One item lost in the shuffle following the Authentic Beverage v. TABC ruling is a telling statement from Senator John Carona, Chairman of the Senate Business and Commerce Committee, which hears alcohol-related bills.
“A Federal Court has ruled that Texas’ laws regarding the advertising and labeling of beer are flawed. In the case of Authentic Beverages Co. vs. TABC, the Judge awarded a summary judgment that certain laws directing the labeling and advertisement of beer are unconstitutional. While the three-tier system of manufacturer, distributor, and retailer has served Texas well since the end of Prohibition, it is an open question how well the Texas Alcoholic Beverage Code reflects today’s reality of Internet sales and the growth of the craft brewing industry. The Court’s ruling suggests this is a topic that may be taken up by the 83rd Legislature.”
Credit Lee Nichols’ I Love Beer Blog for the quote.
Senator Carona’s quote demonstrates that our legislators have becoming increasingly aware of the changing marketplace, and recognize that an 80 year old code may not be the best to regulate it. 2013 is looking better and better for Craft Beer to finally have a fair hearing for statutory reform.
Drink Beer, Save Texas!
And now for the lighter side. As I alluded to previously, Judge Sparks’ judgement is full of all kinds of funny lines. If this whole judging thing ever gets old to him, he’s got a career in comedy.
Judge Sparks wastes no time getting into the humor (and a little jab), and offers this in his background on the case:
The practice of law is often dry, and it is the rare case that presents an issue of genuine interest to the public. This is just such a case, however. Dealing as it does with constitutional challenges to the Texas Alcoholic Beverage Code, it is anything but “dry”and this Court wouldnever be so foolish as to question the sincerity of Texans’ interest in beer.
Given this obvious public interest, it is both surprising, and unfortunate for proponents of the Alcoholic Beverage Code, that the State of Texas does not appear to have taken as much of an interest in this case as it might have.
Judge Sparks did limit comedy to his commentary, and titled one section of his Judgement as:
2. Beers and Liquors and Wines, Oh My!
On the defense’s argument that The Texas Alcoholic Beverage Code is constitution because it is the Texas Alcohol Beverage Code:
In a remarkable (though logically dubious) demonstration of circular reasoninga tactic it repeats throughout its briefing, and which it echoed in open court TABC attempts to defend the constitutional legitimacy of the Code through an appeal to the statutory authority of the Code itself.
On the idea that the state should have the authority to define words however the legislature sees fit (and in what can only be seen as a tip of the hat to Freetail Brewing Co… right?):
Second, TABC’s argument, combined with artful legislative drafting, could be used to justify any restriction on commercial speech. For instance, Texas would likely face no (legal) obstacle if it wished to pass a law defining the word “milk” to mean “a nocturnal flying mammal that eatsinsects and employs echolocation.” Under TABC’s logic, Texas would then be authorized not only to prohibit use of the word “milk” by producers of a certain liquid dairy product, but also to require Austin promoters to advertise the famous annual “Milk Festival” on the Congress Avenue bridge. Regardless of one’s feelings about milk or bats, this result is inconsistent with the guarantees of the First Amendment.
This one isn’t so humorous as it is an insight into the larger issue that I have dealt with extensively: the restrictions of brewpubs to sell their beer to distributors or retailers for resale based on 3-tier arguments. Judge Sparks questions whether or not the concerns purported by the WBDT as reasons for not letting brewpubs sell their beer to distributors and retailers is a valid one.
Although unquestionablytrue whenthe Code was first written, andthe evils oforganized crime’s involvement in the alcoholic beverage industry were both immediate and substantial, it is less clear that vertical integration of the alcoholic beverage industry still poses a grave threat to Texas’s interests. In any case, in light of wineries’ exemption from these regulations, this purported interest is suspect.
In response to the defendant’s argument that the “Beer” and “Ale” distinctions are important for consumers to know how strong a product is in terms of alcohol, the Court reponds (my favorite part highlighted by me):
Although a typical member of the public may not be able, off the cuff, to state the average alcohol content of popular Texas malt beverages, the Court is confident that same person could, if presented with the alcohol content of a variety of malt beverages, come to a reasonably quick and accurate conclusion regarding their average range. Having determined the average range, this person could then make an intelligent choice whether to deviate from that range, in which direction, and by how much. The Court simply does not share TABC’s apparently low estimation of Texans, and remains steadfast in its belief that they are capable of basic math.
