The 2013 Texas Legislative session is well underway and already the landscape for craft beer has changed in a big way. Last Monday the Senate Committee on Business and Commerce announced an agreement between the Texas Craft Brewers Guild, Open The Taps and the Wholesale Beer Distributors of Texas (WBDT). The agreement drastically change the language of Senate Bills 515-518 and their house companions HB 1763-1766. The bills sought again to level the playing field between small and independent craft brewers and the national brands.
The Texas Craft Brewers Guild has introduced the package of bills that propose to allow Texas brewpubs the ability to distribute at off-site retail locations on their own or through a distributor, allow on-site sales at production breweries for on-site and off-site consumption and increase the amount of yearly production for ale and beer.
Currently brewpubs can on sell on-site and production breweries are allowed no on-site sales at all. Variations of these bills were introduced 2 years ago during the last session and never saw the light of day. With a lot of media exposure and pressure from groups like Open The Taps, the breweries had a lot of support this time around.
Discussions have gone on for the last two months, but hit a snag a few weeks ago, when State Senator John Corona introduced SB 639, a bill that would allow for Reach Back Pricing, the ability for prices to be set at the manufacturing level and likely raise beer prices all over Texas. Other components of the bill would end self-distribution for craft breweries, as well as relinquishing their ability to sell their distribution rights.
Corona has stated that SB 639 was introduced to take heat off of SB 515-518, thus preventing the Reach Back Pricing language from being introduced into those bills. With the WBDT a major supporter of Corona's many have questioned his true motives. Senator Corona then gave all parties until last Tuesday to reach an agreement or he would be willing to allow all the bills to die.
Last Monday, an agreement was reached, but with much of the language in each bill changed. Here's a recap:
- Brewpubs would be allowed to produce up to 10,000 barrels, up from the current 5,000.
- Brewpubs would be allowed to sell to wholesale distributors.
- Brewpubs that sell just alcoholic beverages made on-premise can self-distribute up to 1,000 barrels each year. They are still allowed to carry guest taps.
Of note, is that if a brewpub sells only beer and wine they can self-distribute, but if they serve spirits as well, they will only be able to sell to a distributor.
SB 516 and 517
- Craft breweries with an annual production of 125,000 barrels or less can purchase a $250 distributing permit to self-distribute up to 40,000 barrels.
Currently only the Spoetzel brewery, producers of Shiner, ABInbev and MillerCoors produce more than 125,000 in Texas. Many are nowhere close to this amount.
- Production breweries with an annual production of 125,000 barrels or less can sell up to 5,000 barrels on-site each year for on-site consumption.
Production breweries will still be bared from on-site sales for off-site consumption.
- Allows for the ability of one distributor to sell their territorial rights to another distributor.
- Makes the sale of territorial distribution rights by breweries to distributors illegal, thus putting into law a practice that has been vague for years.
- Prohibits Reach Back Pricing, but still allows set prices as the wish, but they can not take into consideration what the distributor would charge a retailer.
- Allows for agreements between distributors and breweries that would allow for things such as kickbacks and money from advertising and promotions.
However, this only the first step. Now that the bills have passed the Senate committee, they now move to the Senate floor for a vote next week. This past Tuesday, the companion House bills (HB's 1763-1766) went to the House Licensing and Administrative Procedures Committee for a vote. HB's 1763-1766 were modified to be identical to the revised SB's 515-518 to make passage smoother. The House committee was surprisingly silent on the bills, electing to wait and vote once the Senate bills inevitably pass the Senate floor. If the bills make it past the Senate and House floors, it's on to the Governor for a signature.
Of all the changes to SB's 515-518 over the last few days, none have been more debated than the issue of distribution rights. Many of the State's production breweries have expressed their dissatisfaction with the language feeling that it is more akin to taking one step forward and two steps back. Guadalupe Brewing Co co-founder Keith Kilker asked "Why not codify this issue to legalize the sale of distribution rights instead of making them illegal?” Kilker went on to say that "No matter how the legislation falls out this year I will be happy with whatever is gained for Texas Craft Breweries as many have fought what I can only call a morally bankrupt system."
I spoke to Brewers Association President Charlie Papazian who was upbeat about the headway being made "I’m glad they [the Texas Craft Brewers Guild] were able to be at the table and make something happen. This is just one of many steps in the long term environment for craft brewers throughout the USA."
Austin's Jester King Craft Brewery, in a recent blog post, summarized SB639. "Among other provisions, SB 639 would make it expressly illegal for breweries to sell the right to distribute their products to wholesalers, while making it expressly legal for wholesalers to sell those same rights to one another. In other words, a self-distributing brewer who wants to transition to using a third party distributor cannot be compensated by that distributor for the existing business that they would be turning over, but then that same distributor could immediately turn around and sell that business to another distributor for millions of dollars."
Dallas’ Deep Ellum Brewing and San Antonio's Branchline Brewing, have also publicly expressed concern over the loss potential income from selling their distribution rights, with Deep Ellum going so far as to suggest that none of the bills should pass, so that attempts could be made again in two years hoping this would provide an opportunity to get everything that the brewpubs and production breweries want.
Freetail Brewing Co founder Scott Metzger, a prominent voice in these legislative battles, recently defended the compromises, "I’m not just saying this to defend myself, but because I believe this is absolutely a true statement: without the work of the Guild, the provisions of 639 would have been a lot worse for Texas craft brewers. Not only did we curb some of the provisions in that bill, we gained rights that myself and some of my colleagues have been working on for almost a decade."
Having participated heavily in this legislative process, Open The Taps recently commented on the modified language. "This is by no means a perfect package of regulatory changes, but again it is a good step. Things happen incrementally in legislative bodies, and we will be back next session if necessary to continue the fight to OPEN THE TAPS in Texas."
These legislative issues are complex and difficult indeed, and are clearly not over yet.
San Antonio Beer Week
San Antonio Beer Week (SABW) returns for its 3rd year, this May 12 through May 21st. A beer dinner from Freetail Brewing, as well as the Sweet and Sour Soiree (a pairing of cupcakes and sour beers) will kick off a soft opening on May 12. Official opening ceremonies will be held at Branchline Brewing. Many more events are scheduled.