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Why Texas' Craft Beer Bills Are Doomed, And Why They Would've Been Baby Steps Anyway

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If you're a passionate beer drinker or state-legislation fetishist, you've probably read by now  that two of the House bills favoring Texas craft brewers are dead, and things ain't looking too hot for the last one.

HB 602, which would allow relatively small breweries to let consumers take home a limited amount of beer for free after paying for a tour, is pending in committee in the state Senate after facing opposition from Anheuser-Busch InBev. Meanwhile, HB 660, which would allow brewpubs to distribute their products off-site, and HB 2436, which would have allowed breweries to actually sell their products directly to consumers and might as well have promised a free pet unicorn to every Texas citizen, are dead.

I have mixed feelings about these proposed laws, particularly HB 602. Part of me thinks they would have been mere baby steps, mostly symbolic victories for small businesses. The other part isn't so optimistic.

First, a little background on why they were needed in the first place: Since the repeal of Prohibition in the United States, alcohol in most states is sold through the three-tier distribution scheme. The tiers are manufacturers (breweries, winemakers or distillers), distributors (such as Ben E. Keith) and retailers (package stores, bars and restaurants).

Why is this the case? Because under the 21st Amendment, which repealed Prohibition, regulation of alcohol sales was given to the states. The justification for the three-tier system that was created following the repeal of Prohibition is that if we didn't have it, breweries would own or control retailers, refusing to sell competitor brands or else demanding that the retailers carrying their products not carry those of competitors, thereby limiting consumer choice. (Those states not operating under the three-tier system are "monopoly states" or "control states," wherein the state itself owns the right to distribute and/or retail.)

Of course, the system intended to protect consumers also created a protected class of middlemen and an estimated 20 to 25 percent price mark-up. And the massive beer corporations can and do effectively control their distributors, which in turn can and do strong-arm retailers, making the system a major impediment to small businesses trying to break into the market.

As for HB 660, it would have allowed brewpubs to enter this three-tier system, from which they are currently excluded. Texas beer makers can currently only obtain a permit as a brewer or as a brewpub, but not both. I don't have the foggiest idea why Texas hamstrings brewpubs in this way, as brewpubs in other states (such as Stone Brewing Co. in California and Brooklyn Brewery in New York) have managed to sell to distributors and pub patrons alike without destroying civilization as we know it.

As it was originally written, HB 602 would have been a decent work-around solution to the three-tier problem, a wink-wink way to sell beer by claiming that money exchanged was not for the beer itself but rather for the tour experience. Gift shop sales have been crucial to helping craft breweries thrive in other states, where laws were changed to allow fledgling breweries to sell -- just as the Texas legislature helped out the Texas wine industry by allowing direct sales.

But the powerful Wholesale Beer Distributors of Texas lobby insisted that the bill be reworded to preserve their sacred three-tier system and apply only to smaller breweries, excluding Anheuser-Busch as well as Spoetzl, brewer of iconic Texas brew Shiner Bock. Predictably, that pissed off Anheuser-Busch, which is now publicly opposing a bill it previously supported now that it is excluded from benefiting.

Can you blame them? Craft beer sales account for only .4 percent of the beer industry in Texas, compared to 4 percent nationwide. Anheuser-Busch wants to keep that figure as low as possible and isn't going to take kindly to any advantage given to a competitor. I can't help but wonder if WBDT insisted on the 75,000-barrel cap amendment to intentionally sabotage the bill.

HB 602's author, Rep. Jessica Farrar, D-Houston, wrote the bill at the urging of Saint Arnold founder Brock Wagner, who has been trying for years to get Texas to allow breweries to sell their beer in gift shops or in some other manner directly to consumers. Farrar told the Houston Chronicle she's still confident. I wish I shared her optimism.

Saint Arnold and Budweiser are facing each other across the poker table. Do you really think Saint Arnold is going to walk away with the pot? Is the same legislature that backed down to the WBDT going to stand up to Anheuser-Busch?

Even if any of these bills did pass, though, we'd still have the antiquated, anticompetitive three-tier system inhibiting craft breweries. Other industries seem to get by just fine without it. Coca-Cola and Pepsi are just as competitive against each other and smaller soda companies as AB and MillerCoors are against craft brewers, yet nobody seems to think we should stop Coca-Cola from selling soda at its gift shop, or insist on the company using a middleman for distribution. Removing one obstacle in the path of craft brewery growth in Texas would be a nice opening shot, but it would be a mere dent in the armor of the three-tier beast.

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