Texas Craft Brewers Applaud Commission’s Findings: Outdated Beer Laws Need Serious Reforms

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Thursday, December 13, 2018

The Texas Sunset Commission, an independent body tasked with evaluating the performance of state agencies, is holding a hearing this morning at the Capitol to take public testimony on its review of the Texas Alcoholic Beverage Commission.

Eliminating burdensome over-regulation of the craft beer industry and balancing the statutory power across the three tiers outlined by the code are paramount to the continued growth of the craft beer industry in Texas. In October the Sunset Commission released its Staff Report for TABC. From its recommendation to eliminate the antiquated distinction between “beer” and “ale” in Texas, to consolidating redundant licenses and permits, to disposing with superfluous state-level label approvals, we applaud the independent commission for its thorough and thoughtful review of the agency and concur with the overall theme of the findings–TABC and the Alcohol Beverage Code are still in serious need of modernization.

“To be perfectly clear, Texas craft brewers believe that if the Code isn’t substantially updated to reflect the obvious realities of the 21st Century marketplace, it will eventually die of its own weight and old age,” Texas Craft Brewers Guild Executive Director Charles Vallhonrat said.

Texas craft brewers have been participating as stakeholders throughout the Sunset process. A live stream of this morning’s hearing, which will include testimony from representatives of the Texas Craft Brewers Guild, is available HERE.

You can read written testimony from Josh Hare, Founder and President of Hops & Grain and Board Chair for the Texas Craft Brewers Guild, below:

Written Sunset Testimony from Josh Hare:

Thank you, Mr. Chairman and Commissioners. My name is Josh Hare and I’m the Board Chair of the Texas Craft Brewers Guild and the owner of Hops & Grain Brewing. I come before you today to speak on behalf of the nearly 300 small brewers that make up our organization – but also in my personal capacity as a Texas consumer and as a lover of craft beer.

I can tell you that the craft brewers represented by our organization embody the very best attributes of Texas: they are entrepreneurial, ethical, hard-working, and fiercely independent. They are the small business people that help drive our Texas economy forward – risking capital, paying taxes, and offering a livelihood to thousands of our fellow Texans. The Brewers Association says that in 2016 Texas craft breweries contributed over $4.5 billion dollars to the state economy. This is despite the fact that small craft represents only about 2.5% of the total beer consumed in Texas today.

From every corner of our state – the singular thread that draws together the brewers of our organization is an overarching sense of pride in what we do – using our talents and toil to produce a unique and delicious product that we can share with our fellow Texans.

Now, some of the people with us here today have suggested that the members of our organization are anarchists who want to burn TABC to the ground and advocate for the wholesale repeal of the Texas three-tier system. Nothing could be further from the truth.

The reality is, the Texas Craft Brewers Guild is, and always has been, fully supportive of the foundational principles that brought us the three-tiered system in the first place – the prevention of an integrated beer and alcohol monopoly that would rob Texas consumers of choice, quality, and competition.

Without the Texas three-tiered system, it’s possible to imagine a dark and colorless world where Budweiser is the only beer available to Texas consumers…because Budweiser had been allowed to purchase every bar and retailer in the state. In that way, I suppose it’s fair to argue that without the three-tiered system, there theoretically could have been no craft beer in Texas at all.

That’s why I want to make it absolutely clear today that our issue isn’t with TABC itself or even with the three-tiered system itself…it’s with the decades of legislative efforts that have been made by certain interests to game that system at the expense of Texas consumers – perverting it from a safeguard against monopolies to a safeguard against competition.

The 17th-century political philosopher Jock Locke argued that the fundamental purpose of any government should be the preservation of the natural rights of its citizens. Locke believed that for a citizenry to live in freedom, the power of law should be cautiously applied and only in service to the direct preservation of the life, liberty, and property of the governed.

Over the decades, I think it’s safe to say that we’ve moved farther and farther away from that ideal. But as the honorable members of this Commission evaluate the TABC and consider the proposals offered to modernize the outdated system of laws that govern the production, distribution, and sale of alcohol in Texas – may I suggest that you ask yourselves the following questions:

1. Does this regulation exist to protect the lives of Texans or promote public safety?
2. Does it exist to affirm our individual rights or liberties in some way?
3. Does it exist to protect the property of Texans or the rights of Texas consumers?