On why TABC’s lawyers presented what appears to be a less-than-full effort:
Regrettably, TABC has almost wholly failed to submit such evidence, and has often failed even to respond to Authentic’s arguments. Whether this failure reflects a tactical error, laziness, an implicit concession that the Code cannot withstand constitutional scrutiny, an erroneous assumption that TABC is entitled to special treatment, or a mere oversight, the Court cannot say. However, under the circumstances here, the Court is obligated to grant summary judgment in favor of Authentic on its First Amendment challenges.
On why just because TABC doesn’t know why it enforces stuff, it doesn’t make it unconstitutional:
However, as noted above, the state need not come forward with any record evidence whatsoever in defense of the Code. Further, just because particular individuals within the Texas governmenteven those of high rank within the administrative agency that enforces the law may not be able to articulate a reason for the Code’s disparate treatment, that does not mean no reason exists. Indeed, although it may well be desirable, there is no constitutional requirement that a personwho enforces of a law must also know the legislative purpose behind it.
Again, on defendant’s level of effort in defense:
The Court is shocked and dismayed at the Texas Attorney General’s halfhearted conduct in this case. The very purpose of having the Attorney General’s Office defend suits like this, is so the State of Texas can vigorously defend its duly enacted legislative mandates. Here, however, when TABC responded to Authentic’s challenges at all, it responded with little in the way of argument, and even less in the way of relevant evidence. The State of Texas is lucky the burden of proof was on Authentic for many of its claims, or else the Alcoholic Beverage Code might have fared even worse than it has.
Final note: I don’t feel the Attorney General let the TABC down as much as Judge Sparks thinks they did. Judge Sparks thinks the AG left arguments on the table, but I would contend THERE WERE NO ARGUMENTS TO PUT ON THE TABLE!
Been a fun day. Cheers everyone.
No, you read the title of this post correctly, The Case For Three-Tier. Disclaimer for those who are pregnant, may soon become pregnant, or suffer from a heart condition: you are about to read me make a case for the three-tier system and not in a “devil’s advocate” sort of way, but in a real “we actually need this” way.
There is a growing sentiment among consumers, and even a growing trend among statutory changes (like this one Tuesday in Washington state), against the 3-tier system. The behind-the-scenes warfare, as detailed here, between the members of the various tiers has only intensified as the clamoring for reform has grown. Most of you are probably aware that I led a charge for statutory reform in Texas earlier this year that would have allowed brewpubs like mine sell to distributors, which is currently prohibited.
So I come here today to once again remind us all of the importance of a truly independent distribution tier. The simple fact of the matter is that craft beer needs the middle tier for its continued existence. The distribution game is a difficult one, and in most cases requires scale in order to be profitable. Because of the scale required, it often takes big resources and big companies to be an effective distributor – something most craft breweries cannot be. If not for the requirement for an independent middle tier, there is little question the world’s mega brewers would vertically integrate distribution networks, and eventually crowd out craft brands. Niche distributorships may emerge, but their geographic reach would be limited (and many geographic areas would probably end up underserved or completely unserved).
Craft beer needs distributors. But our beer laws also need reform. These are not concepts in conflict with one another. As the fight for fairer beer laws in Texas continues, I’m proud to say that I’m in the process of meeting with distributors across the state to find common-ground solutions so that we can move forward. What I’ve found is that the distributors are not as unreasonable as we are led to believe, and they increasingly want craft beer in their portfolios. Now they want a way for us to work together without opening things up completely and allowing the world’s mega-brewers to re-establish the vertically integrated monopolies that flourished pre-prohibition.
The craft movement has a strong foothold and is here to stay. Let’ s not undermine the progress made thus far by calling for the complete abolition of 3-tier, let’s instead focus on making the right improvements to the system that doesn’t kill the craft movement in the process.
If you heard my testimony before the Licensing and Administrative Procedures Committee back on March 22, 2011 (or if you’ve been a regular reader of this blog), you might recall me talking about how the 3-Tier System is really the 5-Tier System. The beer industry in Texas isn’t just brewer, wholesaler, retailer and it is an affront to forget the 4th and 5th Tiers – consumers and the state itself, respectively – in a discussion on statutory reform.
I’m happy to see that the 4th Tier, the consumer, has organized to have a voice in the political arena. First of all, with due respect to members of the Wholesale Tier who seem to believe the world revolves around them, it needs to be acknowledged that the 4th Tier is the most important tier. Without beer drinkers, there is no beer for brewers to produce. There are no deliveries for wholesalers to make. There is nothing for retailers to sell. There is nothing for the state to regulate and tax.
The beer industry does not exist to be a piggy bank for bloated distribution companies who wish there was simply a commodity called “beer” in a non-descript white can – after all, that would make their jobs a whole lot easier. The beer industry exists because consumers want beer. And though it pains some industry members, it is becoming increasingly obvious that beer consumers want a diverse, well maintained selection of craft beer. Sorry lifelong Bud Light salesman, times have changed. Either board the train or get steamrolled by it.
