Texas brewers lose legislative fight over taproom bill, headed to governor’s desk

Tom McCarthy Jr. for American-Statesman. Self-distributing breweries like Austin Beerworks will be affected by HB 3287, which just passed the Senate and now just needs Governor Greg Abbot’s pen to become law.

Texas brewers were dealt a blow this afternoon when House Bill 3287, which seeks to limit breweries that grow beyond a certain size or become owned by a larger beer company, passed the Texas Senate by a 19-10 vote.

The bill will now head to the governor’s desk to be signed into law, but the Texas Craft Brewers Guild, representing the state’s breweries, isn’t ready to give up yet and has announced that it will continue to fight against it in the hopes of a veto from Texas Governor Greg Abbott.

“This bill will put a ceiling on success for the 200+ craft breweries operating in Texas and will slow the future growth of what has become an important burgeoning manufacturing industry in our state,” the guild wrote in a statement published on Facebook shortly after HB 3287 passed.

HB 3287, pushed by wholesalers through the trade groups Beer Alliance of Texas and Wholesale Beer Distributors of Texas, will change the Texas beer code in the following ways.

  • Breweries making 225,000 barrels of beer per year (a calculation that includes the amount of barrels from any affiliate brewery with a 25 percent or more stake in the company) cannot operate a tasting room.
  • There are exceptions to this rule, however. Current breweries over this limit have been grandfathered in and will still be able to keep their taproom doors open, but they and future breweries eligible for exception have to pay their distributor for all beers they sell in their taprooms. Austin’s Oskar Blues Brewery is affected, and any future taproom locations of breweries like Houston’s Karbach Brewing — now owned by Anheuser-Busch — will also have to pay up. They can have up to three tasting rooms.
  • Self-distributing breweries can only self-distribute a total of 40,000 barrels across all locations; anything above that has to be sold through a distributor. In other words, single-premises breweries like Austin Beerworks and Live Oak Brewing can only expand so much if they want to keep their independence from the wholesale tier.

Given that Texas brewers had hoped 2017 would be the year Texas allows its breweries to sell beer directly to customers for off-premise consumption, HB 3287, which they see as taking some of their rights away, has been a big blow.

“To say that today’s outcome was incredibly disheartening would be to put it mildly,” the Texas Craft Brewers Guild said it in its statement on Facebook.

But wholesalers argue that the bill prevents large multinational breweries from “gobbling up” Texas’ small craft breweries and having “access to multiple taprooms across the state,” Rick Donley, representing the Beer Alliance, said at a previous committee hearing. That sort of access would be a violation of the three-tier system.

It’s “a system that “has allowed for an incredibly competitive marketplace and allows smalls breweries to thrive in a way that other commodities can’t do because of the inability to get to market without a distribution tier,” Keith Strama, counsel for the Wholesale Beer Distributors of Texas, later said in the same hearing.

The only hope now for brewers to be able to sell beer to-go from their taprooms is a lawsuit that Dallas-Fort Worth’s Deep Ellum Brewing and others have lodged against the Texas Alcoholic Beverage Commission, a case currently still tied up in the courts. Texas remains the only state in the U.S. that doesn’t permit its breweries to offer packaged beers for off-premise enjoyment.

In Texas Senate, craft brewers fight for off-premise sales, try to ward off taproom tax

Kyser Lough for American-Statesman. Texas breweries with financial backing from other larger breweries, like Independence Brewing, pictured here, might have to pay distributors for every beer they sell in their taprooms under a proposed law making its way through the Senate.
Texas is the only state in the U.S. that doesn’t allow its breweries to sell beer directly to consumers for their enjoyment off-site. Texas also ranks 46th in breweries per capita.

Those two facts were repeated often during a morning Senate committee hearing in which a number of people involved in the brewing industry — brewers and distributors alike — voiced their thoughts on Senate Bill 1217 and Senate Bill 2083, two craft beer-focused bills with very different aims.

SB 1217 would allow breweries to join Texas wineries, distilleries and brewpubs in selling their products for off-premise consumption, while SB 2083, the companion bill to House Bill 3287, would seek to limit breweries that grow beyond a certain size or become owned by a larger beer company. To sell beer in their taprooms, these breweries (which include Austin’s Oskar Blues and Independence Brewing) might have to first sell the beer to their distributor and buy it back.

The Texas House of Representatives voted overwhelmingly this weekend not to legalize taproom beer purchases for off-site consumption and also voted in favor of the limitations on larger breweries, those making 225,000 barrels or more of beer per year.

