Peticolas and Revolver Win Case Against TABC, But Now What?

Back in 2013, the Texas Legislature decided to stifle local breweries with a provision in SB 639, known as a "sale restriction," which forced breweries that produce more than 125,000 barrels a year to use a distribution company or self-distribute. Texas has a three-tier system of alcohol distribution left over from the era of Prohibition: producers, distributors and retailers. In this set up, distributors are essentially middle-men, as all three tiers must legally remain independent from one another. Breweries had to limit production to less than 125,000 barrels each year and self-distribute or sign a contract with distributors; or produce more than the 125,000 and legally be required to use a distributor.

Consequently, the 2013 provision created a situation in which brewers could not "accept payment or bear any costs in exchange for territorial assignment of a brand to a distributor." Before  this law, distributors had to pay brewers for the right to sell their beer to bars and stores. Thanks to SB 639, brewers were forced to hand over their distribution rights for zero profit. What was truly upsetting to brewers was that distributors could sell those rights to other distributors. This eliminated an entire revenue stream for breweries, while distributors could make a profit off their work. As Matt Miller, the attorney for Peticolas, Live Oak and Revolver in their suit against TABC, told the Observer back in 2014, "Brewers used to use the funds from distribution rights to reinvest in their breweries ... It was a model of growth for craft breweries." SB 639 did nothing for consumers and instead took money from brewers and handed it to distributors.

Suing the TABC, Peticolas, Revolver and Austin's Live Oak Brewery presented their case as a restriction of economic liberty, claiming it violates the due process clause of the Texas Constitution. Last Thursday, District Judge Karin Crump of Austin agreed with the brewers. The TABC is expected appeal the ruling.
While it may seem like the breweries have a problem with distributors, that is not necessarily the case. In a statement released on Thursday, Live Oak Brewing said, "We do not hate distributors, nor do we believe they provide no value. Distributors provide great value in their ability to create supply chain efficiencies, maintain quality and grow the value of brands."

And while the impact might not be clear to the consumer immediately, Michael Peticolas points out that consumers can expect to see an "increased ability to obtain craft beer in new market segments and ... new counties across the state," which could come in the form of cans and bottles, as well as the "expansion of breweries," in the form of new or expanded taprooms and "capacity enhancements that lead to increased access to markets," Peticolas says. In layman's terms, these are opportunities that allow them to make more beer. On Twitter, Peticolas was asked by one user if this meant we might see cans or bottles of his beer, to which he responded, "Not necessarily, but using a distributor for bottles/cans is preferred."

The future of craft beer in Texas is still murky, with fights against TABC still coming as laws are slowly changed to suit what has fast become one of the country's largest craft beer economies.