Open The Taps is an organization founded by a group of Houston craft beer drinkers (that I’ve had the pleasure of meeting over the years: great folks, I can vouch) aimed at giving the 4th Tier an organized voice at the Capitol. I look forward to seeing how their fundraising efforts go and their impact on Texas lawmakers leading up to and during the next legislative session. Along with my organization, Texas Beer Freedom (which represents Texas Craft Breweries and Brewpubs), the increased awareness for the design for statutory reform will reach a point where it can no longer be ignored. You know I’ll be talking more on this topic here on my blog as the effort gets rolling again.
As one of the founding volunteers of Texas Beer Freedom, Andy Liddell, said before the Licensing and Administrative Procedures Committee:
“Alcohol regulation is supposed to protect the consumer. Well, unfortunately all our laws are doing is preventing me, the consumer, from getting the products I really want.”
Drink Beer, Save Texas.
Long time, no write. unfortunately, I have nothing to report on HB 660. I’ll let you figure out the rest there.
I do, however, have great news on HB 2436 and its companion bill, SB 1575. If you remember, this is a microbrewery direct sales bill that would allow you to buy pints at places like Real Ale, Live Oak, (512), St. Arnold, etc. Both bills will be heard in front of their respective committees tomorrow April 19, so get off your tails and get to the Capitol to show your support!
Viva Texas Beer Freedom!
On this day in 1933, the first brews were legally sold following prohibition – a movement that, at its end, saw even its original proponents lobbying to repeal it. As it turned out, Prohibition did more damage than good – creating the niche for highly organized crime and spawning some of the most notorious criminal masterminds in American history. We learned a valuable lesson from Prohibition: restricting people’s right to choose is a bad thing; and that typically the people pushing hardest for restrictions are those who stand to gain the most from it (in the case of Prohibition, the gangsters and racketeers).
Today, our state still struggles with the lingering effects of Prohibition – most notably in the form of laws that restrict our smallest and most innovative brewers from reaching the marketplace. Brewpubs are not allowed to sell to wholesalers. Production brewers are not allowed to sell you a six-pack at the brewery. Out-of-state brewers are treated preferentially by Texas alcoholic beverage code. And none of this in the name of consumer protection or the welfare of the state – but rather the protection and welfare of a handful of multi-million dollar businesses who seek to build the biggest and best walls in order to defend their castles.
A significant number of the wholesale-tier members, who have traditionally been against the reforms we seek, have had the same revelation as John D. Rockefeller Jr., Pauline Sabin and the Women’s Moderation Union had in the late 1920s: they would best be served having a part in the future of the alcohol industry, rather than protecting a system which serves to enrich the organized few.
We were proud to stand beside members of The Beer Alliance and the Licensed Beverage Distributors of Texas in support of HB 660 before the House Licensing Administrative Procedures Committee. Support from the wholesale-tier was echoed by endorsements from the Texas Restaurant Association (Retail-tier), in addition to countless consumers. Every tier of the beer industry is in favor of our bill (and recall, there are actually five tiers when you count consumers and the state itself) – even the state, which stands to gain much-needed tax revenue as its small breweries grow and the overwhelming majority of Texans agree it is good policy. Please, make another call to your State Representative and members of the LAP Committee and ask them to support HB 660 on this day, the celebration of American’s right to choose.
Around the Web
Not that they didn’t believe us, but the Austin American-Statesmen fact checked statements made by Rep. Villarreal (HB 660’s Author). The verdict: the Representative is rated as true!
Congrats to Brock Wagner, the folks at St. Arnold, and all the other Texas brewers, distributors and retailers supporting HB 602 which today passed the House Licensing and Administrative Procedures Committee by a vote of 6-0. Next up is the Local & Consent Calendar Committee, which will place the bill on the Calendar for a vote before the entire house.
As far as HB 660 goes, we are still trying to arrange for it to be brought up for a vote before the committee. No further news at this time.
(512) Brewing’s Kevin Brand has a post on his blog today about HB 2436, which I believe deserves the support of every Texas craft beer lover as well. You can read all about it here.
Around the Web
Charles Kuffner has a blog post today on HB 660 at Off the Kuff. Mr. Kuffner is rather critical of the anti-competitive nature of the system the WBDT is trying to protect. He’s got a great point. This is America, right?
