In Texas Senate, craft brewers fight for off-premise sales, try to ward off taproom tax

Kyser Lough for American-Statesman. Texas breweries with financial backing from other larger breweries, like Independence Brewing, pictured here, might have to pay distributors for every beer they sell in their taprooms under a proposed law making its way through the Senate.

Texas is the only state in the U.S. that doesn’t allow its breweries to sell beer directly to consumers for their enjoyment off-site. Texas also ranks 46th in breweries per capita.

Those two facts were repeated often during a morning Senate committee hearing in which a number of people involved in the brewing industry — brewers and distributors alike — voiced their thoughts on Senate Bill 1217 and Senate Bill 2083, two craft beer-focused bills with very different aims.

SB 1217 would allow breweries to join Texas wineries, distilleries and brewpubs in selling their products for off-premise consumption, while SB 2083, the companion bill to House Bill 3287, would seek to limit breweries that grow beyond a certain size or become owned by a larger beer company. To sell beer in their taprooms, these breweries (which include Austin’s Oskar Blues and Independence Brewing) might have to first sell the beer to their distributor and buy it back.

The Texas House of Representatives voted overwhelmingly this weekend not to legalize taproom beer purchases for off-site consumption and also voted in favor of the limitations on larger breweries, those making 225,000 barrels or more of beer per year.

Proponents of the latter bill, namely distributors through the trade groups Beer Alliance of Texas and Wholesale Beer Distributors of Texas, argue that it prevents large multinational breweries from “gobbling up” Texas’ small craft breweries and having “access to multiple taprooms across the state,” Rick Donnelly, representing the Beer Alliance, said during the committee hearing this morning.

That would be in violation of the three-tier system, Keith Strama, counsel for the Wholesale Beer Distributors of Texas, added in later testimony, a system that “has allowed for an incredibly competitive marketplace and allows smalls breweries to thrive in a way that other commodities can’t do because of the inability to get to market without a distribution tier.”

In that way, SB 2083 protects small craft breweries in the state, according to the bill’s author, State Sen. Kel Seliger, R-Amarillo.

But that’s not how the Texas Craft Brewers Guild, the organization representing these brewers, or the Texas Association of Manufacturers, the organization representing the state’s small businesses, see it. Both came out against SB 2083 at the hearing, along with numerous brewers, including Chip McElroy of Live Oak Brewing and Amy Cartwright of Independence Brewing, one of the directly affected breweries.

They argue that SB 2083 and the already-passed HB 3287 — which at the moment directly affect only a small number of brewers, mainly those owned by larger breweries like Anheuser-Busch and MillerCoors — would discourage investors and limit their businesses’ growth.

Josh Hare, owner of Hops & Grain Brewing and board chairman of the guild, spoke out against the proposed payment larger breweries would have to make to distributors for their taproom beers, calling it a tax. His brewery is in the process of opening a new location in San Marcos.

“If we exceed the collective 225,000 barrel limit, we would be forced then to sell our beer to a wholesaler, buy it back to sell in our tasting room, and it would dramatically cut into our margins and ultimate profitability. I would also like to emphasize here that the beer would never leave our brewery. It would just be paper moving around,” he said. “The wholesaler would place a dock bump tax on that transaction, receiving payment for no added value to what we’re doing on-site.”

Sweeping 2013 legislation allowed, among other things, for production breweries to sell up to 5,000 barrels of beer to consumers for on-site consumption. Breweries aren’t asking for that number to increase but do want to be able to also sell a six-pack to a customer to take home. That’s where SB 1217, from State Sen. Dawn Buckingham, R-Lakeway, comes in.

The bill restricts monthly purchases to 576 fl. oz. per consumer, the equivalent of two cases of beer. Brewers are in support of it; distributors are not.

“Data from other states shows that off-premise sales leads to more brewery openings, more beer tourism and more retail sales across every tier,” Michael Graham, co-founder of Austin Beerworks, said.

Donnelly, representing a wholesalers’ group, did not outright discuss why the group is against the bill but pointed out the issue of off-premise sales will be resolved in court because of an ongoing suit Deep Ellum Brewing, in the Dallas-Fort Worth area, has raised against the Texas Alcoholic Beverage Commission.

