Texas craft breweries claim victory against state

Live oak Brewery

AUSTIN (KXAN) — Breweries in Texas are raising a pint after a judge ruled in favor of three breweries that teamed up to sue the state over a 2013 law that made it illegal for breweries to sell their distribution rights.

Austin’s oldest brewery, Live Oak, joined forces with two North Texas breweries, Revolver and Peticolas, to file the original suit in 2014 claiming SB 639 violated the Texas Constitution. Travis County Judge Karin Crump heard both sides of the argument earlier this month and made her ruling Thursday.

“The Texas Constitution prohibits the legislature from passing laws that enrich one business at the expense of another,” said Institute for Justice Senior Attorney Matt Miller, who represented the brewers in court. “This ruling is a victory for every Texas craft brewery and the customers who love their beer.”

For Live Oak Brewing owner Chip McElroy, the legal battle was about keeping what he believed was rightfully his. “This law took part of my business away from me and gave it to big distributors,” said McElroy in a statement. “Now I’ve got my business back.”

McElroy was able to sell his Houston distribution rights prior to the 2013 law but the other two plaintiffs had not.

While this is a win for Texas breweries, the state can still appeal the ruling within the next 30 days. If the state doesn’t appeal, the breweries will be able to start selling their distribution rights again.

The Fight Against SB 639

When Prohibition ended in 1933, states started implementing the three-tier system to regulate the distribution of alcoholic beverages. What makes up the three tiers? Producers (the breweries), distributors and retailers. All three tiers of the supply chain must remain independent from one another.

When SB 639 was originally was going through the Texas House and Senate in 2013, numerous brewers spoke out against the bill.

At the time, the owners of Jester King Brewery in Dripping Springs posted on their website that SB 639 would have an adverse impact on the brewing community. “The idea that a statute designed specifically to deprive an entire class of Texas small business owners of the cash value of their businesses could pass is disheartening and reprehensible, and we cannot help but question the motives of anyone who would cast a vote in favor of, or in any way support such a provision,” posted Jester King.

In Texas, a brewery can self-distribute in Texas as long as they make less than 40,000 barrels a year. If a brewery starts making more than that amount, they must contract with distributors to get their beer into any particular market. For example, if a brewery in Austin wanted to use a distributor to have its beer in the Houston market, it is required to select one distributor. That distributor will be the only distributor allowed to sell that beer in Houston. But that distributor can turn around and sell the rights to another distributor.

For many breweries, the problem of selling their rights becomes a bigger factor as the brewery grows. When a brewery is starting out, they will usually self-distribute and grow their clientele. Often times, small breweries will drive their beer across the state if they want their product at a bar in another region. Before SB 639, breweries would be able to sell those rights they developed in other areas to a distributor.

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