Comments Off on Texas Legislature Passes A Doozy.

The Texas legislature sure passed a doozy. There are quite a few folks outraged at the outcome of the bill that came out of left field, seemingly flew through both houses, and was quickly signed into law. Let’s dig into it a little bit.

First, pour yourself a nice local craft beer. We’re going to be here a minute.

Alright ready? Let’s go.

Texas Brewers Fear Layoffs, Closures Following Senate Vote to Curtail Taproom Sales

Now, Brewbound does an alright job of breaking down the major components of the bill. But let’s add some commentary and clarity to some things they skimmed over.

1. The Senate version of this bill is not nearly as bad as the original House version. The cap is right around 225,000 barrels of beer. The language is, if your brewery produces more than 225,000bbl of beer a year (That’s 450,000 15.5 gal kegs, or 675,000 5.2 gal kegs (1/6bbls).

If that sounds like a ridiculous amount of beer, it is. No CRAFT brewer in Texas is affected by this bill. So a lot of folks need to calm down. In fact, the closest breweries to this magical 225,000? Aren’t even to 100,000bbl of production. So let’s put the pitchforks back in the barn and goosfraba a minute.

2. Independence. They get the short of the stick on this one. I feel bad for the Cartwrights on this. Because they took an investment from Tony Magee of Lagunitas, who had taken a payday from Heineken they get caught in a crossfire. Now, this does clarify that only breweries with a larger than 25% stake are affected. I had not heard of a disclosure of stake in the past, but the fact that the article is quoting Cartright and she is saying they are affected leads me to believe they took significantly more money from Lagunitas than I originally thought.

*An interesting aside, I do encourage each of you whom is interested to read “So you want to start a brewery” by Tony Magee. It is not a how to, if you buy it with intentions of getting a blueprint for a brewery, you will be sorely disappointed. It is however a good look at the Lagunitas history and it clearly shows you why they sold their brewery to Heineken. I suspect there are a lot of things unwritten that led to the sale as well. Someone who has read it let me know your thoughts.

3. Ceiling of success claims. Really? Talk about a whole lot of “sky is falling economics” If I hear the claim that “this bill makes Texas breweries unattractive to outside capital” one more time, I may just lose it. Well, DUH! Why does your brewery need venture capital? Have you given up on the dream of being a craft brewery? Breweries that need that sort of capital have essentially sold out. With a couple of breweries in Texas remaining independently owned and approaching 100,000 barrels of beer? I stand fast to the principal that it CAN be done, and that for intuitive and well run breweries, it WILL be done.

Do you really want more InBev money coming in and buying out our breweries? Then what? You bitch and complain about this cap, but what happens when Tenth and Blake comes in and buys Lakewood? What happens when Constellation Brands buys Freetail?* You will turn around and shun those very breweries because they took a payday from outside capital. Folks say to drink local, but that they want the “ability” to take outside investment? Why do you need it? To expand? Sure, expand. To sell out and take a payday? I find this scenario exponentially more likely.

*I do not see Lakewood or Freetail selling out.

4. This is where I take my first cause with this bill. The self distribution cap. Previously an entity with multiple locations was able to self distribute 40,000bbls per location until they hit a cumulative 125,000bbl of production. Again, no brewery in Texas is even close to this threshhold. Well, this bill significantly lowers the threshhold to a cumulative 40,000bbl. THIS I take issue with. A horrible provision.Wholly unnecessary and bad, bad, bad. Breweries up until ~2013 were able to self distribute 75,000 barrels (which would cover all but 2 craft breweries in the State of Texas). The tap room compromise lowered that to 40,000bbl per location, but in exchange breweries across the state could now “sell beer for on premise consumption”, again capped at something silly. I want to say 5000bbl through the taproom.

5. Revolver. Cry me a river. I have no pity. They took Miller Coors money and have plans to build this ( conveniently not mentioned in the story. This bill raises their COGS and would make them lose margin on their $10 beers at the ballpark. Wah wah wah.

6. Deep Ellum. I think Reardon is only quoted in these articles because he is so vocal about everything. There is a lot of fishy happenings at Deep Ellum, there are a lot of backroom conversations and underhanded deals. They are not a wholesome bunch and they do not have the community at the forefront of their business model. They were built to sell (and sell out they have done).

7. Karbach. Ken Goodman penned this about six weeks ago.

The article then began a flurry of comments how Karbach sold out, distribution money, yadda yadda yadda. The bills language has been altered and they will not be closing their restaurant / taproom. They may charge higher prices or accept lower margins, but they will remain open.

Now, that is a lot of information to digest. Here are some more thoughts.

This bill protects Texas breweries from outside financial influence. As I pointed out earlier, it makes significant investment in our craft breweries less appealing. It will help keep craft breweries, craft. For breweries with agendas and business plans that include selling out down the road, this bill sucks, it lowers their future payday (if they get one at all now).

This bill also protects AbInbevs monopoly on beer in Texas. Without outside money pouring in, no brewery in Texas will be able to match AB in terms of equipment, marketing, clout, etc. It protects Karbachs position in the market as well. AB can pump as much money as they want into Karbach and it will continue to grow, unfettered throughout the state and beyond.

Here is what I fear will happen. They 225,000bbl cap gets lowered in the coming legislative sessions in “compromise” bills. This is the biggest danger of the bill.

I also do not like how this bill was shoehorned through the legislative branches. Something is fishy. There has been a movement for years to get a bill proposed to allow Texas manufacturing breweries (note: not brewpubs) to be able to sell packaged beer to go from the breweries. This is legal in 49 states, but not ours. This proposed bill did not even get a hearing. The distributor alliance stranglehold in the Texas legislature is real. It is real dangerous.

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