Until a few years ago, beer distributors in Texas used to pay craft breweries for the right to sell their product. But in 2013, state lawmakers passed a bill that brought sweeping changes to the industry. Breweries could no longer accept payment for their “territorial rights” – in other words, the right to distribute their beer.
Chip McElroy is the owner of the Live Oak Brewing Company in Del Valle. It’s one of three breweries that are suing the Texas Alcoholic Beverage Commission to overturn the law.
“The ability to sell our distribution rights was taken away, and we now must give it to them for free, and they’re very valuable and everybody recognizes that,” McElroy said.
McElroy said he can no longer profit from selling his distribution rights, but distributors can still turn around and sell them to others. Live Oak beers are served at restaurants and bars around Austin, but McElroy said he’s missing out on money that would allow the company to expand to new markets.
“The state has no legitimate interest in preventing craft breweries from selling their distribution rights,” Panju said. “They should be free to go to the negotiating table, and if distributors want to pay for their rights, that’s between the distributor and the craft beer company.”
Those who support the law say it prohibits the unfair practice of so-called “reach-back pricing” – basically, manufacturers upping what they charge distributors based on what the distributors are charging retailers. Proponents say the law allows distributors to remain independent, and not operate under pressure from brewers, but Panju says the law unfairly favors one group over the other.
“The truth in the record before the court is quite clear, and that is that the constitutional rights of Live Oak Brewing, Revolver and Peticolas are being violated by the State of Texas, and the court should rule in the plaintiff’s favor and allow them to and exercise their right to earn an honest living,” he said.
Read the full complaint at KUT.