If the answer to those three questions is “NO”…then I believe it’s worth asking why the law or regulation does exist and what compelling public interest it’s intended to serve. Do the laws governing the TABC exist to advance the greater interests of the Texas consumer…or are they instituted for some other purpose, like preserving the financial advantage of one business over another?

Texans take great pride in our sense of independence, and as such, we tend to view any new law or government regulation with a healthy degree of skepticism. That’s because, as the members of this Commission are aware, every new law passed in Austin or Washington results in the degradation of some amount of our individual freedoms – however minor or imperceptible that loss may be.

Oftentimes, that sacrifice of freedom is justified by the greater good it serves. There are times, for example, when I’d like the freedom to drive my car 120 mph down the highway…but my freedom to do so is plainly outweighed by the greater risk that this conduct poses to the public safety. As obvious as this rationale may seem to most people, most of our state’s beer and alcohol laws appear to follow no such logic.

I ask you…what is the compelling public interest served by requiring the small businesspeople of this state to navigate a tiresome regulatory structure that seems to be, at best, needlessly burdensome…and at worst, almost intentionally non-competitive?

What compelling public interest is served by requiring small business owners in Texas to pay for and maintain two separate licenses for products as substantially similar as beer and ale? How does that serve the Texas consumer? How does it serve the Texas economy?

Does the TABC’s arduous and time-consuming label approval process make anyone in this state safer? Or does it just another outdated and unnecessary regulatory headache for a small businessman like myself to overcome?

I could go on, but won’t.

As you evaluate Sunset’s proposed changes to TABC, it is the hope of the Texas Craft Brewers Guild that the members of this Commission will ask themselves these fundamental questions.

We ask that you would first seek to understand how such a frustratingly complex regulatory scheme came into existence in the first place, and ultimately draw your own conclusions about whether you believe this to be a truly fair system designed to serve the people of Texas, or a corrupt and arbitrary collection of laws designed to protect the narrow interests of the powerful and well-connected.

We’re not asking for handouts or special treatment – just fair treatment. We’re here today simply because we want the state we love to adopt a legal and regulatory framework that loves us back.

We have a number of specific thoughts to offer regarding the recommendations made by the Sunset Commission staff, but fundamentally, our request to you is simple and straightforward: the Texas craft brewers want the freedom to make and sell beer to our fellow Texans who demand it in the real world marketplace with as little regulatory interference as is necessary to preserve the health and safety of the public.

On behalf of the entire Texas Craft Brewers Guild, I thank you for the opportunity to address the members of this Commission and I’d be more than happy to answer your questions at this time.

 

After today’s hearing, the Commission’s recommendations will ultimately be crafted into a bill which will go through the legislative process during the 2019 session. Stay tuned to CraftPAC.org for legislative updates as we move into 2019.

Texas Republicans, Democrats Support Beer-to-Go Sales from Craft Breweries in 2018 Party Platforms

At State Conventions, Parties Show Bipartisan Support For Granting Manufacturing Breweries the Same Rights as Breweries in 49 Other States

 

Screen Shot 2018-06-24 at 3.38.49 PMAs the 2018 Midterm Elections and 2019 Legislative Session approach, Texas Democrats and Republicans have included planks in their party platforms supporting expanded rights for Texas craft breweries. As the only state in the country to disallow beer-to-go sales from manufacturing craft breweries, Texas Republicans, holding their convention in San Antonio June 14-16, and Democrats, holding theirs in Fort Worth June 21-23, have agreed that this needs to change.

“The craft brewing industry has a $4.54 Billion impact on the Texas economy and represents a growing manufacturing industry for our state,” Texas Craft Brewers Guild Executive Director Charles Vallhonrat said. “This is a Bipartisan issue. While both parties may have different approaches, they share clear, unequivocal support for beer-to-go sales directly from manufacturing craft breweries. This is a right exercised by breweries in 49 other states, and one we strongly hope to see extended to Texans in the 2019 Legislative Session. That both parties are expressing support for this issue in their platforms demonstrates the bipartisan grassroots momentum around this issue leading into next session.”

