Three Texas brewers are going back to battle with the state after an appeals court reversed a decision that would have allowed them to sell their distribution rights for monetary compensation.
In 2014, Peticolas Brewing Co. (Dallas), Revolver Brewing (Granbury) and Live Oak Brewing Co. (Austin) sued the Texas Alcohol and Beverage Commission, saying a newly passed law related to who could sell a brewery's distribution rights was unconstitutional. The mandate, which passed in 2013 with a bundle of other beer regulation reforms, said breweries may not accept payment for contracting with a distributor, but that a distributor could get a payout if it sold those same territorial rights to another distribution company.
Last year, a judge served victory to the breweries. But on Dec. 15, the Texas Third Court of Appeals reversed that decision. It stated, in part, the law does not prevent the brewers from successfully operating their businesses and that it also upholds the industry's three-tier system, which aims to avoid conflicts of interest between alcohol manufacturers, distributors and retailers.
The decision will be appealed to the Texas Supreme Court, according to a statement from Institute for Justice, which is representing the breweries.
"It is well established that the Texas Constitution protects economic liberties, and these rights do not cease to exist when the government begins licensing and regulating individuals and businesses," said Arif Panju, managing attorney for Institute for Justice's Texas office, in a statement. "Every business in Texas should be concerned with the court's ruling in this case. It is dangerous and we will ask the Texas Supreme Court to reverse."
Distributor trade association the Beer Alliance of Texas offered "no comment" on the case, while a representative from the Wholesale Beer Distributors of Texas was not immediately available to discuss it.
For years, Texas brewers have been at odds with state regulators and distributors over what they feel are Prohibition-era laws that impede small businesses. In 2017, the fight was about a so-called "taproom bill" that now mandates breweries of a certain size to contract with a distributor to be able to sell beer directly from their taprooms -- even if the kegs never leave the facility. Critics called it an "extortion fee," even when legislators said the law was favorable to craft brewers.
An analysis of campaign contributions by the Texas Tribune and Texans for Public Justice earlier this year found that the beer distributors and executives spent upwards of $6 million supporting political candidates and action committees. The top recipients: Gov. Greg Abbott ($1,478,821), Lt. Gov. Dan Patrick ($688,840) and the Associated Republicans of Texas Campaign Fund ($518,176).
The breweries argue that their inability to profit from selling distribution rights devalues their businesses and forces them to forfeit millions of dollars that would otherwise go back into the companies.
"Hard to believe the court says small business is not entitled to constitutional rights when the state grants a license to operate the business," Peticolas Brewing Co. tweeted in response to the reversal. "On to the Supreme Court."