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Deep Ellum Brewing

Time again for craft brewers to get their legislative hopes up

We’ve seen this movie before. I hope for a better ending, but I’m keeping those hopes modest.

Texas is the only state in the country that prohibits some breweries from selling six-packs, bottles and growlers of beer to-go, but a pair of bills filed for consideration during the 86th legislative session aim to change that.

Sen. Dawn Buckingham (R-Lakeway) and Rep. Eddie Rodriguez (D-Austin) introduced companion bills SB 312 and HB 672, respectively, which would allow manufacturing breweries to sell beer to drinkers for off-premise consumption.

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In 2015, North Texas’ Deep Ellum Brewing Co. and the now-defunct Grapevine Craft Brewery sued the Texas Alcohol and Beverage Commission over the issue and lost. Earlier this year, the court ruled in favor of the TABC, citing the potential impact to Texas’ three-tier system, which aims to avoid conflicts of interest between alcohol manufacturers, distributors and retailers.

In the decision, however, the judge noted that off-premise sales were granted to distilleries and wineries by the legislature, not the courts. That and the support shown for to-go sales during both the Republican and Democratic conventions in 2018 is giving the Texas beer industry hope that the legislation will pass.

I noted the lawsuit back in 2015, but missed that it had been decided. The story here has always been that the beer distributors’ lobbyists are mightier than everyone else. Maybe this year it will be different – hope springs eternal – but it is always safer to bet on the house. Alas.

The craft brewers’ legislative agenda

Same as it was last time.

Now that the 85th Texas Legislature is in session, lobbyists for the Texas Craft Brewers Guild, the organization that advances the interests of the state’s craft brewers, are going to push for more. Namely, they want production breweries to be able to sell beer to-go from their taprooms.

“Having off-premise sales in breweries is our No. 1 priority,” Charles Vallhonrat, the director of the guild, said.

The Texas Craft Brewers Guild had hoped to make that bill law in 2015, but that didn’t happen. As a result, the Dallas-based Deep Ellum Brewing sued the state in fall 2015 — a lawsuit that has yet to be resolved.

Currently, Texas law permits brewpubs, but not production breweries, to sell beer in bottles, cans and growlers to-go from their facility. Brewpubs can also offer beers from other breweries on-site, but they are limited in the amount of beer they can produce each year: no more than 10,000 barrels.

The inability to make off-premise sales is something brewery owners believe is unfair, and as a result, some breweries have made the switch to a brewpub license, including Austin’s own Jester King in 2013, Adelbert’s last year and, now, Blue Owl Brewing, which recently started offering cans and growlers to-go.)

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“We’ve been speaking with the distributor lobbies,” Vallhonrat said. “There’s certainly opposition to it, but we’re working through it. We’re also closely watching the Deep Ellum lawsuit. But we will bring a bill about off-premise sales to the Legislature.”

Distributors, he said, are opposed to the idea because allowing consumers to buy beer to take home directly from the breweries could, theoretically, take away some of their business. That’s not how the guild sees it, however.

“We don’t see it as an alternative to retail sales,” Vallhonrat said. “People aren’t going to start buying their beer at the brewery all the time. They’ll go for special occasions, when there’s a big release or they have friends in town. Off-premise sales can drive beer tourism. It’s a great way to promote Texas beer.”

See here for some background, and here for more on the Deep Ellum lawsuit. Microbreweries won the right to sell their beer to visitors in 2013, but only for on-premises consumption. It’s still not legal to pick up a six pack to go after taking a tour at whatever microbrewery you happen to be visiting. They tried again in 2015 but got nowhere, and much as it pains me to say I’d bet against them this time as well. The argument that allowing this would negatively affect the distributors in any meaningful way is ludicrous – who would ever choose to drive to a microbrewery to buy a case as opposed to picking one up at a retail location? It makes no sense, but that’s what they’re going with, and it’s always easier on issues like this to play defense, since running out the clock is all you need to do. I don’t know if any specific bills have been filed for this yet, so check with the Craft Brewers Guild for further information and any action items to take up.

Microbreweries win their distribution rights lawsuit

Excellent news.

beer

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.

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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.

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.

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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.

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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.