Late Monday afternoon, a deal was struck to advance Senate Bills 515, 516, 517, and 518, which would allow for off-site distribution by Texas brewpubs as well as limited on-site sales by production breweries, and would bolster the ability of small breweries to self-distribute. These are goals that Texas brewers have been fighting for since well before we started Jester King, but upon which no real headway had been made until now. Under the current system, brewpubs can only sell their products on site, but under the new law, they could distribute them anywhere they chose, affording them the opportunity to rise to regional, national, or even international prominence, and bringing tourist dollars from their fans to their local communities. If they choose to do so, they could even transition at some stage to production brewers and maybe even go on to become major regional producers, while still operating a tap room where visitors could purchase their products for on site consumption. If these bills pass, the story that underlies the rise of so many of this country’s most successful craft breweries will finally be able to be told in Texas.
Along with these four bills, however, a fifth with less positive implications for Texas craft brewers, was also advanced as part of a package deal. 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. In addition, current code provisions already stipulate that once a brewer assigns a distributor, the brewer can’t terminate or fail to renew that relationship without “good cause”, or without compensating that distributor for the fair market value of the brewer’s distribution rights—rights which, under the new bill, the brewer could not be compensated for in the first place. Distributors, on the other hand, are free to terminate their relationships with brewers without cause or compensation, any time they see fit. The idea that a statute designed specifically to deprive a 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.
Unfortunately, the message that we’ve been given is that the TABC has insisted upon receiving guidance from the legislature on whether the practice of brewers selling their distribution rights is legal or illegal, and those of us who feel that it is currently and should continue to be legal simply do not have the necessary power or influence to prevail. The passage of this law will be a terrible injustice, which we believe will ultimately be overturned, but if opposing it is not a battle that we can win right now, we agree with Scott Metzger that it’s better to win the battles we can, gather momentum, and live to fight another day. Scott, Brock Wagner, and the other representatives of the Texas Craft Brewers Guild, along with their allies, Open the Taps, and the Beer Alliance of Texas, were also able to mitigate the damage of SB639 somewhat by lobbying successfully for the inclusion of a section that would formally codify the legality of other means by which distributors are able to support brewers without running afoul of this or other sections of the code. We sincerely thank them for their efforts in this regard, and for all of their hard work throughout this process.
In summary, we strongly support SB 515-518. We also strongly oppose SB 639, and would love to see it left in the dust as our bills sail through the remainder of the legislative process. If that doesn’t happen, we’ll be understandably upset about the loss of our property rights and will work with other brewers who feel similarly to do everything in our power to see them restored. In the end, though, if all five bills pass, we’ll have a lot more to celebrate than we will to lament. If you disagree, well, maybe sometime in the not too distant future, we can discuss it over a pint at Jester King.