Under current Texas law, wineries, distilleries, and brewpubs are allowed to sell some quantity of their products to-go from their tasting rooms, leaving manufacturing craft breweries as the only local makers in the Texas alcohol beverage industry who do not have the right to sell packaged products to a tasting room patron for take-home enjoyment. This discrepancy robs Texas craft breweries of a valuable revenue stream and an important brand building opportunity.

While Texas boasts over 250 breweries and brewpubs, the state still ranks 46th when it comes to breweries-per-capita. Texas craft brewers believe that modernizations to the Texas Three-Tier System, including allowing beer-to-go sales from craft breweries, will lead to more entrepreneurism, economic development, tourism, and quality manufacturing and small business jobs.

Texans who want to show support for beer-to-go sales can do so by signing our online petition.

Republican Platform Language:
34. Three-Tier Alcohol System: We urge the Texas Legislature to adopt legislation eliminating the mandatory three-tier system of alcohol production, distribution, and retail. Texans should have the freedom to purchase alcohol directly from manufacturers, just as any other retail product.

Democratic Platform Language: 

(Jobs Section) Democrats support modernizing the TABC’s 3 tier system because Texas’s craft breweries create jobs, encourage tourism, grow the economy, revitalize communities and add incremental tax revenues. Democrats support legislation allowing craft breweries to enjoy the same rights as their competitors in every state that allow them to sell and market their products directly from their breweries to consumers for take-home consumption, and ensure fairness in distribution across the state.

Why beer middlemen stand in the way of craft beer legislation that would help Texas thrive

Manhole.jpgCollectively, small Texas craft breweries make up only a 3% share of the total beer marketplace in Texas. While these businesses serve as incredibly outsized sources for economic impact, jobs, and industrial revitalization, there’s no denying that 3% is a sliver of the overall beer industry pie. Meanwhile, a disproportionate amount of the nation’s largest beer wholesalers call Texas home. Protected from competition and fueled by consolidation, these wholesalers hold duopolistic control of nearly every Texas market, and monopolistic control of individual brewery rights inside of those territories.

It’s illegal for a brewery to sell its territory rights to a distributor in Texas. Instead, all of the brand equity a brewery builds must be given away for free to a middleman that now holds exclusive distribution rights for the life of the business unless extraordinary cause for termination can be demonstrated. Meanwhile, distributors are free to profit from the sale and exchange of brewery rights with one another if they decide its in their own best interest to do so.

TexasTribune
Top Distributors for Political Contributions. 2013-2016. Courtesy of the Texas Tribune.

You may ask yourself why Texas beer wholesalers spend so much time fervently opposing positive craft brewery legislation (not to mention pushing insidious anti-craft legislation and misinformation of their own), given Texas craft beer’s growing, but still disproportionally small, market share. The answer is clear. When beer wholesalers lobby against common sense, consumer-friendly legislation that will lead to more jobs, tourism, and economic impact for Texas and its craft beer industry, maintaining unparalleled economic protectionism is the chief motivation.

The Texas Alcoholic Beverage Code was largely crafted in a time when a few powerful breweries (now owned internationally) could exercise control over mom-and-pop retailers and bootstrap wholesalers with small territories and limited portfolios caught in the middle.

Today, these same laws have become a protection racket to preserve the multigenerational wealth of a small handful of politically connected families in this state. Meanwhile, hundreds of persevering craft breweries operate under some of the most restrictive laws in the country in a time where consolidation has led to two effective choices for wholesale partners in each market.

Craft breweries want the Three-Tier System to work for everyone—not just wealthy wholesalers. It’s in the Texas Legislature’s power to ensure that a more equitable, prosperous path forward begins in 2019. We need passionate craft beer enthusiasts across Texas to join the cause.

CONTRIBUTE TO CRAFTPAC!

SIGN OUR PETITION FOR BEER-TO-GO SALES!