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Discussion in 'Southwest' started by BgThang, Mar 1, 2013.
I'm fairly sure they were there.
We have to wait until all the language regarding the bills are finalized and released to determine what is being proposed. They apparently rush it for a vote today by the end of the committee. not sure if they can make changes or not now. the next day or two we should have a better understanding of the future impact.
Young production breweries basically got fucked with these bills. That's a shame.
Yep, looks like Deep Ellum is none too happy, according to their facebook:
Deep Ellum Brewing Company
Such a huge step backward for microbreweries. Congrats to the regionals, brewpubs, and most especially the distributors for getting all you wanted. It only cost you.... OUR distribution value!! SB 639 is a terrible piece of legislation. To see it now being triumphed as a win for the craft community is an absolute travesty.
They are pissed about having to run a pub, they said if they wanted to sale beer they would have been a brewpub. They do not have to sale beer. Breweries now have the option. sb639 about the distro value not sure because the new (changed) bills hasnt been released.
I don't think they care so much about the brewpub aspect as they do the changes to their distribution rights. They threw out the brewpub piece because they felt brewpubs were the only true winners with these bills. My opinion.
Sec. 102.75. PROHIBITED CONDUCT. No manufacturer shall:
(4) discriminate in price, allowance, rebate, refund,
commission, discount, or service between wholesalers licensed in
Texas. As used in this subsection, "discriminate" means the
granting of a more favorable price, allowance, rebate, refund,
commission, discount, advertising funds, promotional funds,
service, or actual net freight cost of delivery from the closest
geographical brewery to the wholesaler's designated delivery
warehouse to one Texas wholesaler than to another Texas wholesaler;
(5) accept payment or agreement to bear any costs in
exchange for the territorial assignment of a brand to a
I think a large part of DEBC's issue comes in with how these changes mandate how they have to do business. Rather than having a loosening in restrictions on the breweries that self distribute, they are being told what they can and cannot do, whereas the other parties are gaining some more options in how and where their product is available.
In the grand scheme of things, the bills passed are at least a step in the right direction for a large part of the craft brewing community, but there are still pieces that preserve the three tiered system currently in place. This is most evident with the brewpubs being allowed to get their product to retail, but only through the use of a distributor, so while there is a new opportunity, it is on the terms of the distributors.
In the grand scheme of things, the bills passed are at least a step in the right direction for a large part of the craft brewing community, but there are still pieces that preserve the three tiered system currently in place. This is most evident with the brewpubs being allowed to get their product to retail, but only through the use of a distributor, so while there is a new opportunity, it is on the terms of the distributors.[/quote]
I'm going to propose a hypothetical here regarding preserving the three tier system: I suspect as the recent craft beer bills were being formalized over the past year, members of a particular wholesalers organization weren't too worried. They always got their way anytime those pesky craft brewers/brewpubs looked for the laws to change in their favor. But as time wound down for bills to be finalized, 'somebody' may have tipped off those particular wholesalers that this time things really were going in the direction the pesky craft brewers/brewpubs had hoped for. That certainly didn't sit well with the politician bribing wholesalers and they let their displeasure known to 'somebody' whom they'd given bribes campaign contributions to over many years to ensure that crony capitalism remained in place. To hell with the free market, just pay corrupt politicians to maintain the antiquated three tier system and screw those pesky craft brewers who want more control over their businesses. So 'somebody' -- I think you can fill in the name John Carona at this point -- decides he needs to capitulate to those who have bribed contributed cold hard cash to his campaign coffers. Of course Mr. Carona blathers on about having "every interested party at the table" and "we need to preserve the integrity of the three tier system" and other such nonsense. And then proceeds to offer up SB639 -- a mere two weeks prior to bills being finalized(!!) -- that everybody hates EXCEPT one particular beer wholesalers association. And as the chairman of the committee he says that nothing will get passed unless SB639 is somewhere (prominently) in the mix. Those particular wholesalers sigh in relief. Probably by now TX craft breweries realize that if wholesalers contribute $44,500 (or whatever) in campaign donations, they will need to fork over at least $45,000 to be an "interested party at the table" next time.