Proponents of the latter bill, namely distributors through the trade groups Beer Alliance of Texas and Wholesale Beer Distributors of Texas, argue that it prevents large multinational breweries from “gobbling up” Texas’ small craft breweries and having “access to multiple taprooms across the state,” Rick Donley, representing the Beer Alliance, said during the committee hearing this morning.

That would be in violation of the three-tier system, Keith Strama, counsel for the Wholesale Beer Distributors of Texas, added in later testimony, a system that “has allowed for an incredibly competitive marketplace and allows smalls breweries to thrive in a way that other commodities can’t do because of the inability to get to market without a distribution tier.”

In that way, SB 2083 protects small craft breweries in the state, according to the bill’s author, State Sen. Kel Seliger, R-Amarillo.

But that’s not how the Texas Craft Brewers Guild, the organization representing these brewers, or the Texas Association of Manufacturers, the organization representing the state’s small businesses, see it. Both came out against SB 2083 at the hearing, along with numerous brewers, including Chip McElroy of Live Oak Brewing and Amy Cartwright of Independence Brewing, one of the directly affected breweries.

They argue that SB 2083 and the already-passed HB 3287 — which at the moment directly affect only a small number of brewers, mainly those owned by larger breweries like Anheuser-Busch and MillerCoors — would discourage investors and limit their businesses’ growth.

Josh Hare, owner of Hops & Grain Brewing and board chairman of the guild, spoke out against the proposed payment larger breweries would have to make to distributors for their taproom beers, calling it a tax. His brewery is in the process of opening a new location in San Marcos.

“If we exceed the collective 225,000 barrel limit, we would be forced then to sell our beer to a wholesaler, buy it back to sell in our tasting room, and it would dramatically cut into our margins and ultimate profitability. I would also like to emphasize here that the beer would never leave our brewery. It would just be paper moving around,” he said. “The wholesaler would place a dock bump tax on that transaction, receiving payment for no added value to what we’re doing on-site.”

Sweeping 2013 legislation allowed, among other things, for production breweries to sell up to 5,000 barrels of beer to consumers for on-site consumption. Breweries aren’t asking for that number to increase but do want to be able to also sell a six-pack to a customer to take home. That’s where SB 1217, from State Sen. Dawn Buckingham, R-Lakeway, comes in.

The bill restricts monthly purchases to 576 fl. oz. per consumer, the equivalent of two cases of beer. Brewers are in support of it; distributors are not.

“Data from other states shows that off-premise sales leads to more brewery openings, more beer tourism and more retail sales across every tier,” Michael Graham, co-founder of Austin Beerworks, said.

Donley, representing a wholesalers’ group, did not outright discuss why the group is against the bill but pointed out the issue of off-premise sales will be resolved in court because of an ongoing suit Deep Ellum Brewing, in the Dallas-Fort Worth area, has raised against the Texas Alcoholic Beverage Commission.

The question of taprooms selling beer to-go “involves some intricate points of federal law, including commerce clause issues, equal protection clause issues, but it also strikes at the very core of the 21st Amendment of the United States Constitution,” Donnelly said, referencing the amendment that repealed Prohibition and gave the states total control over alcoholic beverages.

State Sen. Craig Estes, R-Wichita Falls, asked for clarification about the amendment — how allowing Texas breweries to sell beer to-go, something 49 other states do in some capacity, would “strike at the core” of the U.S. Constitution.

“We repealed Prohibition and extended the right of every state to regulate our alcohol,” Donley said in reply.

“Right. And so we’re the only state that doesn’t allow this, though, right?” Estes said of off-premise sales.

“That is correct, but that’s a policy decision made by you as a legislature,” Donley said.

Neither of the bills have moved out of committee yet.

This post has been corrected to reflect the spelling of Donley’s name. 

Texas brewers win fight over distribution rights law

Photo by Tyler Malone. Chip McElroy, founder of Live Oak Brewing, fought and won for breweries' distribution rights, along with Peticolas Brewing and Revolver Brewing.
Photo by Tyler Malone. Chip McElroy, founder of Live Oak Brewing, fought and won for breweries to be able to sell their distribution rights, a lawsuit he filed along with Peticolas Brewing and Revolver Brewing.

 

If 2013’s sweeping legislative changes mostly in favor of Texas’ craft beer industry felt good for brewers, today’s ruling about one of those laws feels pretty sweet, too.

Declaring it unconstitutional, a Texas state judge struck down the law that prohibited brewers from receiving monetary compensation from distributors for their distribution rights. The rule was part of the bundle of 2013 legislation that was otherwise a boon to Texas breweries.

