USA, TX: Texas brewers oppose new bill that could limit growth of the sector

Brewers all over Texas are standing together in opposition of a new bill that could potentially limit growth of the craft beer industry, the North Texas Daily reported on July 21.

House Bill 3287, also known as the beer bill, was passed last month, and requires craft breweries who produce at least 175,000 barrels of beer annually to pay a distributor in order to sell from their own taprooms.

In short, if beer goes straight from production to on-tap without leaving the brewery, a fee is now required.

Craig Goldman, Republican member of the Texas House of Representatives, is the author of the bill. Amanda Robertson, Goldman’s Chief of Staff, said the bill was designed to help smaller breweries.

“Our bill states if you are this big guy, you don’t get to claim and call yourself a craft brewer and utilize the carve outs and the exemptions that the small craft beer industry gets,” Robertson said. “It does seem ridiculous, but it’s that, or you close your taproom down because you’re too big to be able to operate one to begin with.”

Supporters of the bill argue large manufacturers like MillerCoors will be prevented from competing in the taproom market, which would be good for smaller breweries who don’t have the same resources. The bill’s opponents argue this is a moot point.

“They want to protect us, the small brewer, from large breweries that could open taprooms,” said Charles Vallhonrat, Executive Director of the Texas Craft Brewers Guild, a craft brewer advocacy organization. “[But] large breweries aren’t going to open up full breweries just to open up little taprooms. We’re not worried about an Anheuser-Busch taproom. We’re not worried about a MillerCoors taproom.”

The bill has only affected one brewery in Texas so far, Oskar Blues Brewery, which is based in Colorado, and opened a location in Texas just last year. Beyond fees for distribution, there are also concerns that the bill will devalue breweries that could be potentially seeking a loan.

“I would argue it affects every craft brewery with a taproom, because you have now said that that taproom is worthless after a certain type of investment,” Vallhonrat said.

Bill 3287 upholds what is called the three-tier system – a system that regulates alcohol distribution in the United States, and keeps producers, distributors and retailers separate, as to prevent monopolization of the industry.

Ben Esely is the owner of the Bearded Monk, a Denton craft beer bottle shop that operates its own taproom. He is also concerned about the potential effects of the bill.

“I think the three-tier system is antiquated. The 3 tier system is an old, prohibition era law,” Esely said. “We don’t have the Corleone family distilling liquor in multiple people’s kitchens, driving it to underground bars that they own in back rooms at pet stores and selling it… we don’t have that.”

While concerns are growing that the craft beer industry is now under attack, actually reaching the annual production of 175,000 barrels, Robertson says, is a feat most smaller breweries will never reach.

In the United States, 97 percent of craft brewers produce less than 15,000 barrels a year. The bill also stipulates breweries can be grandfathered in, insuring no existing taprooms will be shut down by the new laws.

“There’s a huge gap between what the established annual production cap is, and what is actually being produced now today,” Robertson said. “It only hurts the little guy if they want to be acquired – and I wouldn’t even say that that hurts.”

The bill has seen minor adjustments since it was first filed in March. The Texas Craft Brewers Guild has produced opposition letters to send to legislators with each iteration. Vallhonrat believes that representative Goldman intentionally misrepresented their opposition letters to strengthen their case for the bill.

“Representative Goldman actually held up our initial opposition letter on the house floor, and said this document misrepresents the content of that bill (3287),” Vallhonrat said. “Well it’s true, because he held up the wrong opposition letter.”

Gov. Greg Abbott did not endorse the bill, but also did not veto it when given the opportunity. Vallhonrat said he believes Abbott struggled with the fact that the bill is anti-competitive and anti-free market, but that his refusal to veto speaks to the contributions that he has received. Vallhonrat also called bill 3287 “a distributors bill.”

Despite the opposition, the bill passed June 15 and was effective immediately. Long-term effects, if any materialize, might not be seen for years to come, and many craft breweries were disappointed to see such a bill become law.

Yianni Arestis, CEO and co-founder of Armadillo Ale Works, wrote in an email that the bill “doesn’t seem to add value for consumers or businesses,” and that she is “not sure if it’ll hold up in the courts.”

City Council member Gerard Hudspeth stated in an email that he was comforted that the smaller brewers will never hit the threshold for it to matter.

“On the other hand, I don’t understand the exemptions,” Hudspeth stated in an email. “The larger brewers that bought smaller brewers seem to have an exception. I don’t know why that is and it raises a red flag.”

“What this feels like, is another failed hindrance on craft brewers to me,” Bearded Monk owner Esely said. “We have been slowly picking away at the three-tier system, and that’s really scary to big guys.”

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