Gerald Franklin Agency

Texas Distributor Law A Big Problem For Craft Brewers

Texas Liquor License

Craft beer breweries in Texas may not be contacting a Houston liquor license service until the latest brew-ha-ha over distribution is resolved. Texas has recently enacted legislation that prevents craft breweries from collecting fees from distributors for the privilege of selling their popular craft beers throughout Texas. This law would effectively force these independent brewers to give up millions of dollars in fees to beverage distributors who have connections to politicians. Naturally, the breweries are fighting back by suing the state over the new alcohol regulations.

Actually, this is not a new law. It was passed back in 2013 and forbade brewers from accepting any compensation from distributors. The lawsuit questions the constitutionality of forcing the brewers to donate a portion of their business to the distributors. The law also curtails the variety of craft beers that consumers in Texas can purchase. The result is that many craft breweries have put plans for expanding their operations on hold. New startup breweries will likely wait until the lawsuit is decided instead of applying for their Houston alcoholic beverage license or a Texas liquor license. That will also curtail revenue the state would love to receive.

Three Texas brewers teamed up with the Institute for Justice (IJ) to challenge the law. The proprietors of Revolver Brewing, Live Oak Brewing and Peticolas Brewing Company are merely trying to protect the businesses that they built from scratch.

Prior to the law’s passing, brewers were paid by their distributors for the right to market their beers in cities across Texas. This law has created a sudden, unexpected source of profit for the distributors. What makes the situation even worse is that the distributors can sell the rights for distribution to other distributors who cover areas other than major Texas cities like Houston, Dallas or Austin. Previously, brewers used those funds from the distributors to grow their businesses.

Matt Miller, the managing attorney for the Texas office of the IJ, said that the law could be compared to forcing authors to donate the rights to their books to their publishers. He believes that it was unconstitutional to hand over the brewers’ property to other businesses that neither earned nor deserved the right to charge others to distribute craft beers.

The president of Live Oak Brewing, Chip McElroy, said that he was honored to be involved in the new trend toward craft beer. He has dedicated 18 years to building his business, but the new law forced him to pull his product from beer stores in San Antonio, Dallas-Fort Worth and areas of Texas where consumers have been able to buy Live Oak beer in the past.

Live Oak Brewing and Revolver Brewing are based in Fort Worth. The other participant in the suit, Peticolas Brewing, is in Dallas. The law has clouded their ability and desire to expand their operations. However, the property rights and economic liberties of entrepreneurs are protected by the Texas Constitution. The lawsuit is seeking to overturn the 2013 legislation so that the breweries can maintain control of their businesses.

The lawsuit is one of several included in the IJ’s so-called National Food Freedom Initiative. Its intention is to challenge laws across the United States that hinder the rights of citizens to make, sell, buy and consume foods of their own choice. The IJ has already won a free speech challenge against a law in Oregon prohibiting the advertising of raw milk. Presently, the IJ is involved in other lawsuits over the right to sell homegrown vegetables in Miami Shores, Florida, and home-baked treats in Minnesota. They are also challenging a Florida law that bars using the name “skim milk.”