In late 2014, Austin-based Live Oak Brewing and Dallas/Fort Worth-area Peticolas Brewing and Revolver Brewing decided to sue the state in the hopes of regaining the valuable capital they said they can get from selling their distribution rights, which they were able to do prior to 2013.

“My biggest asset, I can’t sell. I have to give it away,” Live Oak Brewing’s owner Chip McElroy said 10 days ago, when the case went to court.

The state argued that the law helped to maintain strict boundaries within the three-tier system. It’s the state’s regulatory system dictating that beer, wine and spirits makers create their products, distributors sell them to retailers or bars and restaurants, and those places, in turn, peddle them to the public.

But lawyers for the breweries countered that the 2013 distribution rule hurt breweries, which “should be able to use the value of their company to help expand it, rather than hand over that value to a distributor for nothing in return,” according to a news release about the ruling today.

“The Texas Constitution prohibits the legislature from passing laws that enrich one business at the expense of another,” Institute for Justice Senior Attorney Matt Miller, who represented the brewers in court, said in the release. “This ruling is a victory for every Texas craft brewery and the customers who love their beer.”

Brewers and their fans are rejoicing this victory right now, but they’re still holding their breaths over two other beer-related cases in Texas courts. Soon, these should also have outcomes.

One involves an issue that brewers pushed for in the 2013 legislative session, to no avail. 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. (Brewpubs, which sell food in addition to beer, can as well.)

And before that lawsuit, 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. The results of the beer to-go lawsuit — less so, the crowlers — will affect what the Texas Craft Brewers Guild, the state’s trade group for craft breweries, pushes for during the 2017 legislative session.

Dallas’ Deep Ellum Brewing suing TABC to sell packaged beer to-go

The Texas beer industry isn’t too happy with the Texas Alcoholic Beverage Commission, its governing body, right now.

A couple of months ago, the TABC ordered Cuvee Coffee Bar to remove its crowler machine, saying that cans of beer can only be produced by breweries making the beer, not the retailers selling it. Since then, Cuvee and founder Mike McKim have decided to fight back and have brought back the crowler machine (along with these clever “Come and Take It” T-shirts).

“I can’t do nothing; that would be wrong,” McKim said at the time the story about the TABC’s decision on crowlers first broke.

According to the Houston Press, a “likely consequence is that TABC will start fining the bar $300 a day and, when it refuses to pay,” the two sides will go to court. McKim “sees this as a necessary step in getting the law changed.”

Photo by Emma Janzen / American-Statesman. Right now, Texas beer drinkers can only purchase canned or bottled beers from retail stores or brewpubs - not from the many microbreweries whose taprooms can offer you a beer to drink on-site.
Photo by Emma Janzen / American-Statesman. Right now, Texas beer drinkers can only purchase canned or bottled beers from retail stores or brewpubs – not from the many microbreweries whose taprooms can offer you a beer to drink on-site.

But he isn’t the only one deciding to battle it out with the TABC. Late last year, three Texas breweries, including Austin’s Live Oak Brewing, teamed up to sue for better distribution rights.

And now, Dallas’ Deep Ellum Brewing is also suing the alcoholic beverage commission in the hopes of changing a current Texas law that prohibits breweries from selling beer in bottles or cans to-go from their taprooms.

“Texas allows every other alcoholic beverage manufacturer to do just that — wineries, distilleries and even brewpubs are allowed to sell their products directly to the end consumer for off-premise consumption,” according to Deep Ellum’s website, which launched with “Operation Six Pack To Go” earlier today. “Microbreweries cannot… How is this prohibition against microbreweries protecting the welfare, health, peace, temperance or safety of the people of Texas? Long story short, it isn’t.”

If you agree that being able to purchase a six-pack of beer to take home from the brewery is a state constitutional right you’re not getting, Deep Ellum has set up an Indiegogo campaign for donations to the cause of suing TABC.

In seven hours, the campaign has already raised about $12,700, approximately 13 percent of the total goal; with 51 days left until the campaign ends, chances are good Deep Ellum may well receive far more funding than the brewery aimed for. To donate, go here.

Being able to sell packaged beer to-go has been a goal of many breweries for awhile; they’ve teamed with craft beer lobbying organizations like Open the Taps to try and change the law. Deep Ellum has clearly deciding waiting until the next legislative session just won’t do.

“We have retained two law firms and several expert witnesses, including the former general counsel for TABC,” according to Deep Ellum. “Lawsuits are expensive, but with your support, we can see this across the finish line.”