Thanks to everyone who came out to Uncle Billy’s Lake Travis yesterday for the HB 660 benefit concert. We had a great time with Slow Train, Mike and the Moonpies and Two Tons of Steel. I didn’t catch who ended up winning, but someone ended up with a hoodie, shirt, cap and 2008, 2009 and 2010 Vertical of La Muerta that I donated to the silent auction. Congrats and enjoy! (Sadly, that only leaves me with two or three more bottles of 2008 La Muerta!)
Some great press today as the HB 660 effort makes the front page of the Austin-American Statesman with this story.
The Statesman also has a good photo gallery from yesterday’s event here.
And our good friends at BeerTownAustin have a recap our efforts to Drink Beer and Save Texas here.
The battle isn’t over, keep those calls going into the committee!
Today the House Licensing and Administrative Procedures Committee is busy hearing a litany of gambling bills. interestingly, this article came out today with Senate State Affairs Committee Chair Robert Duncan quoted saying gambling bills have no chance. Lt. Governor Dewherst has said he’ll funnel all gambling bills through Duncan’s committee, which pretty much assures they are all DOA. (Which raises the question – what’s the point of going through the motions?)
Hopefully, “going through the motions” with no point isn’t what we’ve been doing with HB 660. It is up to Chairman Hamilton to decide whether or not to bring the bill (and the same is true with HB 602) back up for a vote. Keep those calls, letters and emails up encouraging his support of HB 660. A little advice I got from someone who works in politics: one handwritten letter is worth 20 emails. Something to keep in mind.
Come Party with us this Sunday to Support HB 660
This Sunday we’re going to party at the new Uncle Billy’s on Lake Travis with Two Tons of Steel, Mike and the Moonpies and Slowtrain in support of HB 660. Buy your tickets now and save $5 at the door!
***First, a programming note: I’ll be in San Francisco for the Craft Brewers Conference until Sunday – so updates may be sporadic until then.***
By now, you all know that yesterday House Bills 602 and 660 were heard before the Licensing and Administrative Procedures Committee.
Briefly on HB 602: No one expressed opposition, not even the Wholesale Beer Distributors of Texas, who have opposed the bill in the past. There is some forthcoming compromise on that bill that apparently everyone is happy with and it looks like you’ll be able to take beer home after a brewery tour later this year.
HB 660 had a tremendous number of supporters, and the roll of names read into the record as supporters of the bill was long and impressive. Among those in support but not wishing to testify were a number of beer distributors and the Texas Restaurant Association.
As you may have read, we’ve gained the support of the other tiers through thoughtful discussion with interested stakeholders. Beer distributors were concerned about self-distribution for a business type that already sells directly to the consumer, and we understand their points. Self-distribution has been removed from the bill. We also lowered the annual limit for aggregate production to 15,000 barrels per brewpub. A number we are very comfortable with. I’m pleased that we were able to come up with a bill that all three tiers really like.
We did have one person oppose our bill, however. Keith Strama, representing the Wholesale Beer Distributors of Texas, stood up and presented a semi-coherent rambling about how we should not allow these kind of changes to the code because… well, just because. Seriously. Strama did present some other barely comprehensible argument, which was called onto the rug in short order by Committee Vice-chair Chente Quintanilla of El Paso. Video of the entire hearing, which you can find here, proves quite entertaining. Strama should have just stuck to “Uh… just because” – turns out that was a better argument than the one he was trying to make.
A real comedic gem came when Mr. Strama suggested that HB 602 already accomplishes what brewpubs are trying to achieve by allowing us to simply change our license to a brewery and charge for tours and give away beer. Yes, that is MUCH simpler than just allowing brewpubs to sell to distributors.
Most interesting, to me, was that not a single industry member of the WBDT (of which many were present in the room) submitted themselves in opposition. It’s not hard to oppose in these kinds of hearings, you just fill out a card with your name, occupation, and your position. Why wouldn’t WBDT members bother to oppose? Could it be… they aren’t opposed?!??!?!?! This begs the question, who does the WBDT really represent? Certainly not their members, a handful of which have approached me about carrying my brand should the bill pass.
The conclusion seems obvious: the WBDT’s attorneys and lobbyists represent only themselves. They have to ensure they have a job in two years when this bill inevitably comes back up if it is defeated this time. These guys don’t care about brewers, that much is obvious. But now it is becoming clear they don’t even care about the distributors they supposedly represent, or the state’s best interested.
The writing is on the wall. The WBDT’s era of rule is coming crashing down around them as they have failed to keep up with changing times. They continue to lose members, fed up with the stuck-in-the-mud thinking of Keith Strama and his bosses, and they continue to lose influence.
