Recently we wrote about four bills Republican state Senator Kevin Eltife of Tyler introduced that would open new revenue opportunities for craft breweries around the state. As the law stands now, Texas requires a clear separation between those who make, distribute and retail beer in Texas. None of those three tiers can overlap. This prevents monopolies and general back-alley mischief. Supposedly.
For decades, small craft breweries have pushed hard for legislative tweaks that would allow them to make limited retail sales at their breweries, the same way wineries can sell bottles of wine directly to drinkers. This issue and others regarding brewpubs and out-of-state brewers are touched on in Eltife's bills.
And then there's Dallas Senator John Carona's Senate Bill 639, introduced this week, which would take a sizable bite out Texas craft brewers bottom line by prohibiting breweries from accepting payment for distribution rights.
The text reads:
No manufacturer shall ... accept payment or agreement to bear any costs in exchange for the territorial assignment of a brand to a distributor ...
Selling distribution rights is one of the few liberties craft brewers have, and it historically has helped the craft brewing business survive. Current law regarding paid distribution rights isn't explicit. There's no law that reads "manufacturers can sell distribution rights." So Carona, with the help of the Wholesale Beer Distributors of Texas, has drafted a bill that would forbid this exchange and, no doubt coincidentally, save wholesale distributors money.
For small breweries that can't directly retail their beer, the cash wholesalers pay for the right to be the brewers middlemen is "a great source of value for craft breweries," says Brock Wagner of Saint Arnold's Brewing in Houston. "Brewers can use that money to expand." He calls Carona's legislation anti-capitalistic, because breweries create value in their brand names, which under SB639 they would have to give away.
Carona sees it differently. In an email response to a question regarding this legislation he asked, "What happens when the large manufacturers decide to require payment from a distributor for the right to distribute their brand? We could be back where we started from, with those who won't pay to play getting muscled out of the marketplace."
Wagner, who serves on the Texas Craft Brewers Guild board, says that scenario is not realistic.
"The big breweries want their products to be distributed and they have to go through a distributor," says Wagner. "Big breweries are not in the business of selling distribution rights."
Wagner points out that if large manufactures like ABInBev wanted to sell their rights and their distributor didn't want to pay, there are very limited options. "Where will they go? Not to the MillerCoors distributor. Not to a start-up with no ability to service the market. So from a practical standpoint this argument is not valid."
John Reardon with Deep Ellum Brewing Co. raises similar objections, "This bill would allow them to get our distribution rights for free and then they could still buy us like baseball cards from each other. And where's the guarantee that they'd actually work to build our brand?"
The bill is still before the Business and Commerce Committee. Eltife, who filled the pro-craft brewing bills last week, and Senator Leticia Van de Putte, who is also a craft beer advocate, are both on that committee. Neither have anything to say on the issue right now.
The Wholesale Beer Distributors of Texas Political Action Committee has donated $39,500 to Carona's campaign over the past decade. In all, the beer, wine and liquor industries, including Barry Andrews of Dallas-based Andrews Distributing, are some of his largest contributors.
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