going to stop drinking beer because a six-pack costs $1.20 more. I’m sure sales would drop a little, but “cripple the industry”? Please.

As for Paynter, why is this an either-or situation? I say go ahead and do both – raise alcohol taxes and allow Sunday sales. No, I don’t expect the Lege to seriously consider that, I’m just saying that an argument for one is not an argument against the other. Allowing Sunday sales is an easy one for me, and it should be something the Lege is willing to do. I don’t see the argument against it.

Today’s TABC

Interesting story about the Texas Alcoholic Beverages Commission and its struggles to find an identity. To me, the key bit of the whole thing is right here:

Moreover, the agency, formed in 1935, still has many rules and regulations on the books — wholesalers selling beer to retailers by law can’t accept credit as payment — more appropriate to the 1930s rather than 2010. As a result, the beverage commission can find itself in the peculiar position of a 21st century regulatory body enforcing moonshiner-era laws.

A wake-up call was sounded in 2005, when the Sunset Advisory Commission issued a sharply worded report on the beverage commission’s failure to keep up with the times. “TABC and the (Alcoholic Beverage) Code are in clear need of modernization,” it concluded.

We see that to some extent with the recent successful attempts by various municipalities to allow or expand alcohol sales, in effect finally ending Prohibition for themselves. A much bigger issue is all the state laws that still exist from that era, especially those that restrict the way alcohol can be wholesaled and transported. The virtual monopoly that the beer distributors have in this state as a result of that is a disgrace, which mostly benefits the behemoths at the expense of microbreweries. You’d think in a state that’s filled to the brim with self-styled defenders of the free market system that this travesty would have been fixed ages ago, but campaign contributions speak louder than words. It won’t surprise me if we hit the 100th anniversary of Prohibition’s repeal without any change to that status quo.

In case you needed another reason to vote against Rick Perry

Just in case the fact that he’s Rick Perry isn’t enough, how about the fact that he’s objectively anti-microbrewery?

Texas Gov. Rick Perry, running for re-election in 2010, just got the endorsement of the Wholesale Beer Distributors of Texas. Therefore, that makes Perry the enemy of craft beer lovers in Texas.

If you read this blog earlier in the year, you know that WBDT and its lobbyist, Mike McKinney, single-handedly killed off a bill during the 81st Legislative Session that would have allowed microbrewers to sell their product on the premises of the brewery — a sales-boosting opportunity afforded to Texas wineries, but not to beermakers. They also killed a similar bill in 2007 during the 80th session. The wholesalers have a stranglehold on how beer gets from the brewing tanks to you. Understandably, they don’t want that stranglehold taken away, but the legislators (and Governor) ought to be serving the public, not the lobby.

So if WBDT is getting whole hog behind Perry, then you can guess how things are gonna go in the unlikely event an on-site sales bill ever reaches his desk.

What more do you need to know?

Microbrewers likely to come up short again

Texas Watchdog has the sad news.

Three bills that would allow microbreweries to sell beer where they brew it appear under the influence of special interests as one of the most powerful and well-funded lobbies in the state, the Texas Wholesale Beer Distributors, claims another triumph.

[…]

“It has to do with the theory of warfare,” says Howard Wolf, the treasurer of Lt. Gov. David Dewhurst’s political action committee. “There are huge amounts of money at stake here, and this monopoly is so entrenched and so powerful, they are going to fight as long as they can to protect this monopoly or scheme.”

This session three Democrats proposed a slight tweak to the law that would permit the state’s breweries to sell limited amounts of beer. But the Wholesale Beer Distributors, a press shy group that fills the campaign chests of lawmakers from all parties and regions, testified against a compromise measure, sponsored by state Rep. Jessica Farrar, D-Houston, and the bill is still not scheduled for a committee vote. Meanwhile, time is running out. (That the Beer Alliance of Texas, a rival lobby, actually helped write Farrar’s compromise bill, should give you a good indication of that group’s own clout.)

I guess Rick Donley of the Beer Alliance of Texas wasn’t kidding when he said “I wish we had one-tenth the influence [the breweries] think we have.” Of course, he was speaking as a distributor, and that’s the team that won. So, you know, maybe not such a compelling argument.

Two other beer bills-one from state Rep. Lon Burnam, D-Fort Worth, and state Sen. Wendy Davis, D-Fort Worth, also appear to be drying up with no vote scheduled on either of them.

At this point, any bill that hasn’t been voted out of committee is almost certainly dead. For sure, any bill with dedicated opposition from a lobby like the beer distributors is very dead, not just merely dead. Sorry, beer drinkers of Texas. We lose again.