Beer battle: Texas craft brewers say law is losing them millions

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AUSTIN (KXAN) — A fight is brewing over the Texas law that craft brewers are claiming is having them hand over millions of dollars in property.

On Monday, Austin’s Live Oak Brewing, Dallas’ Peticolas Brewing  and Fort Worth’s Revolver Brewing all showed up in court to try to overturn the 2013 law, Senate Bill 639, which makes it illegal for brewers to receive compensation for the distribution rights of their own product. Live Oak, Peticolas, and Revolver joined forces in December 2014 in attempts to change the law.

Previously, distributors would pay breweries to sell their products, which they would reinvest in their business. Under the law, brewers are no longer allowed to accept money from distributors for the rights to sell their beer. However, the law allows distributors to sell the breweries rights to other distributors and keep the money themselves.

Chip McElroy, owner of Live Oak Brewing, which is Austin’s oldest brewery, says he joined the suit because he believes the law favors the distributors over the business owner.

“We were devastated, because obviously, that takes a lot of our value in our businesses and awards it to someone else,” said McElroy on Monday.

In Texas, breweries that produce less than 125,000 barrels of beer a year can self-distribute their own product and build up their client base. But once they get big enough, current law says they have to “give away” their distribution rights to a distributor. Whereas before the law went into effect, McElroy said he would have been able to sell his distribution rights for a few million.

“The state of Texas cannot pick winners and losers in the marketplace,” said Arif Panju, Institute for Justice Attorney, who is representing all three breweries. “It can’t pass a law to enrich beer distributors at the expense of craft beer companies.”

During last year’s legislative session, State Rep. Senfronia Thompson, D-Houston, sponsored a House Bill 3389, which would decrease the amount of beer a brewery could self-distribute from 40,000 barrels to 5,000 barrels. The bill died in committee.

The Travis County judge is expected to rule on the case within two weeks.Editor’s Note: The original story stated the bill the plaintiff’s were fighting was HB 3389, but that is not the case. It has been amended to include SB 639.

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