Craft brewers had one week to reach a compromise with the Wholesale Beer Distributors of Texas (WBDT) regarding five pieces of legislation recently introduced through Senate Committee on Business and Commerce. Senate bills 515, 516, 517 and 518 were a set of bills carefully crafted after a year of work, which address almost every issue that brewers have sought for their burgeoning industry. However, Senate bill 639 was a lopsided bill stacked in favor of the WBDT. After the bills were introduced in committee last week, Senator John Carona of Dallas instructed all the players to find a compromise between the five.
And so, for the past seven days, the two sides met and at the last minute reached a compromise, each taking something off the table to get something else they wanted. Although one group might be considered the more savvy card players here.
In brief, here are the highlights of the new craft beer legislation that passed through committee late Tuesday:
• Breweries that produce less than 225,000 barrels of beer annually and are allowed to sell up to 5,000 barrels directly to consumer for on-site consumption.
• Brewpubs are allowed to package and sell 10,000 barrels of beer at the retail level.
• Breweries that produce up to 125,000 barrels annually would be allowed to self-distribute up to 40,000 barrels annually.
• Breweries are no longer allowed to receive payment from wholesalers for the right to distribute their beer. However, they will share in some marketing and promotional costs with distributors.
The only issue breweries didn't walk away with this session was the right to sell beer for off-site consumption. For example, a case of beer at the end of a tour, like wineries do.
However, in their negotiations with the WBDT, craft brewers lost something (the last bullet point): the right to sell their distribution rights to distributors, which some local small craft brewers feel is a huge loss. Deep Ellum Brewing Company posted this to their Facebook page last night:
"Such a huge step backward for microbreweries. Congrats to the regionals, brewpubs, and most especially the distributors for getting all you wanted. It only cost you.... OUR distribution value!! SB 639 is a terrible piece of legislation. To see it now being triumphed as a win for the craft community is an absolute travesty."
In late February Dallas Senator John Carona blindsided craft brewers and even members of his own committee when he introduced SB 639 that included measures that would have flipped the Texas beer industry on its head. None of these issues were brought up in the working groups he created a year earlier. The WBDT, who is one of Carona's largest campaign contributors, backed the legislation. Then, Carona used SB 639 to hold the other craft beer legislation hostage.
So, when craft brewers sat down at the table to negotiate with the WBDT over the past week, per Carona's specific mandate, something had to give. Carona actually said in committee, he'd let all the bills die if a compromise wasn't reached.
"It is an imperfect compromise, as I think just about every compromise is," said Brock Wagner with Saint Arnold Brewing Company and the Texas Craft Brewers Guild on Tuesday. "But in the end the package when taken as a whole will move Texas craft breweries forward."
Essentially what it came down to was the WBDT was wiling to pull all their (sometimes ridiculous, possibly by design) demands in SB 639 off the table, if craft brewers would compromise on the issue of selling their distribution rights.
Historically, selling distribution rights has been a great source of value for craft breweries, who often turn around and use that money, often upwards of one or two million dollars, to expand business. It was a guarantee the distributors would continue to work for their brand. Now, a government mandate invokes them to give away that business.
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However, parts of SB 639 that would have raised the cost of beer across the state were yanked from the bill.
At the end of the day, it's hard to overlook the fact that Dallas Senator John Carona sponsored a bill that financially benefited his biggest campaign contributors, all the while withheld this specific issue from the very working groups he created over a year ago, then explicitly used it to hold the other craft beer legislation hostage.
The four bills sponsored by Senator Kevin Eltife (SB 515 - 518) will certainly help the craft beer industry, especially brewpubs, but losing the right to sell distribution rights was a great sacrifice for micro breweries.
The bills aren't law yet, only out of committee, but in the Texas legislature, that's usually as good as gold.