Three Texas craft breweries are preparing for the final round in a years-long bout against distributors over the constitutionality of one of the state’s most controversial beer laws. The battle began in 2013 when Texas passed a law prohibiting brewers from being able to sell the distribution rights to their own brands, a divisive provision that was packed within a broader bill. As it stands, distributors buy and sell the rights to a brewery’s brand, but they’re dead-set against letting brewers do so.
This is happening, of course, as the industry evolves to the point that many brewers are creating value for themselves through self-distribution before ever seeking out a wholesale partner. Breweries in others states, like Sun King in Indiana, have been able to create immense value in their self-distribution footprints, which they’ve sold to distributors, subsequently using those funds for expansion efforts.
But a year after that initial fight in Texas, Live Oak Brewing, Peticolas Brewing, and Revolver Brewing successfully sued the state and had the law struck down that prevented them from doing the same, arguing the rule threatened their economic freedom by requiring they give away one of their most valuable assets. This past Friday, however, the Texas Third Court of Appeals reversed that decision. And now, the brewers involved are getting ready to take the fight to the state’s supreme court, whose decision could shape the very future of how beer is sold in the Lone Star State.
Reached by GBH, the Institute for Justice, which is representing the brewery plaintiffs, says the law “has forced brewers to give up millions of dollars of value in the businesses they are trying to grow, while at the same time allowing distributors to sell those rights to another distributor and pocket the money.”
“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,” says Arif Panju, managing attorney for the Institute for Justice. “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.”
The Wholesale Beer Distributors of Texas, a trade group that lobbies on behalf of the state’s wholesalers, did not return a request for comment as of press time.
The latest decision is the second considerable legislative loss suffered by brewers in recent months. Indeed, earlier this year, the state passed another bill that would require brewers of a certain size to effectively buy their own beer from a wholesaler to sell it on-premise, a requirement that brewers have decried as an “extortion fee.” (It’s worth noting, though, that nearly every brewer in the state is too small to be subjected to it.) Similarly, a case brought by Deep Ellum Brewing back in 2015 challenging a Texas law that bars breweries from selling beer to-go is still unresolved.
For now, it’s all eyes toward the state’s supreme court, as even brewers who aren’t named in the suit are lending their support to the cause. Jeffrey Stuffings, founder of Jester King in Austin, for instance, shared an Instagram post, in which he called the rule “an example of crony capitalism at its worst.”
“A few ultra-wealthy distributors got together, decided they didn’t want to pay brewers for their brand rights anymore, clapped their hands, and their politician ‘friends’ jumped right to their service,” he wrote. “Good luck to Live Oak Brewing Company, Peticolas Brewing Company, and Revolver Brewing on getting this case before the Texas Supreme Court.”
Scott Metzger, founder of Freetail Brewing in San Antonio and a Brewers Association board member, builds on that, calling the reversal “surprising” to begin with.
“It seems like such a clear cut, egregious thing that they’re ruling on,” he tells GBH. “The fact that brewers can’t sell their distribution rights, but distributors can, seems to undermine the argument that there’s public interest [in the status quo].”
For its part, Peticolas—which was founded by a former trial attorney with a decade’s worth of experience—took to Twitter on Sunday to say it’s “up for the fight.” In the statement provided by the Institute for Justice, Live Oak president Chip McElroy went further to explain how the law has affected his business.
“For the last 21 years, I’ve poured my life into this business,” he writes. “When Texas passed this law, not only was I prohibited from sitting at a negotiating table to sell my own distribution rights—but it took my beer off the shelves in cities across Texas where Live Oak beer would otherwise be available.”
Conversely, as previously reported by the Austin American-Statesman, the state has argued that the laws in place help to delineate the “strict boundaries” within the three-tier system. Strictly separating the tiers is something every state decides for itself through a mix of laws that they feel best benefits the system and consumer choice overall. But what seems at stake here, in principle, is that both the brewer and the wholesaler create tangible value in their brands across those divisions, but when it comes time to buy and sell that value, only one tier gets to cash the check.
—Dave Eisenberg