Brewery Sues State Over Sales Restrictions
Ron Extract, managing partner of the Jester King Craft Brewery, speaks at a brewery event in the Hill Country. Last month, the brewery sued the TABC over claims they have violated the First and 14th Amendments. Photo courtesy of Ron Extract.
By Eva Hershaw
For Reporting Texas
AUSTIN — At the Jester King Craft Brewery, in the hills just west of Austin, managing partner Ron Extract can explain the differences between Cascade and Amarillo hops. He can explain what gives “Das Wunderkind” beer its “delicate tartness” and “Commercial Suicide” its “oaky notes.” He cannot sell you a glass of either. Nor can he tell you where Jester King’s beers are sold. According to the Texas Alcohol and Beverage Commission code, both activities are illegal.
Frustrated by Texas law, and with wide support from the brewing community, Jester King recently announced that it had sued the commission in federal court in Austin on the premise that its code violates rights guaranteed under the First and 14th Amendments to the Constitution.
In Texas, brewers have two choices. They can become a “brewer,” a classification which prohibits on-site beer sales, but allows them to sell their beer to a wholesaler and, if they produce less than 75,000 barrels of beer a year, do a small amount of self-distribution. Or, they can become a “brewpub,” such as Austin’s local Black Star Co-op, a classification that allows a brewer to sell beer on site, but not to a wholesaler or through self-distribution.
“We felt that there was an injustice present that needed to be corrected,” Extract said. “The scene in Texas is ripe for craft beer, but current regulations are hampering that.”
Current law regarding alcoholic beverages is a three-tier system that maintains strict separation between manufacturing, wholesaling and retail. Originally it was intended to prevent large producers from establishing monopolies. “In theory, it’s a good idea,” Extract said. “But as the industry has evolved, it’s no longer the case that the most powerful player in the chain is the supplier.” Wholesaler lobbies, such as the Wholesale Beer Distributors of Texas, have helped keep the system as it is, he said.
Repeated attempts to obtain comment from Wholesale Beer Distributors weren’t successful.
Extract said that the current legal structure causes lost opportunities for microbrewers and the Texas economy. Arguing in his favor are the states of Washington, Oregon and California, which have grown some of the most successful microbreweries in the country, largely because of their ability to operate tasting rooms, shops, off-site restaurants and bars where they sell their products directly to consumers. “The fact that Texas brewers cannot do this puts us at a huge disadvantage,” said Extract.
“We don’t want to see distributors disappear, but there is an element of throwing the baby out with the bathwater here,” Extract said. “This also ties into the whole ‘locavore’ movement. More and more customers want beer with a sense of place, and they want an opportunity to get to know the people who make it.”
Local wineries have no such problem. “Wineries are authorized to make wine, sell to wholesalers, retailers and consumers on premises,” said Carolyn Beck, director of communications and governmental relations at TABC. “I can’t comment on any pending litigation, and I can’t talk about the background of these laws because that gets to the heart of the lawsuit.”
The difference in the way the law treats brewers and wineries, Extract said, might stem from images that people have of breweries as “big, industrial factories” and wineries as “mom-and-pop operations.”
“I don’t know to what extent this was ever really a valid distinction,” he said. “But it certainly isn’t now.”
Extract said he thinks state alcohol law violates the First Amendment by restricting advertising and labeling.
“Breweries cannot in an advertisement refer to alcohol content on radio broadcasting, newspapers, periodicals or other publications,” Beck said. They can’t advertise with signs and outdoor advertising or with any printed or graphic matter.”
Texas liquor law also limits the ability of brewers to point customers to their beer in the retail market. “Limitations on ‘advertising’ that are so broad and overreaching that they’ve been interpreted as prohibiting us from telling our consumers where they can buy our products,” Extract said.
Beer makers are also dissatisfied with labeling rules, which will be another focus of the Jester King lawsuit. Beer is defined by TABC as a malt beverage containing less than 4 percent alcohol by weight. Ale and malt liquor are malt beverages that contain more than 4 percent. This is confusing, Extract said, given that it is possible, and common, to have a beer above 4 percent alcohol that is not an ale. Likewise, an ale can be brewed to contain less than 4 percent.
“This results in nonsensical and somewhat comical situations where we have to call pale ale at or below 4 percent ‘pale beer’ and lager that is over 4 percent ABW ‘ale,’” according to a Jester press release issued on Oct. 24.
This isn’t the first time that the TABC has come under fire for microbrewery regulation. Bills intended to alter the Code have been introduced in the past three legislative sessions without success. The Jester suit is the first time the TABC has been taken to court by a brewer.
During the 2011 legislative session, House Bill 602 and House Bill 660 were introduced, unsuccessfully, to amend the existing rules governing brewery sales. “In 2011, we did everything we could to get House Bill 660 passed,” said Guy Rilleau, 26, a server at Black Star Co-op. “We sold pints reading ‘Save Texas, Drink Beer,’ with all profits going toward the cause.” He said Black Star’s brewpub, like so many other brewers, would like to see the liquor laws changed. “It’s hindering,” he said. “There’s a high demand for craft beer in this city, but we’ve had to travel to festivals to get our name out.”