The question of taprooms selling beer to-go “involves some intricate points of federal law, including commerce clause issues, equal protection clause issues, but it also strikes at the very core of the 21st Amendment of the United States Constitution,” Donnelly said, referencing the amendment that repealed Prohibition and gave the states total control over alcoholic beverages.

State Sen. Craig Estes, R-Wichita Falls, asked for clarification about the amendment — how allowing Texas breweries to sell beer to-go, something 49 other states do in some capacity, would “strike at the core” of the U.S. Constitution.

“We repealed Prohibition and extended the right of every state to regulate our alcohol,” Donnelly said in reply.

“Right. And so we’re the only state that doesn’t allow this, though, right?” Estes said of off-premise sales.

“That is correct, but that’s a policy decision made by you as a legislature,” Donnelly said.

Neither of the bills have moved out of committee yet.

New definition for Texas craft breweries released on day of MillerCoors purchase

Not long after the Dallas-Fort Worth brewery Revolver Brewing announced that it had been sold to MillerCoors, the Texas Craft Brewers Guild — the organization that represents the state’s small breweries — released a new set of requirements defining what it takes to be a member brewery.

Now, breweries wanting to join the guild, which currently has 205 breweries either in-planning or already operating, have to be independent and not owned or partially controlled “by an alcoholic beverage industry member that does not otherwise qualify under this definition,” as the Texas Craft Brewers Guild noted in a release yesterday.

The update was approved unanimously by the guild’s board members as a direct result of a recent trend in the industry: the purchase of small breweries by beer conglomerates like AB InBev and equity firms like Fireman Capital. Revolver Brewing is far from being one of the first of these beer makers to be scooped up.

“We had seen the acquisition activities really heating up within the last year and anticipated there would be some acquisitions in Texas. We have been working to address our definition, although the acquisitions got ahead of us,” the guild’s executive director, Charles Vallhonrat, said. “The primary reason is that we want to make it clear we’re focused on supporting the smaller independent breweries of Texas. We’re pleased with our members that find financial success and opportunities that suit them, but they don’t need assistance with regulatory and legislative work. It’s those smaller guys we’re trying to help.”

With this update in membership to the Texas Craft Brewers Guild, Revolver Brewing can no longer be one of those breweries. Neither can Austin’s own Independence Brewing, which gave up a minority stake in the business earlier this summer to Lagunitas Brewing in California, 50 percent owned by mega-brewer Heineken. But the guild also announced yesterday that it is creating an associate membership for Texas breweries like them that “wish to be involved with guild activities such as member meetings, educational activities, and promotional work, but do not meet the criteria… to be a voting member,” according to the guild.

Photo by Kyser Lough for American-Statesman. Independence Brewing is one of two Texas breweries that recently gave up stake in the company to another brewery, although Independence's original owners still maintain decision-making power.
Photo by Kyser Lough for American-Statesman. Independence Brewing is one of two Texas breweries that recently gave up stake in the company to another brewery, although Independence’s original owners still maintain decision-making power.

Both breweries have cited a desire for growth as the primary reason for their purchases. In June, Independence noted that “this unique partnership with Lagunitas” would help “expand (our) brewing capacity.” And yesterday, the Dallas Morning News reported that Revolver is looking for statewide growth, with a particular eye on moving into Houston.

One of the primary goals of the guild is to advance the interests of state breweries, in the hope of helping them flourish. In 2013, the Texas Craft Brewers Guild successfully lobbied for changes in Texas law that have since transformed the brewing industry here, including the ability for production breweries to sell their beers on-site. And in 2017, Vallhonrat said, the guild aims to do more of the same — with the decision of what to lobby for resting squarely in the hands of each member brewery.

Before yesterday, the definition of membership in the Texas Craft Brewers Guild was “very nebulous,” Vallhonrat said. The new one dictates that to join, breweries licensed in Texas must also have an “annual production of 2 million barrels of beer or less” and make a majority of beers from “traditional or innovative brewing ingredients and their fermentation.”

The recently opened Oskar Blues Brewery in North Austin, which hails from Colorado, is qualified to be a member of the Texas Craft Brewers Guild because it makes far under 2 million bbls of beer in its Texas facility and isn’t owned by a big brewer with competing interests.

For more information, visit texascraftbrewersguild.com.