Culture of Deception
Yeah, I know that title is a touch "doomsday" and yes I will admit that I'm still a touch emotionally charged by some of the events of the 85th Texas Legislature. Not only is our state becoming more and more absurdly discriminatory but the political corruptness is becoming more and more evident. Texas professes to be small business friendly and a proponent of free market capitalism and limited government overreach. Sounds good on paper but lately Texas is anything but what it professes to be.
Amongst many bad pieces of legislation, HB 3287 made its way into law recently. What the legislation was lacking was the governors signature. In Texas there are 3 options for legislation that lands on the governors desk. It can be signed into law, vetoed or passed into law without a signature. Why would the governor allow a bill to pass into law without signing you may ask? Good question and one that I'm not going to pretend that I have an absolute answer to. My opinion though is that it helps save face while still appeasing the money that put you into office.
I recently put together some details about HB 3287 as it was written when it left the House. The final language changed slightly but the core corruptness of the bill stayed intact. I don't want to beat a dead horse so I won't carry on too long about the bill, now law. What I do want to vent about just a bit is the absurdness of the argument that the wholesalers continue to make as justification for the bill.
1. It was meant to "protect" craft brewers from vertical integration by the megabrewers like Heineken, ABI, Miller Coors, Constellation, etc. Oddly though, the final language of the bill had a carveout allowing ABI, Miller Coors and Heineken owned breweries in Texas to not only continue to operate their current tasting rooms but allowed for up to 3 tasting rooms. Meanwhile, Oskar Blues is punished. I'm no political scholar but this is total bullshit. ABI and Miller Coors worked a backroom deal with the wholesalers and lawmakers and effectively screwed the very independent breweries in Texas who they originally claimed to stand with in opposition to the bill. They all the sudden went neutral on their position when they received carveout protections. Wholesalers were, pardon me, full of shit with that argument.
2. Wholesalers make a statement that no independent brewery in Texas will be affected because none of us make 225,000 bbls of beer per year. What sound entrepreneur operates under the mindset of not wanting to grow as a business? We all have different intentions for our businesses but having a wholesaler file a bill placing a cap for growth on a brewer is just mind boggling. And Texas, "small business friendly Texas" allowed this bill to go into law. Sure does make it much more difficult for a business owner to raise capital for growth when the regulatory climate so heavily favors the middle tier of the alcohol industry while punishing the manufacturing tier. Our alcohol laws are already archaic enough without this new legislation and the TABC is a total wreck. This bill also brings about some pretty obvious legal exposure for the state by punishing and regulating in-state businesses for production volume made in states outside of Texas. The bill basically aggregates all production volume at breweries with 25% common ownership. For instance, if Sierra Nevada made an investment in Hops & Grain and purchased 25% of the brewery then the total volume produced in Chico, Mills River and H&G in Austin would be the calculation the TABC uses to regulate our business.
3. Finally, and probably most absurd is the dock bump tax component of this bill. What that means is that after a brewery gets to a certain size, in this case 225,000 bbls, in order for them to sell beer in their tasting room they have to sell it to a wholesaler first and then buy it back and retail markup. The wholesaler would not be picking the beer up though. They would be given an invoice from the brewer at wholesale price and they would then sell the beer back to the brewer at retail price for them to then sell in their tasting room. The beer would never move and the wholesaler would provide absolutely nothing of value but gain a roughly 30% profit margin. But, as mentioned earlier, ABI, Miller Coors and Heineken owned breweries would not be subject to this dock bump but Oskar Blues is. Tell me how that does anything other than just line the pocket of the wholesalers, already the wealthiest tier of the alcohol industry, and punish small and independent breweries in Texas and deter future expansions into the state.
I have to wonder what the wholesalers would say to a proposed bill that would limit their ability to consolidate, something that is happening rapidly in Texas. Distribution options for craft brewers are dwindling by the minute as wholesalers continue to consolidate. The option for most start up breweries in Texas is to self-distribute. Since 2013 the allowable number of barrels that a brewer can self-distribute has been reduced dramatically and this recent passage of HB 3287 is another step by the wholesalers of trying to control and reduce that number even more. For a healthy three tier system to operate all stakeholders should be benefitted as the industry grows. The entire value chain from manufacturing to retailing should be improved for it to function properly. Hampering one tiers ability to grow and operate a sustainable operation is not adding value. We rely heavily on wholesalers and retailers for our breweries to survive. We believe that we add incredible value to the portfolios of our wholesale partners and we provide great variety for our retail customers. We provide great jobs and we generate an incredible amount of tax revenue. The false statement by the wholesalers that our tasting rooms are operating in some violation of the three tier system is absurd. A tasting room is not a tied house. We don't have the option to sell anyone else's product so of course we only stock our beer. I would happily sell beer from other breweries in Texas but the law doesn't allow it. So how in the hell is a brewery operating a tap room deteriorating the three tier system?
The arguments made by the wholesalers who pushed this legislation and their lobbyists are just asinine and deceptive. They effectively convinced the Texas legislature that what they were doing would preserve the sanctity of the three tier system and protect small craft brewers from possible vertical integration by the mega brewers. What a complete and total lie, made evident by the carveouts in the bill for ABI, Miller Coors and Heineken while punishing an independent brewery that decided to build a facility in Austin, hire Austin folks and add another great tap room destination for beer drinkers in Austin.
I say this a lot and I'll finish this post by saying it again. Unfortunately this time it's not said with excitement but rather astonishment that Texas is, once again, creating unnecessary government overreach. And they're doing it on behalf of a special interest that has spent almost $4M per legislative session in campaign contributions to elect legislators that will push legislation to further strengthen their corrupt control over the three tier system.
What a time to be alive...