By the way, there is absolutely no inherent 'integrity' with respect to the three tier system. Other states have cast off those archaic post-Prohibition laws and are doing fine with two tier and other systems. But in Texas money talks more than any notion of free enterprise. And wineries are still treated differently that breweries when it comes to on site sales. Wineries used their bribery money well in the past. Craft brewers need to learn the same lesson.
Rant over (for now).
Better for the small brewpubs and that is good.... but still not being able to buy beer from the brewery to take home... Texas.. the pro business state.... is still remarkably not being very pro business... and keeping money out of the pockets of the Texas economy....
I wish nothing good for Mr. Carona.
It is progress, but it is helping one area and severely hindering another. One step forward, two steps back.
Buffalo Bayou Brewing Company has posted how terrible they feel 639 is....
I won't be truly happy until you can go into a Texas brewery and actually walk out with some of their beer.... 639 certainly didn't help that if I read it right...
I'd just be happy if small production breweries could operate under the old rules and not get screwed.
Does anyone know if a brewery can offer varied pricing if their product is self distributed vs. if they sell it do a wholesaler?
So, can breweries now sell glasses of beer to those visiting? Can breweries sell filled growlers to go?
Deep Ellum Brewing CompanyHere's the bottom line... the purchase and sale of distribution rights is legal - always has been. In the compromise, our rights were taken. I can't support that. No matter how much icing they throw on the cake. If I wanted to run a pub, I would have run a pub. We still can't sell our beer to go. So, now I'm looking at running a pub, alongside a manufacturing facility, all the while trying to make enough beer to supply both.
17 hours ago · Like · 5
Ya I read that. I still believe their anger comes from the 1st part of that statement, "our rights were taken". He doesn't have to run a pub but now feels like he has to so he can recoup that $ they were planning on getting by selling their distribution rights.
brew pubs can distribute up to 2500 barrels or as much as the want up tp 10K if they go through a distributor
yea they are pissed about the whole ordeal. If they don't want to sale beer then don't. but the territory shouldn't hurt them because they already exist.
I believe they were on the verge on selling their distribution rights for a very large sum of money. This is probably the biggest reason why it hurt so bad.
This law wouldn't go into effect till September 1st... if passed. IIRC.
The buyer would be stupid to not turn them down if this passes.
Well, any time government tells a business that "you can't do this or that and must do this" when it comes to legal activity that harms/rips off no one, that business should be pissed.. esspecially if it costs them money... I 100% get their beef..
So how is this to effect self distribution? I'm not entirely clear on that part
poor texas microbreweries. the invisible hand of the market was totally removed with SB-639.
i too would be pissed if i was forced to sell all my production brews at a flat rate, especially barrel aged beers.
Uh, that's not what it says at all.
You can charge more for something barrel-aged, you just can't charge 1 wholesaler more than another.
thanks for the correction.
however, its still a bad idea to FIX prices when the market should be self regulated.
the breweries cant even maximize their own gains. no matter the perspective, its still a stab in the foot.
Assuming the important parts of SB516/517 didn't change out-of-state brewers under 125k barrels can now self-distribute up to 40k barrels. Previously, this was limited to in-state brewers under 75k barrels. If it's a brewpub, I believe it's limited to 1k barrels of self-distribution (and brewpubs are limited to 12.5k barrels of production annually, up from 5k).
The price-fixing portion of SB639 didn't pass. The part that did removed the right of breweries to sell their distribution rights.
well, yeah...thats something to be pissed about.
didnt even notice the revised bill up top. i need to read that.
Legislative language can be difficult to read through, so here's a breakdown of what each bill will accomplish if passed.
Increase the annual production limit of brewbups from 5,000 barrels to 10,000 barrels.
Allow all brewpubs to sell to wholesalers.
Allow brewpubs who only sell alcoholic beverages made onsite to self-distribute up to 1,000 barrels per year from a single location, and up to 2,500 barrels per year from all locations owned by the same licensee.
SB 516 & 517
Creates a new Brewer Distributor permit, which grants production breweries who produce less than 125,000 barrels per year to distribute up to 40,000 barrels per year.
Allows production breweries who produce under 225,000 barrels per year to sell up to 5,000 barrels per year to ultimate consumers for on-site consumption.
SB 639 (amended)
Prohibits "reach-back pricing", which means a manufacturer cannot retroactively adjust their wholesale price to a distributor based on what that distributor charges a retailer.
