Most brewers bitter over legislation
Giant Anheuser-Busch InBev, smaller craft operations say measure in Texas House is ‘anti-competitive’
T EXAS craft breweries that aspire to grow beyond a state-limited size would be forced to sell and buy back their own beer before they could offer it in their own taprooms under a bill the Texas House could vote on as early as Saturday.
The measure has been blasted as “anti-competitive,” “anti-beer” and a potential job killer by an unlikely coalition that includes AnheuserBusch InBev and the state’s 200-plus craft brewers, which often find themselves at odds with the global giant. The Texas Association of Manufacturers and the conservative Texas Public Policy Foundation also oppose the measure.
Even a prominent local bar owner who penned a Chronicle op-ed in favor of the bill in its original form has reversed course due to changes that he decried as a “money grab” by Texas distributors, who already exert near-total control over how beer gets from producers to bars, restaurants and stores.
“There’s absolutely no interest for the state of Texas,” Saint Arnold Brewing founder Brock Wagner said of the measure. “It’s 100 percent to line the pockets of distributors.”
The head of the Texas Craft Brewers Guild called it “simply a tax.”
“No goods or services are
being attached,” guild executive director Charles Vallhonrat said. “It’s just a tax. That’s a slippery slope we don’t want to go down.”
The guild collected more than 7,500 signatures on a petition opposing the bill in less than a day, Vallhonrat said.
Uniting these disparate groups is House Bill 3287, which would alter portions of the state’s beer laws that went into effect four years ago to allow smaller craft breweries to sell up to 5,000 barrels of beer a year directly to consumers from on-site taprooms. It restricted such sales to breweries that produce no more than 225,000 barrels annually.
Stronger industry
After the 2013 law was passed, the number of craft breweries exploded, and Texas now ranks No. 8 nationally in size. Many in the industry cite the law change in making the industry stronger. Josh Hare of Hops & Grain Brewing Co. in Austin testified before a House committee last month that 35 percent of his sales currently are made in the taproom.
But another thing happened in those intervening years: at least three Texas craft breweries, including Houston’s Karbach Brewing, were acquired by larger competitors seeking to extend their reach into the craft segment. Another large craft brewer, Oskar Blues of Colorado, opened an Austin facility to tap into the Texas market.
HB 3287 would affect those breweries immediately by redefining the production limit to include all beer made by a brewery’s owner. For example, Karbach makes less than 100,000 barrels annually, but parent company AB-InBev produces many millions of barrels a year. Under this bill, that total production number would count against Karbach. At least three other Texas breweries would be similarly affected.
Ken Goodman, who co-founded Karbach and helped guide its sale last fall, lashed out at the proposal in a Chronicle op-ed piece. During last month’s committee hearing, he told the bill’s author, state Rep. Craig Goldman, R-Fort Worth, it felt like a “punch” to learn about the proposal. He said the bill would put scores of jobs at risk.
Pay before selling?
A post-hearing revision grandfathered in Karbach and the other larger breweries. But that change was accompanied by new language requiring those larger players to first sell their beer to a distributor, then buy it back. Depending on how the contracts are set up, some breweries conceivably would be forced to pay for their product before they’ve even collected the money for selling it to a distributor.
Furthermore, the bill would extend the taproom provision to all breweries that grow to or at some point are taken over by a company that collectively exceeds 175,000 barrels in annual production.
Wagner, Hare and the other craft brewers say the net effect would be to diminish the value of their companies by discouraging investors and making it harder to grow. Those that reach the new, lower production threshold would then find their profits crimped significantly by the wholesalers’ cut.
Goldman, the bill sponsor, has said the intent of the 2013 legislation was to help the smaller brewers early on and not to carve out an exemption for the larger players.
A spokeswoman for the representative was not available for comment Friday evening.
Keith Strama, counsel for the Wholesale Beer Distributors of Texas, made a similar argument during the committee hearing. He called the earlier legislation a “seed system” to help small brewers and vigorously defended the three-tier system as a way to stop giant beer companies from taking monopolistic control. He said the beer industry traditionally has seen that trend. Strama did not return calls about the revised HB 3287.
Wagner countered that the new version of the bill includes a large exception to the three-tier system, by allowing distributors to sell directly to brewers.
Goodman, of Karbach, reiterated his opposition to the current proposal in a statement on Friday.
“This bill would put Karbach’s restaurant and biergarten at risk, an operation that provides 100 good local jobs,” the statement read. “In addition, the neighborhood revitalization we have spearheaded would cease, Houston would lose a popular tourist attraction, and the Texas craft beer industry would be crippled.”
And Kevin Floyd, owner of the Hay Merchant craft beer bar and a frequent critic of AB-InBev, on Friday took back his earlier support of the bill, which he first saw as a way to protect small craft brewers from those that sell to “foreign-owned mega brewers.”