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Jester King

The microbreweries aren’t done with the Legislature

Microbreweries took a big step forward in 2013, but there’s still more to be done.

The 2013 legislative session, which featured the largest overhaul of the beer industry since 1993, was viewed by many observers as a watershed moment for craft brewers in Texas. But in testimony before the House Economic and Small Business Development Committee on Thursday, Scott Metzger, who sits on the board of the Texas Craft Brewers Guild, said the state can still do more for the industry.

At a hearing on how to make Texas more attractive to venture capital investment, Metzger predicted that over next 10 years, the brewing industry could be the most dynamic growth sector of the Texas economy. That potential is limited, he said, because of remaining restrictions on brewers that make it difficult to attract investors.

“The restrictions the state of Texas places on our businesses dictate that it often makes better economic sense to deploy capital in a different state,” Metzger, a former economics professor, told lawmakers.

[…]

Asserting that New York, Washington, Colorado and even California had more brewer-friendly environments than Texas, Metzger said Thursday that the industry is encumbered locally by “restrictive franchise statutes” and “a regulatory scheme that restricts our ability to sell and market our products and, in one particularly egregious instance, to realize any of the actual value of the brands that we have created.”

In addition to approving a slate of bills in 2013 that opened up the industry in ways his group appreciated, including allowing brewpubs to distribute their beer off-site via third-party distributors, Metzger said lawmakers also passed a bill that they were less enthusiastic about that prevented brewers from receiving compensation from wholesalers for their distribution rights. He also raised objections to rules that he said essentially lock in distribution agreements “for life.”

Metzger encouraged lawmakers to think of the three-tiered system as “a living, breathing thing that needs to evolve with the changing marketplace.”

I pointed this out last July, via a post from the Jester King brewery. Here’s a quote:

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.

See here and here for the background. The situation is unquestionably better, but it’s also unquestionably not what one would call a free market. I personally don’t see the value in the existing three-tier system, but as long as the political will to dismantle it doesn’t exist, we should push to loosen it as much as possible. I presume the craft brewers will have a wish list of specific legislation they’d like to pass by the time the session starts. It won’t be any easier this time around, because the big breweries will do everything they can to protect their legally mandated piece of the pie. I won’t be terribly surprised if they have one of their toadies introduce a bill to scale back in some way the gains the craft brewers won. We’ll need to keep an eye out for that.

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.