With the WBDT exposed, the ball is back in our court. We have one or two weeks at the most to earn the votes of the committee, after that it will be too late to advance this session. Right now I think we have 4 votes. We need 5. Time to turn up the pressure and continue to urge members of the committee that this the right thing to do. Continue those calls and emails (I’ll post a sample follow up letter tomorrow).
Around the Web
Lee Nichols has a great story on the hearing for the Austin Chronicle. His article is also one of the last chances you’ll have to see my beard, which I said goodbye to this morning.
The blog, I Love Beer, has a great post on yesterday’s hearing.
And of course the Texas Tribune was covering the story as well.
And lastly, here is a written version of my testimony from yesterday in the event you were curious.
Members of the committee, thank you for allowing me the opportunity to speak on the matter of House Bill 660. My name is Scott Metzger, Founder and Chief Executive Officer of Freetail Brewing Company in San Antonio; Adjunct Professor of Economics at the University of Texas – San Antonio; and Executive Director of the non-profit organization, Texas Beer Freedom.
This bill is specifically about Texas brewpubs, establishments that brew artisanal, hand-crafted beer for sale to consumers on the premises of the brewery. Currently, the state’s alcoholic beverage code restricts brewpubs from participating in the well-established three-tier system and does not allow them to provide their products to the state’s wholesale tier for resale to the retail tier. This statutory restriction has significantly stunted the growth of the brewpub industry in Texas: while the number of brewpubs in the United States has gone from 5 in 1986 to over 1,000 today – we actually have fewer brewpubs in Texas today than we had in the 1990s.
The code as it is currently written not only restricts our state’s small businesses from growing but also provides a wide-open market for out-of-state producers of craft beer to come in and sell their products without the worry of competition from local brewpubs. I have a wealth of economic data to support the need for legislation like HB 660, but the argument is best demonstrated by this simple fact: brewpubs from California, Colorado, Delaware and Oregon are selling tremendous quantities of beer within our state’s borders while Texas brewpubs are shut out from competing in their own backyard. Put simply: currently, the best option for my brewery to expand the reach of our products in Texas is to move our brewery out of Texas. As a proud native Texan, that is a painful statement to make about any of our businesses.
In our great state, it is important to remember that we really have a five-tier system. In addition to the producers, wholesalers and retailers – we must not forget the consumers and the state itself. In the case of HB 660, all five tiers stand to benefit from this bill’s passage.
The benefits to brewpubs, the producers of the beer, are self-evident: the bill would enable them to grow beyond their existing walls. I was commissioned to perform an Economic Impact Study on behalf of the Texas Craft Brewers Guild to estimate the economic contribution of our industry today and in the event of statutory reforms such as HB 660. The study found the potential for more than $680 million of new economic activity, 6,800 new jobs and $192 million of new annual payrolls created.
The benefits extend to the wholesale tier. Today, the beer industry is declining in the aggregate with the exception of one sector: craft beer. Wholesalers are continuously expanding their portfolios to include artisan, hand-crafted beers like the ones Texas brewpubs make. HB 660’s passage would provide wholesalers with a wider-range of Texan products to offer. Speaking only for my brewery, since HB 660 has been introduced I’ve been approached by wholesalers from the Wholesale Beer Distributors of Texas and The Beer Alliance to discuss the possibility of carrying my brand. Quite simply, wholesalers want my beer.
Retailers stand to benefit by focusing their product offerings on high-quality local products. Every year, the National Restaurant Association releases its Top Trends. And for the last few years, “Local Food and Beer” has been at or near the top of that list. Thinking local is no longer a progressive ideal; it has become the standard way of life for Texans.
Consumers benefit by gaining a wider access to the products they desire. At my brewery, I am constantly flooded with calls and emails from folks around the state who want to know where to buy my beer. For Texans in Beaumont, El Paso or Garland, my answer of “only in San Antonio at my brewery” is disheartening.
Perhaps most timely is the benefit to the fifth tier, by which I mean Texas itself. The Texas Craft Brewers Guild Economic Impact Study concluded that statutory reforms like HB 660 can create upwards of $57 million of annual tax revenues for the state, without raising or creating any new taxes. That is enough for 1,300 teachers and firefighters or policemen. And $57 million is just a start. That number is based on the beer industry replicating the Texas Wine Industry’s growth following statutory reform in 2003. When we consider that Texans consume 19 times more beer than wine, we can see that we are only beginning to scratch the surface.
In closing, I ask you to support HB 660 not only for the brewpubs it will help grow; but for the wholesalers who will have an expanded range of supply, retailers who will be able to feature Texas-made products, consumers who will have access to the products they desire, and the tax revenue that you will be able to use in funding our state’s future.
Thank you, and I look forward to answering any questions you may have.