Prohibits a manufacturer from accepting payment from a wholesaler in exchange for territorial distribution rights.
Sets forth language that allows a manufacturer and wholesaler to enter into a contractual agreement allowing for marketing and advertising budgets and financing relating to the brewery.
What 639 specifically makes illegal is a lump sum payment from a distributor to a manufacturer in exchange for territorial distribution rights. This was requested by the TABC, who considered a direct payments a legal gray area. But, it allows a distributor to buy or finance new equipment and cover promotional and advertising expenses for a manufacturer.
If anyone has any questions regarding these bills and their potential consequences for breweries or consumers, I will do my best to answer them.
On Deals and Disagreements: Beer Bills Move Forward
As has been widely reported, a deal was struck late Monday afternoon between The Texas Craft Brewers Guild, distributor groups, large brewers, and Open The Taps.
The final deal includes the following bills, and here is the final version of what they do (items in earlier versions of the bills but not listed below are not part of the final bills):
increases annual production limit of brewpubs from 5,000 barrels to 10,000 barrels
allows all brewpubs to sell to wholesalers
allows brewpubs who only sell alcoholic beverages made on-site to self-distribute up to 1,000 barrels per year from a single brewpub, and up to 2,500 barrels per year from all brewpubs owned by the same licensee
SB 516 & 517
creates a new Brewer Distributor permit, with a fee set at $250, which a production brewer under 125,000 barrels of annual production can obtain to self-distribute up to 40,000 barrels per year
allows production breweries who are under 225,000 barrels of annual production to sell up to 5,000 barrels per year to ultimate consumers for on-site consumption
codifies the 2010 TABC Marketing Practices Bulletin against the practice of “Reach-Back Pricing”, which is the practice where a manufacturer will adjust his price to a wholesaler based specifically on the price a wholesaler sells to a retailer. The new language goes on to specifically state that a manufacturer is still free to adjust prices as necessary, however it cannot be based on the wholesaler’s price to the retailer
outlaws a manufacturer from accepting payment specifically in exchange for an agreement setting forth territorial rights
sets forth language that specifically permits a manufacturer and a wholesaler to enter in contractual agreements that govern ordinary business, including but not limited to, allowances, rebates, refunds, services, capacity, advertising funds, promotional funds, or sports marketing funds
states the code does not prohibit a wholesaler from selling territorial rights of a manufacturer to another wholesaler
I am fully aware of the dissatisfaction of some members of our Guild at the provisions contained in the new 639, specifically “outlaws a manufacturer from accepting payment specifically in exchange for an agreement setting forth territorial rights.”
This provision of 639 came into being because wholesalers felt the practice of paying for territorial rights violated the tied-house provisions of the Alcoholic Beverage Code. TABC was asked to clarify such payments did, in fact, represent a violation of the TABC code. TABC’s response was not to say the practice was legal or illegal, but rather to say that they didn’t know and would benefit from legislative clarification. Thus, the original SB 639 contained this provision.
Recently, such payments have occurred in the marketplace and the practice is becoming more common, though certainly not the standard. At the same time, some of my closest colleagues in the industry have confided in me that they never received any payment for their distribution rights, because when they asked TABC, they were told it was illegal. It is important to stress that at no point has TABC or the Legislature specifically said this transaction was legal.
Throughout the course of the debate on this specific provision of 639, I fought tirelessly to earn the right of brewers to be able to sell the distribution rights. No one put up a bigger fight and no one took as much of a beating on this than me. Make no mistake, my position and the position of the Texas Craft Brewers Guild is that a brewer who builds a valuable distribution network through his or her right to self-distribute should be compensated for that value when he or she turns operations over to a distributor.
There was a point when it became very clear to me that this provision of 639 was going to move forward as the Legislature felt this activity should be illegal rather than specifically making it legal. This is up for every person to debate on their own, but I had come to understand with absolutely certainty that this practice was going to be outlawed one way or another. The debate was had, and the debate was lost by my side.
When that moment occurred, we immediately shifted gears to try to make this provision in 639 as palatable as possible (if it could even be done). This is where the language that sets forth other ways in which manufacturers and wholesalers comes from. We the specific payment in exchange for territorial rights was outlawed, for the first time in Texas history, we codified a series of other agreements that often occurred in the marketplace but had questionable legality.
