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Texas Supreme Court Turns Down Craft Brewers’ Constitutional Challenge on Distribution Rights Forfeiture

The Texas Supreme Court today declined to hear a constitutional challenge brought by three craft breweries to a 2013 state law that stripped beer companies of the ability to sell their distribution rights to wholesalers.

Peticolas Brewing Co., Revolver Brewing and Live Oak Brewing Co. had successfully challenged the law in 2016. However, the Texas Alcoholic Beverage Commission (TABC) appealed the ruling, which was overturned in late 2017. The three breweries then sought a decision from the state’s highest court, which declined to hear it.

The Institute for Justice, a law firm representing the three craft breweries, called the Supreme Court’s refusal to review the case today “a blow to the economic liberty of all Texans.”

“Texas’s prohibition on brewers selling their distribution rights was written by distributors for the sole benefit of distributors,” Institute for Justice senior attorney Paul Sherman said in the release. “It is difficult to imagine a more blatant example of special-interest legislation. By leaving that law in place, the Texas Supreme Court has undermined the constitutional rights of all Texans.”

According to the Institute for Justice, the 2013 law was written by beer wholesalers in an effort to strip craft breweries of the ability to sell their brand rights. Nevertheless, beer wholesalers, who obtain those brand rights at no cost, remain able to sell those brand rights.

In Texas, the majority of beer produced in the state is required to be sold through the three-tier distribution system. Manufacturing breweries are currently allowed to sell up to 5,000 barrels of beer a year directly to consumers for on-site consumption in their taprooms.

This legislative session, lawmakers passed an amendment that would allow consumers to purchase up to a case of beer a day from those breweries, although those sales still count against the existing 5,000-barrel cap.

Speaking to Brewbound, Peticolas Brewing owner Michael Peticolas said he was still processing the high court’s refusal to hear the challenge.

“Is there a federal challenge that we could make? Possibly,” he said. “Is there something we could do legislatively? Possibly.”

“I definitely think we’re on the right side of the law, but the appellate court disagrees with us and the Supreme Court didn’t feel it was important enough to the state to take up,” he added. “So I am apparently wrong.”

Nevertheless, Peticolas said leaving the law intact “devalues my business by hundreds of thousands of dollars, if not millions.”

“Texas craft brewers as a whole definitely lost millions of dollars for sure today,” he said.

The state’s major lobbying groups — the Beer Alliance of Texas, the Wholesale Beer Distributors of Texas and the Texas Craft Brewers Guild — did not return requests for comment as of press time.

Update (5:11 p.m. May 31): The Texas Craft Brewers Guild issued the following statement expressing disappointment with the ruling:

“The Texas Craft Brewers Guild is greatly disappointed by the Texas Supreme Court’s decision to not review a case involving Texas craft brewers and their territorial distribution rights. As small, entrepreneurial businesses, craft breweries can spend years building their brand and business relationships with retailers. When the time comes for a craft brewery to work with a distributor, either by choice or due to legal requirements in the Texas Alcoholic Beverage Code, the value that they have built into their brand should rightfully be recognized through a traditional monetary business arrangement. The fact that the Texas craft breweries are prohibited from receiving compensation for their territorial distribution right, while a distributor can immediately turn around and sell those brand rights to another distributor is the antithesis of a free market and the notion that Texas is open for business.”