The Texas Legislature opened the floodgates for craft beer in 2013, allowing small production breweries to sell their creations for on-site consumption for the first time. And brew pubs were finally allowed to sell to distributors so they could be in other restaurants and retailers.
Kevin Carr, who owned a software firm but brewed his own beer at home, jumped at the chance to share his passion with the world. He sold his business and opened Community Beer Company just outside downtown Dallas in 2013.
This year, he’ll sell an estimated 20,000 barrels of beer, nearly twice what he sold in 2016. That puts Community Beer Company in the top 10 largest craft breweries in Texas, not counting Shiner. And he’s not alone.
“Since we opened there’s been explosive growth,” Carr said. “I think it has a lot to do with shifting consumer choices and tastes. The more choice that consumers have, the more choice they want and that really fueled out growth in Texas.”
The Brewers Association ranked Texas eighth in the country with 201 breweries in 2016. Those breweries produced nearly 1.2 million barrels of craft beer which puts them seventh in the country.
The industry has seen so much growth that it has the attention of investors and beer makers with deep pockets.
These conglomerates purchased some Texas craft breweries, potentially allowing them to skirt some of the strict regulations Texas has in place for large beer manufacturers.
Karbach Brewing Co. of Houston was acquired by Anheuser-BushInBev in November 2016 for an undisclosed amount. Revolver Brewing Company in Granbury was purchased by MillerCoors in August 2016. And Heineken bought Independence.
Earlier this year, the Texas Legislature caught on and approved a bill to block that loophole, sending shockwaves through the state’s thriving craft beer industry.
House Bill 3287 authored by Rep. Craig Goldman, R-Fort Worth, established a 225,000 barrel threshold for beer production. If a brewery exceeds that production, it will have to pay a distributor for the beer that it sells in its own on-site taproom.
Amanda Robertson, chief of staff for Goldman, said the bill was intended to separate the independent craft brewers from the mega brewers. The rights given to the craft brewers end when they are purchased by a larger entity under this bill.
“The legislature’s intent was never to offer exemptions so that large global manufacturers could avail themselves of the same rights and privileges small businesses enjoy,” Robertson said. “When the effect of being purchased or acquired results in access to vast marketing and back office resources, that business should no longer have the rights and privileges afforded to our small craft brewers.”
The Beer Alliance of Texas represents the beer distributors and supported the bill to create a level playing field and reinforce the three tier system (The separation of beer makers, distributors and retailers).
“The taprooms are getting more in direct competition on an unlevel playing field with other retailers,” said Rick Donley, president of the Beer Alliance of Texas. “There are really four companies that are affected in any manner and nobody else is even close to getting to those cap numbers. It was never envisioned that the big global manufacturers would start buying as quickly as they did. It seems to be a sense of fairness that when a craft brewer is bought out by a big global manufacturer that the rules somewhat change. They are no longer a new entrant into the marketplace.”
Carr is far below the threshold to worry about the bill but he and other breweries are concerned that this could slow the momentum the craft breweries have enjoyed the past four years.
“The new law is very frustrating. Having a strong taproom at a brewery only strengthens a brand in a marketplace, which ultimately strengthens sales for distributors,” Carr said. “The levels where it kicks in don’t affect us today and it would be a long time before affects us in the future. What it does do is it makes other breweries think twice about doing a deal with a larger company or investor. That might affect your willingness to make that investment because the brewery will have a slimmer margin.”
The law takes the ownership group’s entire beer production into account, even if it’s just a minority investor. So, a brewery making 20,000 barrels of beer a year like Community Beer Company would be subject to the law if they were purchased by another company that produces enough beer around the world to push it above 225,000 barrels per year.
Carr added that they have great partnerships with their distributors, who sell their product in grocery stores, bars and restaurants statewide.
“When we’re talking about selling beer in the taproom, those fantastic distributor partners don’t do a damn thing to facilitate us brewing the beer and selling it in the taproom,” Carr said.
Donley countered that this isn’t a tax, it’s a fee meant to level the playing field so the big conglomerates don’t have an advantage.
Charlie Vallhonrat, executive director of the Texas Craft Brewers Guild, lobbied against the bill because it creates a dock fee for something that never leaves the dock.
“The distributors are worried about protecting themselves,” Vallhonrat said. “The laws to protect distributors were put in place when there thousands of distributors and less than 200 breweries. Now, we’re seeing the polar opposite. The distributors have been through mergers and consolidation where the craft breweries have grown exponentially.”
Vallhonrat has seen similar craft brewery growth in Houston where he lives and that will likely continue.
Craft beer creates a strong connection with consumers, he said.
“They identify with their local brewery. They can visit it and they know it. They get to see where it’s produced,” Vallhonrat said. “Craft beer is something very attractive in that it’s always introducing something new. It’s creative. People enjoy finding new beers.”
And breweries aren’t looking to just sell so they can have a large exit and move on, like many technology startups do, Vollhonrat said.
“They want this to be a legacy,” he said. “They want it to grow and be a part of their community. But they are looking for investment to grow. Now there’s a cap. We are scaring off money for craft breweries in the state of Texas.”