Remember the Alimony — Texas Wholesalers Force Bill That Caps Craft Brewers' Self-Reliance

Michael Kiser

THE GIST
A controversial new law made its way through the Texas Senate this week, setting up a last-ditch effort by in-state brewers to save their taprooms, employees’ jobs, and a whole lot of money. With a vote of 19-10, the state Senate moved House Bill 3287 to the governor's desk, where Gov. Greg Abbott will make a final decision on whether to sign or veto a law that will curb self-distribution and dictate if breweries of certain sizes can operate a taproom.
 
New breweries making more than 225,000 barrels of beer a year—a figure that includes any beer produced anywhere else by that company or a parent company such as AB InBev—will not be able to have a taproom. Grandfathered breweries already open can keep their taprooms, but will have to pay a distributor for anything sold in-house.

WHY IT MATTERS
In the past month alone, HB 3287 has gone from questionable to bad to worse for Texas brewers.
 
According to Austin360, the bill breaks down like so:

  • Breweries producing 225,000 BBLs or more (including any connected breweries or through parent ownership) can’t have a tasting room.
  • Current breweries already over the limit can keep their taprooms, but must pay distributors for any beer sold on-premise.
  • Grandfathered breweries can have up to three tasting rooms that can each sell up to 5,000 BBLs.
  • Self-distribution is capped at 40,000 BBLs across any and all locations.

"...this bill will put a ceiling on success for the 200+ craft breweries operating in Texas," the Texas Craft Brewers Guild said in a statement, "and will slow the future growth of what has become an important burgeoning manufacturing industry in our state."
 
According to the Brewers Association, The Lone Star State finished 2016 with 201 breweries under their definition of "craft," good for eighth-most in the country, producing nearly 1.2 million BBLs of beer between them. In numbers tracked by the Alcohol and Tobacco Tax and Trade Bureau, Texas breweries sold about 103,000 BBLs through their taprooms in 2016, a figure that grew 65.5% from 2015.
 
According to data first reported in All About Beer, about 60% of alcohol consumed in Texas in 2014 was beer—10 points higher than the national average. The new law threatens to put a cap on growth for the second-largest U.S. market for beer and also puts into serious question the mantra that everything is bigger in Texas.
 
A consequence of the legislative action isn’t just a cap on what breweries can serve or sell, but could also act as an unintended ceiling. Given the rise of importance placed on taprooms as a significant source of revenue, there’s a chance the new prohibitions toward own-premise sales and self-distribution could curtail potential investment due to restrictions on growth that directly impact avenues of revenue. Knowing what might happen if a brewery succeeded (too much?) or eventually sold to a larger player, banks or private equity could see these moves as detrimental to maximizing a business’ value.
 
There’s already an assumption these changes will impact payrolls.
 
“I’m not an economist, but one would have to assume that increased costs and a cap on growth would absolutely lead to increased prices and layoffs, possibly even closures,” Deep Ellum founder John Reardon told Brewbound, echoing the sentiment of other brewery owners. “The middle tier gets pure profit with no need to hire additional people or invest in their business.”
 
The testy situation created between lawmakers and beer makers may simply add to ongoing litigation. Reardon already has a lawsuit filed against the Texas Alcoholic Beverage Commission, fighting against an inability to sell beer to-go.
 
—Bryan Roth