I’m not just saying this to defend myself, but because I believe this is absolutely a true statement: without the work of the Guild, the provisions of 639 would have been a lot worse for Texas craft brewers. Not only did we curb some of the provisions in that bill, we gained rights that myself and some of my colleagues have been working on for almost a decade.
To be very clear: we did not “trade” the provisions of SB 639 in exchange for SB 515-18. Rather, we were able to greatly scale back 639 (including defeating the proposed severability language and mandated uniform pricing) while also gaining the rights enumerated in 515-18. For this, I will contend until the day I did that this was a victory for Texas craft brewers – and that first such victory since Brewpubs were legalized in 1993.
I welcome and encourage your feedback and discussion on this issue.
Appreciate the summary!
There have been a number of parties in the craft brewing arena who have been at this since late 2006 (http://offthekuff.com/wp/?p=13851) and over three sessions experienced a huge amount of disappointment -- and had our collective eyes opened to how the process works. Until you experience it, it is hard to understand that it really is a no-win game to try to take from those who are in positions of power. They have more connections and resources than you can't imagine. Instead, those seeking change need to partner with those in power. That partnership requires giving as well as getting. As others have noted, these are imperfect steps, but IMO they will eventually be seen as a profound turning point in the economics of operating a craft brewing venture in Texas. Those who are not satisfied -- and I suspect that includes just about everyone in craft brewing -- will have an opportunity to push for additional change in 2015. But understand that you'll need to give something in order to get something.
Texas BIG Beer posted this on their/his facebook last night:
What my TABC Brewer's Permit allow me to do:
For the purpose of this post "Beer" refers to a malt beverage 4% ABW or higher.
1. Brew beer 4% alcohol by weight or higher.
2. Package beer brewed.
3. If I produce less than 2,325,000 gallons of beer per year I can distribute beer to any wholesaler, or retailer licenses to sell beer (stores, restaurants & bars)
4. Pour samples at retailers stores.
5. Serve beer for consumption at the brewery for free (is the current bill passes, I will be able to charge).
6. Import beer into the brewery from out of state to be exported out of state.
7. Continue to brew and sell beer even if the area turns dry.
8. If I produce less than 2,325,000 gallons of beer per year, I have the same authority with my beer as a holder of a class B wholesaler's permit (Distributor).
9. I can purchase beer and wine from other brewers and wineries and sell it as a distributor within the State of Texas (WOW!)
10. I can import beer in barrels and other containers (tanker truck excluded) from out of state and package and label for resale. So, I can have my beer contract brewed out of state (WOW!).
11. I can deliver beer with a truck under the license of my brewery, no extra licensing, or fees required.
12. I can have warehouses in areas where alcohol is legally sold without having to acquire a seperate license for it. I can store beer there and deliver and sell beer from there.
Now to build a state-wide distribution network!
From Jester King:
Our Take on the Texas Beer Bills
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 this country’s most successful craft brewers 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.
Sounds like the fair market value is $0 then. Seem like just compensation to me.
It would be beautiful, if 639 passes, for a brewer to terminate their relationship with their distributor and hold that the "fair market value" was set by the Lege at approximately nothing.
St. Arnold kicking BEK to the curb would be a good starting place.
thanks for the breakdown, ABW!
Oh, that would turn out wonderfully... lol.
"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."
^^This is insane.^^
Jeff, or whomever wrote the Jester King response, would be a good candidate to write a guest editorial for the Austin American Statesman. So far the typical Statesman coverage has been sort of, "just the facts mam". So banal that you'd swear everything was on the up and up. But, as I mention, it's so typical from my local paper that I really expected nothing different. And I would suggest that a lot of other business owners -- other than breweries -- might want to follow what kind of shenanigans are going on in 'business friendly' Texas. These kinds of things can become precedent far beyond just the brewing industry.
We're pleased to see this being discussed. Our blog post on the topic was written by Ron Extract.
I am pretty ignorant of how the distributor relationship works. Would it be possible for an individual to form a not-for-profit distribution organization which is against the 3 tier system? Every brewery could switch to the not-for-profit and thus kill the distributors that support the Wholesale Beer Distributors of Texas. It just seems ironic that distributors need the breweries in order to make money, yet they screw them over. More simply, why don't breweries just not use distributors who support the Wholesale Beer Distributors of Texas?